Proposal for a COUNCIL DIRECTIVE on the common system of value added tax (Recast)

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Introduction

In the context of a people's Europe, Community law must be clear and accessible to ordinary citizens, thus giving them new opportunities and the chance to make use of their specific rights.

That aim cannot be achieved if, after being amended several times - often substantially - a great number of legal rules remain scattered. In order to identify the rules currently in force, it is necessary not only to consult the original act, but also to search through the provisions which have later amended it, and this entails a great deal of work, tracking down and comparing many different acts.

The Commission attaches great importance to simplifying and clarifying Community law. The codification of frequently amended acts is essential to that endeavour.

The Conclusions of the Presidency of the Edinburgh European Council (December 1992) confirmed that approach. They stressed the importance of official codification as a means of ensuring legal certainty as to the law applicable to a given matter at a given time.

However, when the Commission decided to codify the Sixth VAT Directive [1] it soon became clear that, in order to make such a highly specific text clear and comprehensible, a number of amendments would have to be introduced which, albeit not substantive, would go further than is acceptable for codification in the strict sense [2].

[1] Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ L 145, 13.6.1977, p. 1), as last amended by Directive 2004/15/EC (OJ L 52, 21.2.2004, p. 61).

[2] Interinstitutional Agreement of 20 December 1994 on an accelerated working method for official codification of legislative texts (OJ C 102, 4.4.1996, p. 2).

At the same time, and always with a view to enhancing clarity, rationality, ease of comprehension and simplification, it is appropriate to seize this opportunity to bring the Directive as closely as possible into conformity with the principles endorsed by the European Parliament, the Council and the Commission for the production of high quality legislation [3].

[3] Interinstitutional Agreement of 22 December 1998 on common guidelines for the quality of drafting of Community legislation (OJ C 73, 17.3.1999, p. 1) (1998 Agreement). That Agreement has been implemented by means of the Joint Practical Guide for the drafting of Community legislation (JPG).

Accordingly, in order to enable those essentially cosmetic changes to be made, the Commission decided to present a proposal for a recast of the Sixth Directive. That approach is entirely in line with the recommendations made, particularly with regard to legal acts which have frequently been the subject of amendment, since the recasting technique offers a means by which a number of acts can be amended, codified and brought together within a single legislative text, in accordance with the 2001 Interinstitutional Agreement [4].

[4] Interinstitutional Agreement of 28 November 2001 on a more structured use of the recasting technique for legal acts (OJ C 77, 28.3.2002, p. 1).

2. Background

The Sixth Directive, which sets out the detailed rules for the common VAT system, was adopted on 17 May 1977 and the deadline for its implementation was fixed as 1 January 1978. It has since undergone a number of amendments, most of which were brought about by the establishment of the internal market and the corresponding abolition of fiscal frontiers between Member States. Transitional arrangements for the taxation of trade between Member States were introduced in 1991, but the basic rules remained in place. It was expected that the transitional arrangements would shortly be replaced by a definitive system under which the supply of goods or services would be taxed in the Member State of origin. It was therefore decided to place those arrangements in a separate Title, so that they could be easily abolished once the definitive system was introduced.

Thus some of the provisions laid down by way of transitional arrangements are implemented in the stead of provisions laid down in the basic rules although, strictly speaking, the latter remain in force. If the codification approach had been followed, that double set of provisions would have had to be maintained. Little would have been gained in the way of simplification or rationalisation of the existing legislation.

In order to provide a clear overview of the legislation in this field, it is essential to rid the text of provisions which do not currently apply, and to adapt the structure accordingly. To make such changes, while leaving intact the great majority of the provisions of the Sixth Directive, the Commission decided to use the recasting technique, which enables various acts to be amended and codified within the framework of a single legislative text.

The shedding of provisions which are not currently applicable, even though they remain in force, does not undermine the principle of a definitive system of taxation, in the Member State of origin, of transactions that give rise to consumption in the Community. The definitive system still remains a long-term Community objective [5]. However, with the focus now on improving the operation of the internal market within the context of the current VAT arrangements, it is vital to devise an effective instrument which can facilitate much needed improvements to the existing system.

[5] Communication of the Commission to the European Parliament and to the Council: A strategy to improve the operation of the VAT system within the context of the internal market (COM(2000) 348 final, 7.6.2000).

Although clarification and structural amendment of the Sixth Directive is necessary, it should not bring about material changes in the existing legislation. On the contrary, substantive amendment must be the subject of specific proposals. To avoid the inadvertent introduction of any such amendments, the recast text has been examined in detail by representatives of Member States. The text has also been open to public consultation, in the course of which all interested parties, including the business community and the legal profession, were invited to express their views.

3. Recast of the Sixth Directive

The Commission proposes that the Sixth Directive be repealed and replaced with a new act modelled on the Directive in force. The new act proposed incorporates all the amendments made to the Sixth Directive by subsequent acts. It also contains any relevant provisions currently to be found in separate legal acts, and excludes provisions which properly belong in other acts.

In order to improve the drafting quality, the existing text has undergone numerous changes. Although the proposed changes will not affect its substantive content, they do alter the format, with the existing 53 Articles divided into 402 new Articles.

A great many of the changes are the result only of the correction of mistakes in grammar, spelling or punctuation, or of the restructuring of the text (reshuffling and renumbering of articles, paragraphs and so on, entailing adjustment of the internal references) or of the consistent application of purely technical rules of legislative drafting technique. Provisions which have been adjusted in that way are therefore regarded as unchanged.

On the other hand, the term adapted, which may appear in the right-hand margin of the recast, indicates that another non-substantive type of adjustment has been made.

The proposal also includes a table of contents providing an overview of the restructured text and a detailed correlation table designed to facilitate the changeover to a new act.

4. Outline of the most important changes

The most important changes to the text are outlined below. Although the changes made are not substantive, they still go further than would be acceptable in the context of pure codification. That is why the recasting technique is being used to codify this text.

4.1. Insertion of various provisions

Community VAT legislation primarily consists in provisions to be found in the Sixth Directive. However, some provisions appear in other acts. If the recast text is to give a complete picture of the existing VAT legislation, it is important for it to contain those provisions, but only if they are not implementing measures. Implementing measures are better left in separate acts governing the implementation of the Sixth Directive.

