COMMISSION OP THE EUROPEAN COMMUNITIES 
1 C0M(92) 184 final 
1 Brussels, 7 May 1992 
I 
Proposal for a 
COUNCIL DECISION 
authorizing the Netherlands to apply a measure derogating from 
Article 2KD(a) of the Sixth Directive (77/388/EEC) on the 
harmonization of the laws of the Member States relating to 
turnover taxes 
(presented by the Commission) 
EXPLANATORY MEMORANDUM 
1. By letter officially received on 11 February 1992 the 
Netherlands Government submitted to the Commission a request for a 
derogation pursuant to Article 27 of the sixth VAT Directive,1 to 
enable it to$ntroduce a scheme to combat evasion of VAT In the ready-
to-wear clothing Industry. The scheme would be part of a package of 
measures concerning taxes and social security contributions, designed 
to combat VAT fraud in that Industry. The intention Is to extend to 
the ready-to-wear clothing industry the tax-shiftIng scheme whereby 
liability for the payment of VAT is shifted from subcontractors to 
contractors; the Council approved the Introduction of such a scheme In 
the building, structural steelwork and shipbuilding industries by 
decision of 20 June 1982.2 
2. In support of its request, the Netherlands Government points out that 
large stores often purchase clothes from ready-to-wear clothing firms, 
which themselves manufacture the clothes. However, these firms 
frequently put the work out, as contractors, to small ready-to-wear 
workshops (the subcontractors). 
The fraud takes place in the relationship between the workshop and the 
firm. The former charges the latter VAT, but does not pay it over to 
the tax authorities, while the latter deducts it. 
1 0J No L 145, 13.6.1977. 
2 OJ No C 197, 31.7.1982. 
The Netherlands Government argues that this type of evasion, which Is 
now very frequent In the ready-to-wear clothing industry, is difficult 
to combat under the current system of collecting VAT. Ready-to-wear 
workshops are generally small firms which Just own their machinery and 
are established in rented business premises or In residential 
property. The statutory provisions concerning social security 
contributions, taxation and working conditions are often disregarded. 
Many of these workshops change hands frequently. Under the 
circumstances, if fraud Is discovered, the tax authorities have little 
chance of recovering the tax. The Netherlands Government takes the 
view that this fraud can be conclusively defeated only by applying the 
tax-shifting scheme to this Industry as well. 
3. Under the tax-shifting scheme, the VAT normally payable by the 
subcontractor by virtue of Article 21(1)(a) of the Sixth VAT Directive 
Is collected from the contractor. 
In the building, structural steelwork and shipbuilding industries, the 
authorized tax-shifting scheme Is applied only when the subcontracted 
work is carried out away from the subcontractor's place of business. 
However, when operating the scheme in the ready-to-wear clothing 
industry, the Netherlands Government wishes to Include contract work 
carried out on the subcontractor's business premises. The 
Justification given Is that In the ready-to-wear clothing Industry the 
tax authorities have less chance of recovering VAT than in the other 
sectors, for the reasons given In point 2 above. 
- 3 -
The Netherlands authorities consider that the scheme does not result 
In a reduction in the amount of VAT payable at the final consumption 
stage or In the basis of assessment for VAT own resources. 
The authorization will remain In force until 31 December 1996; before 
that date, the Commission Is to report to the CounciI on the 
application of the authorization. 
In accordance with Article 27(3) of the Sixth VAT Directive, the other 
Member States were Informed by letter dated 10 March 1992 of the 
Netherlands' request. 
_ 4 -
Proposal for a 
COUNCIL DECISION 
authorizing the Netherlands to apply a measure derogating from 
Article 21(1)(a) of the Sixth Directive (77/388/EEC) on the 
harmonization of the laws of the Member States relating to 
turnover taxes 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
Having regard to the Sixth Council Directive (77/388/EEC) on the 
harmonization of the laws of the Member States relating to turnover taxes -
Common system of value added tax: uniform basis of assessment,1 and in 
particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, under Article 27(1) of the Sixth Directive, the Council, acting 
unanimously on a proposal from the Commission, may authorize any 
Member State to introduce special measures for derogation from that 
Directive in order to simplify the procedure for charging the tax or to 
prevent certain types of tax evasion or avoidance; 
Whereas the Netherlands, by letter received by the Commission on 
11 February 1992, requested authorization to Introduce In the ready-to-wear 
clothJng industry a special measure for derogation from Article 2KD(a) of 
the Sixth Directive; 
OJ No L 145, 13.6.1977, p. 1. 
- 5 -
Whereas the purpose of the measure Is to combat fraud occurring in the 
relationship between ready-to-wear clothing firms worklr.y for large stores 
on the one hand, and small workshops (subcontractors) to which those firms 
have put the work out on the other; whereas this type of fraud, which 
consists In the subcontractor Invoicing VAT to the contractor but not 
paying it over to the tax authorities, while the contractor deducts the 
tax, is difficult to combat under the present system of collecting VAT; 
Whereas the scheme planned by the Netherlands Involves, In the 
ready-to-wear clothing industry, collecting from the contractor the VAT 
normally due from the subcontractor under Article 21 of the Sixth VAT 
Direct ive; 
Whereas the derogation will not have a negative effect on the 
European Community's own resources accruing from value added tax; 
Whereas the scheme will be temporary, which will permit an assessment of 
the effects of the derogation after a period of application; 
Whereas the Commission will present a report to the Council before 
31 December 1996 on the application of this authorization, accompanied, 
where appropriate, by a proposal for a Decision to extend the said 
author izat ion; 
Whereas the other Member States were informed of the Netherlands' request 
on 10 March 1992; 
HAS ADOPTED THIS DECISION: 
- 6 -
Article 1 
By way of derogation from Article 21(1)(a) of the Sixth Directive, 
the Netherlands is hereby authorized to apply until 31 December 1996 in the 
ready-to-wear clothing industry a scheme for shifting the obligation to pay 
over VAT to the tax authorities from the subcontractor to the clothing firm 
(the contractor). 
Article 2 
In the light of a report from the Commission on the application of the 
authorization referred to In Article 1, accompanied, where appropriate, by 
a proposal for a Decision extending the said authorization, the Council, 
acting on the basis of that proposal, shall decide, before 
31 December 1996, whether the said authorization is to be extended. 
Article 3 
This decision is addressed to the Netherlands. 

TSSN 0254-1475 
~ -r • — 
COM(92)184fine: 
DOCUMENTS 
EN 09 
Catalogue number: CB-CO-92-201-EN-C 
ISBN 92-77-43898-3 
Office for Official Publications of the European Communities 
1^2985 Luxembourg