amending Implementing Decision 2013/805/EU authorising the Republic of Poland to introduce measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 18 February 2022, Poland requested an extension of the derogation from Article 26(1), point (a), and Article 168 of the VAT Directive in order to (i) continue to restrict to 50% the right to deduct input VAT on the purchase, intra-Community acquisition, import, hire and lease of motor vehicles which are not used entirely for business purposes and expenditure relating to those vehicles, and to (ii) not treat as supplies of services for consideration the use, by a taxable person or one’s employees, of vehicles covered by the above limitation on the right to deduct input VAT for purposes other than business activity conducted by the taxable person.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 15 March 2022 of the request made by Poland. By letter dated 16 March 2022, the Commission notified Poland that it had all the information it considered necessary for the appraisal of the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Conducting inspections to determine the extent to which vehicles are used for business purposes and for other purposes (in particular for private purposes unrelated to business) would create significant difficulties and burdens for both tax authorities and taxable persons and could lead to time-consuming and costly disputes for both parties. In practice, it is sometimes even impossible to verify the actual division of the use of vehicles. It may result in VAT fraud or attempted fraud (such as unreliable record keeping), and consequently a decrease in tax revenue. Because of the number of vehicles used for mixed purposes, tax evasion could be substantial. Moreover, Poland is dominated by small companies with low turnover (the so-called microenterprises), often sole proprietorships or companies employing only a few workers. These are frequently family businesses. In such small enterprises, there is often no clear separation of company assets from private assets of persons conducting business activity. In such cases, distinguishing between private and business use of motor vehicles is extremely difficult and would require disproportionately large outlays, including those resulting from the need to maintain detailed documentation. The application of the requested special measures results in reduction of administrative burdens and costs for entrepreneurs. Taxable persons do not have to fulfil a number of burdensome documenting and reporting obligations (e.g. the necessity to keep and report to the tax administration the so-called kilometric data, i.e. a detailed list of kilometres driven in connection with conducted business activity) which sometimes could constitute a disproportionate administrative burden. Businesses are generally in favour of the deduction rules resulting from the requested derogation. The measures adopted under the implementing Decision 2013/805/EU are seen as a successful compromise between the accepted rules and the expensive, time-consuming and inefficient keeping of records proving the actual use of vehicles for business activities. The acceptance of the simplifications resulting from the derogation from the general rules may be evidenced by the fact that taxable persons have adopted such rules for nearly 90% of the vehicles used.

For those reasons the Republic of Poland has been applying a derogation from Articles 26(1)(a) and 168 of the VAT Directive since 1 April 2014. The aforementioned specific measures were extended until 31 December 2019 and then until 31 December 2022 by Council Implementing Decision (EU) 2016/1837 and Council Implementing Decision (EU) 2019/1594, respectively.

Given the positive impact of the special measure on the administrative burden of taxpayers and tax authorities alike, it is proposed to authorise the extension of the current derogation measure. The authorisation should be valid for another limited period, i.e. until 31 December 2025, in order to allow for a review of the necessity and effectiveness of the derogating measure and the apportionment rate between business and non-business use it is based on. Any extension request should be accompanied by a report which includes a review of the percentage applied and should be sent to the Commission by 31 March 2025.

•Consistency with existing policy provisions in the policy area

Similar derogations in relation to the right of deduction have been granted to other Member States. Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure on which the VAT is not deductible. Until then, it authorises Member States to maintain exclusions that were in place under national laws on 1 January 1979. On this basis, there is a number of ‘stand still’ provisions restricting the right to deduct VAT in relation to corporate motor vehicles. Previous initiatives to establish rules on which categories of expenditure may be subject to a restriction on the right to deduct have failed. Until those rules are harmonised at EU level, derogations such the present one are considered as appropriate. The proposed measures are therefore consistent with the provisions of the VAT Directive.

•Consistency with other Union policies