4.1.1. First VAT Directive

The common VAT system was established by the First Directive [6], which lays down the principle underlying the system and the characteristics of VAT. The detailed rules for applying the common system are laid down in the Sixth Directive, which replaced the Second Directive [7].

[6] First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ English Special Edition, Series I, Chapter 1967, p. 14).

[7] Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes - Structure and procedures for application of the common system of value added tax (OJ English Special Edition, Series I, Chapter 1967, p. 16).

Those two acts are so closely linked that it is appropriate to include the extant provisions of the First Directive in the recast text. The creation of a single instrument gives a better overview of the existing VAT legislation.

Articles 1 and 2 of the First Directive have been included in Article 1 of the recast text.

Articles 3, 4 and 6 of the First Directive are obsolete, and have not been included in the recast text.

4.1.2. Other VAT Directives

Other acts also form part of Community VAT legislation. However, these are Directives which mainly serve to implement various provisions of the Sixth Directive, and it is inappropriate to include them in the recast text.

Under Article 14(1)(d) of the Sixth Directive, Member States are to exempt the final importation of goods covered by an exemption from customs duties other than that provided for in the Common Customs Tariff. Article 14(1)(d) of the Sixth Directive can now be found in Article 140(b) of the recast text. The scope of the exemption is established by Directives 69/169/EEC [8], 78/1035/EEC [9] and 83/181/EEC [10]. Those Directives have not been included in the recast text.

[8] Council Directive 69/169/EEC of 28 May 1969 on the harmonisation of provisions laid down by Law, Regulation or Administrative Action relating to exemption from turnover tax and excise duty on imports in international travel (OJ English Special Edition, Series I, Chapter 1969(I), p. 232).

[9] Council Directive 78/1035/EEC of 19 December 1978 on the exemption from taxes of imports of small consignments of goods of a non-commercial character from third countries (OJ L 366, 28.12.1978, p. 34).

[10] Council Directive 83/181/EEC of 28 March 1983 determining the scope of Article 14(1)(d) of Directive 77/388/EEC as regards exemption from value added tax on the final importation of certain goods (OJ L 105, 23.4.1983, p. 38).

Non-established taxable persons are entitled to a VAT refund pursuant to Article 17(4) of the Sixth Directive. In the recast text, that provision has been moved to Article 165. The detailed rules governing the refund are laid down in Directives 79/1072/EEC [11] and 86/560/EEC [12] which have not been included in the recast text.

[11] Council Directive 79/1072/EEC of 6 December 1979 on the harmonization of the laws of the Member States relating to turnover taxes - Arrangements for the refund of value added tax to taxable persons not established in the territory of the country (OJ L 331, 27.12.1979, p. 11).

[12] Council Directive 86/560/EEC of 17 November 1986 on the harmonization of the laws of the Member States relating to turnover taxes - Arrangements for the refund of value added tax to taxable persons not established in Community territory (OJ L 326, 21.11.1986, p. 40).

4.1.3. Acts of Accession

When new Member States accede to the Community, they must comply with the entire Community acquis, including the Sixth Directive. However, in some cases, they have obtained derogations. Although some of those derogations already form part of the Sixth Directive, most can only be found in the respective Acts of Accession [13]. For the sake of clarity and ease of comprehension, it is important that those derogations be included in the recast text.

[13] Act of Accession of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ L 73, 27.3.1972);

Act of Accession of Greece (OJ L 291, 19.11.1979);

Act of Accession of Spain and Portugal (OJ L 302, 15.11.1985);

Act of Accession of Austria, Finland and Sweden (OJ C 241, 29.8.1994);

Portugal may apply to transactions carried out in the Azores and Madeira rates which are lower than those applied on the mainland. Upon accession, that derogation was included in Article 12(6) of the Sixth Directive. It can now be found in Article 101 of the recast text.

Austria may, in the communes of Jungholz and Mittelberg, apply a second standard rate, provided that it is not less than 15%. That derogation is included in Article 100 of the recast text.

Finland and Sweden may, in accordance with certain conditions, continue to apply certain exemptions with deductibility of the VAT paid at the preceding stage (zero rates). Those derogations appear in Article 107 of the recast text.

Austria is allowed to continue to apply a reduced rate to restaurant services. It may also apply a reduced rate to wine made on an agricultural holding, provided that the rate is not less than 12%. Those authorisations are included in Articles 113 and 115 of the recast text.

Sweden may allow VAT returns to be submitted three months after the end of the annual direct tax period. The legal basis for that simplification measure can now be found in Article 245 of the recast text.

Greece, Spain, Portugal, Austria, Finland and Sweden are all allowed to grant an exemption from VAT to small enterprises whose turnover threshold is higher than that specified in the Sixth Directive. The option open to those Member States now appears in Article 280 of the recast text.

Austria and Finland may continue to tax certain transactions which would normally be exempt under the Sixth Directive. Those derogations have been included in Articles 371(1) and 372(1) of the recast text.

Greece, Spain, Portugal, Austria, Finland and Sweden may continue to exempt certain transactions which would otherwise have to be taxed pursuant to the Sixth Directive. Those derogations now feature in Articles 368, 370, 371(2), 372(2) and 373 of the recast text.

The Czech Republic, Estonia, Cyprus, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia, which are to accede to the Union on 1 May 2004, have obtained similar derogations provided for in the 2003 Act of Accession [14]. In so far as those derogations are not purely provisional, they must be included in the recast text. The text also takes into account the various amendments to the Sixth Directive introduced by way of technical adaptation.

[14] Act of Accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (OJ L 236, 23.9.2003).

In order to take into account the status, provided for in the Treaty concerning the Establishment of the Republic of Cyprus, of the United Kingdom Sovereign Base Areas in Cyprus, special provisions have been inserted regarding the tax treatment of the supply of goods or services, or the importation of goods, to the UK forces stationed in Cyprus. Those provisions can be found in Article 8, point (i) of Article 140 and point (e) of the first subparagraph of Article 147(1) of the recast text.

By way of a transitional measure, the Czech Republic, Estonia, Cyprus, Hungary, Poland, Slovenia and Slovakia may apply or continue to apply reduced rates to the supply of goods or services other than those listed in Annex H to the Sixth Directive. Those measures feature in Articles 119, 120, 121(2), 123, 125(2) and (5), 126 and 127 of the recast text.

By way of a transitional measure, Poland may apply lower reduced rates to certain supplies of goods or services listed in Annex H to the Sixth Directive. Those measures feature in Article 125(3) and (4) of the recast text.

Cyprus, Latvia, Malta and Poland may, in accordance with certain conditions, continue to apply certain exemptions with deductibility of the VAT paid at the preceding stage (zero rates). Those derogations appear in Articles 121(1), 122, 124 and 125(1) of the recast text.

The Czech Republic, Estonia, Cyprus, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia are allowed to grant an exemption from VAT to small enterprises whose turnover threshold is higher than that specified in the Sixth Directive. Upon accession, that option will be included in Article 24a of the Sixth Directive. It can be found in Article 280 of the recast text.

The Czech Republic, Estonia, Cyprus, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia may continue to exempt certain transactions which would otherwise have to be taxed pursuant to the Sixth Directive. Those derogations now feature in Articles 374 to 383 of the recast text.

Although Hungary and Slovakia may continue to apply a reduced rate to the supply of natural gas and electricity, that option is only by way of a transitional measure to allow them time to apply for an authorisation under Article 12(3)(b) of the Sixth Directive. That option is therefore due to expire a year after accession, and it would not be appropriate to include such derogations in the recast text.

By way of a transitional measure, Cyprus and Latvia may continue to apply existing simplified procedures for up to a year after the date of accession. That is to allow Cyprus and Latvia time to apply for a derogation under the procedure laid down in Article 27 of the Sixth Directive. To include such a measure in the recast text would not be appropriate.

4.2. Deletion of certain provisions

When legislative acts are codified, it is common practice to delete provisions which have become obsolete because they are no longer applied or because they have exhausted their effects. In view of the technique used in 1991 to introduce the transitional taxation arrangements, it is necessary in particular to delete provisions of the Sixth Directive which have been replaced even though they remain in force.

4.2.1. Obsolete provisions

Various provisions have exhausted their effects and are therefore obsolete.

Article 1 of the First Directive mainly contains provisions which concern the implementation of that Directive. Those provisions are no longer relevant.

Article 3 of the First Directive requires that the Council adopt, on a proposal from the Commission, the detailed rules for the common VAT system. That was done in the Second Directive, which has subsequently been replaced by the Sixth Directive. There is therefore no longer any need for that provision.

Article 4 of the First Directive concerns the measures to be taken to abolish imposition of tax on import and remission of tax on export. This resulted in the abolition of fiscal frontiers. It leaves this provision obsolete.

Article 6 of the First Directive is one of the final provisions and does not need to be taken over in the recast text.

Article 1 of the Sixth Directive requires Member States to implement that Directive. That obligation remains without it having to be included in the recast text.

Article 25(11) of the Sixth Directive concerns the common flat-rate scheme for farmers. It contains a review clause in accordance with which the Commission was to present, within five years, new proposals for adaptation of the scheme. Since there has been no need for changes, that provision is redundant.

Article 28(1) of the Sixth Directive provides for the transition from the Second Directive to the Sixth Directive. Since it is a transitional provision, it no longer serves any purpose.

Article 28(1a) of the Sixth Directive allows the United Kingdom to apply, until 30 June 1999, special rules for determining the taxable amount in respect of imports of works of art, collectors' items or antiques. Since that provision is no longer applicable, it has been left out of the recast text.

Article 28(2)(g) of the Sixth Directive requires the Commission to present, before 31 December 1994, a report on the reduced rates which Member States were allowed to apply during the transitional period. That report was duly presented by the Commission [15]. That provision is therefore obsolete.

[15] Report from the Commission to the Council in accordance with Articles 12(4) and 28(2)(g) of the Sixth Council Directive of 17 May 1977 (as amended) on the harmonization of the laws of the Member States relating to turn-over taxes - Common system of value added tax: uniform basis of assessment (COM(94) 584 final, 23.11.1994).

Article 28k of the Sixth Directive permits Member States to continue, until 30 June 1999, to allow duty-free sales to intra-Community travellers and Article 16(1), first subparagraph, point (B), first subparagraph, point (e), first indent, in the version set out in Article 28c(E), point (1), leaves Member States free to provide for tax warehousing arrangements in the case of goods to be supplied to intra-Community travellers. Since those provisions are no longer applicable, they have not been included in the recast text.

Article 28n of the Sixth Directive contains certain transitional measures introduced for the purposes of the internal market and Article 28p introduced similar measures for the Accession of Austria, Finland and Sweden. The 2003 Act of Accession extends those measures to the Czech Republic, Estonia, Cyprus, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia. Whereas Article 28n is already obsolete, Article 28p will be so by the adoption of this proposal.

Article 28o(4) of the Sixth Directive allows Germany to apply, until 30 June 1999, special arrangements in respect of the supply by taxable dealers of works of art, collectors' items or antiques. Since that provision is no longer applicable, it has not been included in the recast text.

Article 31(1) of the Sixth Directive provides that the European unit of account is to be the currency used throughout the Directive. Following the introduction of the euro, there is no longer any need for that provision.

Annex G to the Sixth Directive specifies when Member States may grant taxable persons the right to opt for the taxation of transactions which are exempt by virtue of a derogation. Provision has already been made for such cases in the body of the Directive, notably in Article 28(3)(c) of the Sixth Directive. Annex G is therefore superfluous.

4.2.2. Double provisions

Some provisions must be regarded as obsolete even though they have not exhausted their effects. That is the position in the case of the general provisions of the Sixth Directive, which have been replaced, for the duration of the transitional arrangements, by provisions which take over and add to their content.

Even though those general provisions are not currently applied, they nevertheless remain in force. In other words, at the moment, certain provisions appear twice. This makes it even more difficult for the public and economic operators to use the Sixth Directive. In order to draw up a workable instrument providing a clear overview of current legislation, provisions which are in force but not applicable must be excised from the recast text.

The elimination of that double set of provisions has no impact on the VAT legislation in force, nor does it in any way hinder the definitive system of taxation. The arrangements for the taxation of trade between Member States remain transitional and must ultimately be replaced by a definitive system based on the principle that the supply of goods or services is taxed in the Member State of origin.

Article 16(1) of the Sixth Directive provides for exemption in relation to warehousing arrangements. That provision is covered by the version of Article 16(1) set out in Article 28c(E)(1).

Paragraphs 2, 3 and 4 of Article 17 of the Sixth Directive lay down the rules delimiting the origin and scope of entitlement to deduction. Those provisions are covered by the version of Article 17(2), (3) and (4) set out in point (1) of Article 28f.

Article 18(1) of the Sixth Directive governs the exercise of entitlement to deduction. That provision is covered by the version of Article 18(1) set out in point (2) of Article 28f.

Article 21 of the Sixth Directive lists the persons who are liable for payment of VAT to the tax authorities. That provision is covered by the version of Article 21 set out in Article 28g.

The obligations placed on persons subject to VAT are laid down in Article 22 of the Sixth Directive. That provision is covered by the version of Article 22 set out in Article 28h.

Paragraphs 5 and 6 of Article 25 of the Sixth Directive concern the common flat-rate scheme for farmers. Those provisions are covered by the version of Article 25(5) and (6) set out in point (2) of Article 28j.

4.2.3. Provisions not directly linked to VAT

The Sixth Directive contains certain provisions which, although linked to the common system of VAT, essentially concern the system of own resources. If the new act is to be clear and internally consistent, it is essential that only provisions directly concerning the common system of VAT be included in the recast text. Since the provisions relating to VAT own resources are, on the whole, covered by the Own Resources Regulation [16], those provisions have not been taken over in the text.

[16] Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 9).

Article 25(12) of the Sixth Directive provides that Member States applying the common flat-rate scheme for farmers are to establish a uniform basis of assessment of VAT in order to apply the own resources arrangements, and Annex C thereto sets out the common method of calculation. Those provisions are covered by Article 5(2) of Council Regulation (EEC, Euratom) No 1553/89, which provides a legal basis for the flat-rate correction.

Article 28(2)(a), second subparagraph, of the Sixth Directive requires that Member States adopt the measures necessary to ensure the determination of own resources in respect of transactions which are exempt or to which reduced rates are applied. That provision is reproduced in Article 2(2) of Council Regulation (EEC, Euratom) No 1553/89.

4.3. Re-structuring

The current structure of the Sixth Directive is far from satisfactory. That is not just because of the provisions introduced for the duration of the transitional period, but also because the provisions of the Sixth Directive are very lengthy. Those are structural problems, and have been addressed as part of the recast exercise [17].

[17] See, in particular, Guideline No 4 of the 1998 Agreement and point 4 of the JPG.

4.3.1. Transitional provisions

Placing the provisions relating to the transitional arrangements almost at the end of the Sixth Directive resulted in a fragmented structure. If legislative acts are to be readily understandable by the public and by economic operators, it is important to have a clear and consistent structure in which provisions on a common theme are grouped together.

Although the basic structure of the Sixth Directive is sound, it has suffered as a result of the alterations necessitated by the transitional arrangements. If the general provisions not currently in use are deleted, the corresponding transitional provisions can hardly be left where they are at the moment. That would complicate the structure unnecessarily. Instead, they should be moved to the positions vacated by the provisions they replace.

Title IX of the recast text provides for various exemptions. The provisions of Article 16(1) in the version set out in point (1) of Article 28c(E) of the Sixth Directive, which replaces Article 16, are included. The exemption in respect of transactions relating to customs and tax warehousing and other similar arrangements can now be found in Articles 150 to 156 and Article 158.

Title X of the recast text concerns deductions. The origin and scope of entitlement to deduction is delimited in Article 17(2), (3) and (4) in the version set out in point (1) of Article 28f of the Sixth Directive, which replaces Article 17(2), (3) and (4). The provisions governing the exercise of that entitlement, laid down in Article 18(1) in the version set out in point (2) of Article 28f of the Sixth Directive, are also included. Those provisions replace those of Article 18(1). All of those provisions can now be found in Articles 163, 164, 165 and 172.

Title XI of the recast text fleshes out the various fiscal obligations. It includes the rules on who is liable for payment of VAT, which are laid down in Article 21 in the version set out in Article 28g of the Sixth Directive. Those rules replace Article 21. The other obligations which feature in Article 22 in the version set out in Article 28h of the Sixth Directive are also included. They replace the similar obligations laid down in Article 22. Those provisions are now to be found in Articles 186 to 190, 192, 193, 195 to 199, 201, 202, 204 to 240, 242 to 244, 246, 248 to 251, and 253 to 266.

Title XII of the recast text contains various special schemes, including the common flat-rate scheme for farmers. The part of that scheme which features in Article 25(5) and (6) of the Sixth Directive is replaced by Article 25(5) and (6) in the version set out in point (2) of Article 28j. Those provisions can be found in Articles 293 to 296.

It makes little sense, in terms of coherence, to keep what remains of the transitional provisions at the end of the recast text. Accordingly, they have all been incorporated in the basic structure.

Title I of the recast text delimits the objectives and the scope of VAT. It includes the provisions of Article 28a(1), (1a) and (2) and Article 28o(1)(g) of the Sixth Directive, which amended the scope of the tax. Those provisions have been included in Articles 3 and 4.

Title III of the recast text concerns taxable persons. The provisions of the first subparagraph of Article 28a(4) of the Sixth Directive, which add to the list of taxable persons, have been included in Article 10(2).

Title IV of the recast text lists the various taxable transactions. The provisions concerning the transfer of goods from one Member State to another, which were contained in Article 28a(5) of the Sixth Directive, have been incorporated. Those provisions can now be found in Article 18. The provisions concerning the intra-Community acquisition of goods, which were to be found in Article 28a(3), (6) and (7) of the Sixth Directive, have also been included. Those provisions now feature in Articles 21 to 24.

Title V of the recast text governs the place of taxable transactions. It takes over the provisions of Article 28b(B) and Article 28o(1)(h) of the Sixth Directive which amended the rules governing the place of supply of goods. Those provisions now feature in Articles 34 to 36. It also incorporates the provisions to be found in Article 28b(A) of the Sixth Directive, which define the place of the intra-Community acquisition of goods. Those provisions can now be found in Articles 41 to 43. Lastly, Title V takes over the provisions, contained in Article 28b(C) to (F) of the Sixth Directive, governing the place of supply of various services. Those provisions now appear in Articles 45, 48 to 51, 53 and 55.

Title VI of the recast text determines when the chargeable event occurs and when VAT becomes chargeable. The provisions concerning the supply of goods, which featured in Article 28d(4) of the Sixth Directive, have been included and can now be found in Article 67. Likewise, the provisions of Article 28d(1), (2) and (3) of the Sixth Directive have been included. Those provisions, which apply to the intra-Community acquisition of goods, now appear in Articles 68 and 69.

Title VII of the recast text concerns the taxable amount and takes over provisions, currently laid down in Article 28e(2) of the Sixth Directive, regarding the transfer of goods from one Member State to another. Those provisions can now be found in Article 75. It also incorporates the provisions determining the taxable amount in respect of the intra-Community acquisition of goods. Those provisions, which are currently in Article 28e(1) of the Sixth Directive, have been taken over in Articles 80 and 81.

Title VIII of the recast text contains rules on the application of rates, including the provisions of Article 28e(3) and (4) of the Sixth Directive covering aspects relating to the intra-Community acquisition of goods. Those provisions have been taken over in Articles 90 and 91.

Title IX of the recast text delimits various exemptions. It covers the exemptions provided for in Article 28c(A), (B), (C), (D) and (E)(3) and Article 28o(1)(h) of the Sixth Directive, such as the exemption of certain intra-Community transactions. Those provisions now feature in Articles 135 to 140. The exemptions in respect of transactions relating to customs and tax warehousing arrangements, to be found in Article 16(1a) and (2) as inserted by Article 28c(E)(1) and (2) of the Sixth Directive, have also been incorporated and now appear in Articles 157, 159 and 160.

Title X of the recast text concerns deductions. Article 166 includes the provisions laid down in the second and third subparagraphs of Article 28a(4) of the Sixth Directive, under which persons who are treated as taxable persons because they occasionally supply new means of transport are entitled, subject to certain limits, to deduct VAT on the means of transport.

Title XII of the recast text sets out various special schemes, including the arrangements for second-hand goods, works of art, collectors' items and antiques. During the transitional period, Member States may, in accordance with Article 28o(1) and (2) of the Sixth Directive, apply a special scheme for second-hand means of transport. That special scheme has been incorporated in the second-hand scheme itself, and the relevant provisions can be found in Articles 318 to 324.

4.3.2. General provisions

So far as the general provisions are concerned, the structure is on the whole suitable. There are, however, some exceptions. Where the structure is not consistent, it has been revised in the recast text.

The special arrangements for second-hand goods, works of art, collectors' items and antiques can be found in Article 26a of the Sixth Directive. However, some provisions by their nature do not form an integral part of those arrangements. They have therefore been included in the general provisions (see Articles 4, 36 and 136 of the recast text). This is in line with the approach adopted by the existing text in the case of similar provisions concerning the exemption for small enterprises and the common flat-rate scheme for farmers.

During the transitional period, Member States may continue to apply a special scheme for second-hand means of transport, provided that it complies with the conditions set out in Article 28o(1) of the Sixth Directive. As with the special arrangements for second-hand goods, works of art, collectors' items and antiques, some provisions of that scheme have been included in the general provisions (see Articles 4, 36 and 136 of the recast text). The definition of 'second-hand means of transport', currently to be found in Article 28o(1)(a), has also been moved (see Article 3(3) of the recast text).

The importation of goods constitutes a taxable transaction in the Member State in which the goods enter the Community. Those transactions are governed by Article 7 of the Sixth Directive. In the recast text, that provision is grouped together with Articles 5 and 6 of the Sixth Directive, which determine the nature of taxable transactions. However, by converting Article 7 into several articles, it is possible to incorporate the rules determining the place of importation into the title governing similar matters (see Articles 60 and 61 of Title V of the recast text).

Article 19 of the Sixth Directive governs the calculation of the deductible proportion. That provision is closely linked to Article 17(5), in accordance with which taxable persons carrying out both tax-deductible and non-tax deductible activities may deduct only a proportion of the VAT paid. It has therefore been placed next to that provision (see Articles 167 to 169 of the recast text).

4.3.3. Length and complexity of certain provisions

Many of the provisions of the Sixth Directive are far too long, since they each govern an entire branch of the harmonised system of VAT. This often results in complex provisions. That is contrary to the guidelines for drafting Community legislation, in accordance with which overly long and convoluted articles are to be avoided [18]. It is neither necessary for interpretation, nor desirable in the interests of clarity, for a single article to cover an entire branch of the rules laid down in an act.

[18] See point 4 of the JPG.

It is better to have a large number of easily comprehensible articles, divided into titles, chapters, sections and subsections, than a few articles running to great length, which are correspondingly confused and difficult to use. In the recast text, approximately 50 lengthy articles have been converted into a little over 400 articles which are considerably shorter and much easier to read and understand.

Article 26a of the Sixth Directive lays down the special arrangements for second-hand goods, works of art, collectors' items and antiques. The transitional provisions laid down in Article 28o extend those arrangements. Those two provisions, both of which are quite lengthy, have been divided into 29 separate articles (see Articles 304 to 333 of the recast text).

Harmonised rules on invoicing were introduced by Directive 2001/115/EC [19], which replaced Article 22(3) in the version set out in Article 28h of the Sixth Directive. Currently, that provision is subdivided into points, but it was not possible, within the existing structure, to number the various subparagraphs. With up to ten unnumbered subparagraphs in Article 22(3)(a), it is difficult to identify the various component parts of the provision. The new structure, on the other hand, solves that problem by subdividing those component parts into different articles (see Articles 209 to 230 and 236 to 240 of the recast text).

[19] Council Directive 2001/115/EC of 20 December 2001 amending Directive 77/388/EEC with a view to simplifying, modernising and harmonising the conditions laid down for invoicing in respect of value added tax (OJ L 15, 17.1.2002, p. 24).

Where articles currently appear in separate titles, they are now presented in titles, chapters, sections and subsections. In that way it is possible to group together rules with a homogeneous content and make them easier to understand.

Article 22 in the version set out in Article 28h of the Sixth Directive lays down the various obligations incumbent upon persons liable for payment of VAT. Those include obligations relating to identification, invoicing, accounting, returns and statements. In the recast text, that article has been converted into over 60 articles (see Articles 198, 199, 201 and 202 and Articles 204 to 266 of the recast text). Those articles are arranged in chapters and sections. That structure should make it easier to navigate around the various rules.

The text of individual articles has been split into easily understandable paragraphs and subparagraphs, which are set out in a coherent sequence. In order to arrive at that structure, a number of provisions must be duplicated.

Article 22(7) in the version set out in Article 28h of the Sixth Directive requires Member States to take the necessary measures to ensure that persons deemed liable for payment of VAT in the stead of a non-established supplier comply with the obligations relating to declaration and payment. That provision now appears three times, under payment arrangements, returns and statements, and recapitulative statements (see Articles 199, 248 and 260 of the recast text).

4.3.4. Adaptation of the text

Adjusting the structure of the Sixth Directive may entail changes to the existing text.

The recast text includes certain provisions derived from amending acts. The integration of such provisions in the text requires a number of drafting adjustments.

The rules introduced for electronically supplied services are to apply, pursuant to Article 4 of Directive 2002/38/EC, for a period of three years starting from 1 July 2003. The temporary nature of those rules must be made quite clear, which means that for the inclusion of Article 4 in the text its wording must be adjusted (see Articles 56(3), 57(2), 59(2), 350 and 396 of the recast text).

If the provisions laying down the transitional arrangements were simply reproduced verbatim in the basic structure, the substance could well be affected. In order to prevent that, the wording may have to be amended.

Special rules have been introduced with respect to the supply of new means of transport between Member States. Article 28a(2) of the Sixth Directive defines a 'means of transport' and specifies the circumstances in which it must be regarded as "new". That amounts to a definition of 'new means of transport'. However, even though that definition now appears among the general provisions, it applies only to the provisions that form part of the transitional arrangements for the taxation of trade between Member States. In order to make that clear, the provisions of Article 28a(2) have been converted into a definition of new means of transport (see Article 3(2) of the recast text).

When existing provisions are converted into shorter articles, the wording often needs to be adapted accordingly, but in such a way that the substantive content remains intact.

Article 4 of the Sixth Directive determines who is to be regarded as a taxable person. That notion covers any person who independently carries out, in any place, any economic activity. Member States may also regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to economic activities. When those provisions are placed in separate articles, the wording must be adapted so that each Article can stand alone (see Articles 10 and 11 of the recast text).

Article 21 in the version set out in Article 28g of the Sixth Directive determines who is to be regarded as liable for payment of VAT. That provision covers a range of situations, each of which is now the subject of a separate Article (see Articles 186 to 190 and Articles 192, 193, 195, 196 and 197 of the recast text). In most of those articles, the wording is supplemented by elements taken from the introduction of Article 21(1).

Some articles include elements which have been taken from other provisions. When a number of different provisions are grouped together, consequential changes must be made to the wording of one or more of those provisions.

The special arrangements for second-hand goods, works of art, collectors' items and antiques can be found in Article 26a of the Sixth Directive. When VAT has already been applied to goods in accordance with those arrangements, it means that, pursuant to Article 26a(D)(b), the intra-Community acquisition is not then subject to VAT. Instead of leaving that rule in the midst of the special arrangements proper, it has been moved to the relevant provision (see Article 4 of the recast text). The wording of that rule has been amended so that it could be smoothly inserted into that provision.

4.4. Compliance with the Community rules on legislative drafting

In order to ensure the quality of drafting, Community legislative acts must, by common agreement between the institutions, be drafted clearly, simply and precisely. The text must be easy to understand, concise and leave no uncertainty in the mind of the reader. Those guidelines have been adhered to in the preparation of the recast text.

4.4.1. Clarity

The existing text is not always sufficiently clear. In order for the recast text to be easily understandable and unambiguous, it is crucial that certain aspects of the text be clarified.

4.4.1.1. Re-structuring

The structure, both of individual articles and of the act as a whole, should contribute to clarity. It must also take account of the multicultural and multilingual nature of Community legislation. It has been necessary to adapt the existing provisions of the Sixth Directive in the light of those requirements [20].

[20] See Guidelines Nos 5 and 7 of the 1998 Agreement and points 5 and 7 of the JPG.

Any provision which consists in introductory words followed by a list must be worded in such a way that the relationship between the introduction and the elements listed is quite clear and that sentences are not broken up in a way that is awkward and unnatural [21].

[21] See point 15.3 of the JPG.

Article 18(1) in the version set out in point (1) of Article 28f of the Sixth Directive lays down the preconditions to be met by a taxable person in order to exercise entitlement to deduction. The introduction has been amended so as to make it clear that, in each case, the taxable person must meet certain specific conditions in order to be able to deduct the VAT incurred (see Article 172 of the recast text).

If part of the provision is to apply to every element listed, but is positioned at the end, there may be some uncertainty as to whether the closing words do indeed apply to all the items or situations on the list. In order to avoid such ambiguity and to prevent difficulties arising for certain languages, the phrases integral to the preface should be kept together in the introduction.

Under Article 9(2)(c) of the Sixth Directive, certain services are regarded as having been supplied at the place where they are physically carried out. In order to ensure that this meaning is conveyed, the closing words have been included as part of the introduction (see Article 52 of the recast text).

A taxable person may, pursuant to Article 26b(D)(1) of the Sixth Directive, deduct the VAT due or paid in respect of investment gold purchased or acquired, or in respect of certain services relating to the gold. He is, however, entitled to deduct the VAT only if his subsequent supply of that gold is exempt under the gold scheme. That condition applies to all three cases listed. Its inclusion in the introductory part of the provision serves to clarify that point (see Article 347 of the recast text).

When a provision contains a list of elements, the list should not include autonomous provisions in the form of sentences or subparagraphs. Otherwise it is difficult to cite correctly the provision in question or to preserve the logical sequence of the main provision (list of elements, linked to an introduction, followed by details or specifications concerning one or more of the elements listed) [22].

[22] See point 15.3. of the JPG.

Under Article 11(A)(2) of the Sixth Directive, taxes, duties, levies and charges, as well as incidental expenses, must be included in the taxable amount in respect of a supply of goods or services. Member States may regard expenses covered by a separate agreement as incidental expenses. That sentence, which forms an autonomous provision, has been moved down, so that it now features as a separate paragraph (see the second subparagraph of Article 77 of the recast text).

Point (o) of Article 13(A)(1) of the Sixth Directive provides for the exemption of various activities in the public interest, including the supply of goods or services by organisations whose activities in connection with fund-raising events are exempt. Member States may, for example, restrict the number of events or the amount of receipts giving entitlement to exemption. That sentence, which forms an autonomous provision, should not be included as part of an item on the list of exemptions. Instead, it has been placed in a separate paragraph (see Article 129(2) of the recast text).

Since indents are not instantly identifiable, they cause particular problems. The use of indents should therefore be avoided, and when elements are listed, they should be identified by a number or a letter [23].

[23] See Guideline No 15 of the 1998 Agreement.

The transfer of goods to another Member State must, pursuant to Article 28a(5) of the Sixth Directive, be treated as a supply of goods. That does not apply to all transfers of goods: certain situations are expressly excluded from the notion of a supply of goods. Those situations, which were previously listed as indents, are now identified by letters (see Article 18(2) of the recast text).

For VAT purposes, an invoice must show certain details. Those details are listed in the first subparagraph of Article 22(3)(b) in the version set out in Article 28h of the Sixth Directive. Those details are no longer listed as indents, but under numbers (see Article 217 of the recast text).

It is good practice to place technical rules or data in an annex. By contrast, in the interests of clarity, provisions which are not purely technical should be included in the enacting terms [24].

[24] See Guideline No 22 of the 1998 Agreement and point 22 of the JPG.

Member States may, pursuant to the third subparagraph of Article 12(3)(a) of the Sixth Directive, apply one or two reduced rates. In Annex H, it is provided that the Combined Nomenclature may be used to establish the precise coverage of categories of goods subject to such a rate. It is not appropriate for that provision to feature in an annex. It has therefore been incorporated in the enacting terms (see Article 95(3) of the recast text).

4.4.1.2. Limiting the use of references

References to other articles or to other acts should be kept to a minimum [25]. Efforts have therefore been made to reduce the number of such references. In some cases, references have been removed. Where that has not been possible, either the provision referred to has been reproduced and appears instead of the reference or the reference has been retained but clarified through the addition of further details.

[25] See Guideline No 16 of the 1998 Agreement and point 16 of the JPG.

Although references to other legal acts are sometimes necessary (their removal would make acts even more lengthy and complex, and expose them to the risks attendant upon the reproduction of provisions from other acts), they must be restricted to a minimum, especially where reference is made to an act which has been repealed.

Member States may, pursuant to Article 28(2)(a) of the Sixth Directive, continue to apply exemptions, with deductibility of the VAT paid at the preceding stage. Those exemptions may be maintained only if they are in accordance with Community law and satisfy the conditions laid down in the last indent of Article 17 of the Second Directive. It was decided not to refer to an act which has long since been repealed but rather to incorporate the relevant conditions, namely that those exemptions must have been adopted for clearly defined social reasons and for the benefit of the final consumer, in the text (see Article 106 of the recast text).

Article 15(2) of the Sixth Directive exempts the supply of goods dispatched or transported to a destination outside the Community by the customer or on his behalf. If such goods are carried in the personal luggage of travellers, the exemption applies only in accordance with certain conditions. One of those conditions is that the value of the supply must exceed a certain amount. That amount is fixed in accordance with Article 7(2) of Directive 69/169/EEC. Instead of that reference, the mechanism referred to is incorporated in the text (see Article 143 of the recast text).

The removal of references to other legislative acts is not always practicable or desirable. Where reference is made to a specific situation linked to another act, it may have to be maintained.

Under the first subparagraph of Article 24(2)(a) of the Sixth Directive, Member States may continue to exercise the options available under Article 14 of the Second Directive of introducing exemptions or graduated tax relief for small businesses. That reference serves to identify the Member States which, at the material time, made use of that specific provision. It cannot therefore be removed (see Article 277 of the recast text).

Definitions must be adhered to throughout the act. Defined terms must be used in a uniform manner and their content must remain consistent with the definitions given. Consequently, once a term has been defined, it is unnecessary continually to refer back to the provision laying down the definition. Such references have been removed from the recast text.

Under the first subparagraph of Article 6(1) of the Sixth Directive, a supply of services means any transaction which does not constitute a supply of goods within the meaning of Article 5. Since the concept of a supply of goods has already been defined, the reference to Article 5 is superfluous. It has therefore been removed from that provision (see Article 25(1) of the recast text).

Likewise, the reference to paragraph 5 or to Article 5 which appears in Article 28a(7) of the Sixth Directive has been removed. That provision thus refers to a supply of goods without making any reference (see Article 24 of the recast text).

The position is different in the case of definitions which are not of general application but apply only in the context of a special scheme. In such cases, it is necessary to include a reference whenever that term is used elsewhere in the text.

If Member States choose to apply reduced rates, they may, pursuant to the first subparagraph of Article 12(3)(c) of the Sixth Directive, apply a reduced rate to the importation of works of art, collectors' items and antiques. That provision is one of those governing VAT rates (see Article 99 of the recast text), in the context of which the definitions pertaining to the special arrangements for second-hand goods, works of art, collectors' items and antiques are not as such applicable. In order to make those definitions apply in that context, it is necessary to include a specific reference to them (see Article 304 of the recast text).

Where it has not been possible to eliminate references, an attempt has been made to replace them with text.

Pursuant to the second subparagraph of Article 4(4) of the Sixth Directive, Member States may choose to regard persons established in the territory of the country as a single taxable person. That option is subject to the consultations provided for in Article 29 of the Sixth Directive, which is the provision under which the VAT Committee is established. Accordingly, the option applies only after consultation of the VAT Committee. Since that wording is sufficiently clear, there is no reason to maintain the existing reference (see Article 11(2) of the recast text). This change has been carried through to other provisions in the recast text.

For goods to be regarded as transferred to another Member State, it is necessary, pursuant to Article 28a(5)(b) of the Sixth Directive, for them to be transported or dispatched to a destination outside the territory as defined in Article 3 but within the Community. The territory referred to is that of a Member State. Since that territory has already been defined, the reference has been removed (see Article 18 of the recast text). On the other hand, it is specified that the goods are transported to a destination outside the Member State in which they are located but within the Community.

Whilst it is not always possible to eliminate references, those remaining must be worded in such a way that the main thrust of the provision to which reference is made can be understood without consulting that provision. To achieve this, some of the existing references have to be made clearer.

The intra-Community acquisition of goods by taxable persons acting as such, or by non-taxable legal persons, is subject to VAT pursuant to the first subparagraph of Article 28a(1)(a) of the Sixth Directive. Those persons may, however, qualify for the derogation provided for in the second subparagraph of Article 28a(1)(a), in which case, pursuant to Article 28a(1)(b) and (c), only the acquisition of new means of transport or of excise products is subject to VAT. There, the key element is that in those situations the other acquisitions made by that taxable person or non-taxable legal person are not subject to VAT, and that is now expressly stated (see, for example, Article 3(2)(b)(ii) and (iii) of the recast text).

Article 11(A)(1) of the Sixth Directive determines the taxable amount in respect of certain transactions. Other transactions are covered by Article 28e(2). In neither case is the nature of those transactions specified. In order to make it possible to distinguish between those different situations, the key elements have been integrated. This helps to make the text easier to understand (see Articles 72 to 76 of the recast text).

One way of clarifying references is to include elements from the provision referred to. To make the wording clearer, it is sufficient to include the key element of the provision concerned. The scope of the reference is not affected by leaving out some details, provided that the key element is properly included.

Article 10(2) of the Sixth Directive determines when the chargeable event occurs and when VAT becomes chargeable. It includes a specific provision concerning the supply of goods giving rise to successive statements of account or payments. That provision does not apply to the supplies referred to in Article 5(4)(b), which concern the hire of goods for a certain period or the sale of goods on deferred terms. The fact that not all details of the provision referred to (see Article 15(2)(b) of the recast text) are included does not limit the scope of the reference.

4.4.1.3. Clearer and more consistent wording

Clarity of wording and consistency in the use of terminology are vital if a legislative act is to be easily understood and correctly interpreted. Consistency is achieved through the use of the same terms to express identical concepts [26].

[26] See Guideline No 6 of the 1998 Agreement and point 6 of the JPG.

The existing text is not always entirely consistent. To improve consistency, it is necessary in some cases to adapt the wording.

In the existing text, references to the supply of goods and the supply of services is not entirely consistent. Whilst the English version is consistent, the wording in the French version varies. For the sake of consistency, it has been decided to follow the approach adopted in the English version. In the French version (and other language versions), reference is now made to "livraison de biens" and "prestation de services" (see, for example, Articles 15 and 25 of the recast text). This mirrors the use of "supply of goods" and "supply of services" in the English version.

Special rules for determining the place of supply of various services provided by intermediaries are to be found in Article 28b(C), (D), (E) and (F) of the Sixth Directive. Although those rules are essentially the same, the wording is not identical. The inconsistencies have now been eliminated (see Articles 48, 50, 54 and 55 of the recast text).

Inconsistency may arise as a result of changes introduced to the existing text. Some of the amendments made affected only part of the Sixth Directive and were viewed in isolation. That lack of a global overview sometimes led to inconsistency in the terminology used.

As part of the special scheme for investment gold, Member States may, pursuant to Article 26b(G)(1) of the Sixth Directive, decide not to apply the exemption for specific transactions in investment gold. That option is not open in the case of intra-Community supplies. However, that term is not defined, nor is it commonly used. To be consistent with the wording used elsewhere, it is more appropriate to refer to the supply of goods carried out in accordance with the conditions laid down in Article 28c(A) (see Article 344 of the recast text).

4.4.1.4. Alignment of the various language versions

It is essential that there be no discrepancies as between the eleven language versions, as any discrepancy between the various versions, all of which are authentic, can engender uncertainty.

Under Article 9(2)(e) of the Sixth Directive, the place of supply of certain services supplied to a taxable person established in another Member State is the place where the customer is established. That applies to the services of intermediaries taking part in the supply of services covered by that same provision. In that context, the English version refers to "agents who act in the name and for the account of another, when they procure for their principal the services". That does not correspond to the wording used elsewhere. The other language versions are consistent. To ensure overall consistency, reference is now made to "intermediaries who act in the name and on behalf of other persons where they take part in the supply of services" (see Article 56(1)(l) of the recast text).

Article 13(A)(1)(a) of the Sixth Directive provides for the exemption of the supply, by public postal services, of services other than passenger transport and telecommunications services. In that context, the German version refers to "Fernmeldewesen", whereas elsewhere it refers to such services as "Telekommunikations dienstleistungen". To be in line with other language versions, the same term should be used in both instances, the more appropriate being the latter (see Article 129(1)(a) of the recast text).

When aligning the various versions, account must be taken of the characteristics of each language. The approach adopted in one language version is not necessarily suitable for another language version.

In the French version, a distinction is made between "livraison de biens" and "prestation de services". The French version also refers to the supplier of goods as the "fournisseur" and the supplier of services as the "prestataire". The customer is referred to as the "acheteur" if the supply concerns goods and as the "preneur" if it concerns services. The English version does not make the same distinctions, nor are they necessary. It is entirely appropriate to refer to the "supply of goods" and the "supply of services". The person who carries out the transaction is referred to as the "supplier" and the client is called the "customer", rather than, respectively, the "purchaser" and the "customer" as was previously the practice (see, for example, Article 72 of the recast text).

4.4.2. Simplification of the wording

The text should not include unnecessary or repetitive elements. An effort has been made to simplify the drafting of the provisions, but bearing in mind that this must not result in substantive changes.

4.4.2.1. Structural improvements

The structure of the existing provisions is not always appropriate. That is all the more evident when those provisions are converted into shorter articles. It has been necessary, therefore, to adjust the structure of certain provisions.

Very complex provisions must be structured in such a way that they are easy to follow and the meaning is easy to grasp.

Member States may, pursuant to Article 16(2) of the Sixth Directive, exempt certain transactions made with a view to the export of goods. Since that provision comprises many different elements, it may be difficult to understand. Adjustment of the structure so that those transactions are listed separately contributes to a better understanding of what is meant (see Article 159 of the recast text).

One of the features of simple provisions is that they are not repetitive. The structure of some provisions has therefore been amended so as to avoid repetition.

Under Article 12(1) of the Sixth Directive, the rate applicable to taxable transactions is that in force at the time of the chargeable event. In some situations, the rate to be used is, however, that in force when the tax becomes chargeable. In order to simplify the structure, all the common features have been grouped together in the introduction, rather than repeated in each case listed (see the second paragraph of Article 90 of the recast text).

The exemptions provided for in Articles 13, 14 and 15 of the Sixth Directive all apply without prejudice to other provisions of Community law, and in accordance with conditions laid down by Member States with a view to ensuring the correct and straightforward application of such exemptions and to prevent any possible evasion, avoidance or abuse. That also applies in the case of exemptions under Article 28c(A) to (D). To avoid repetition, that introduction now features as a general provision (see Article 128 of the recast text).

4.4.2.2. Concise content

To be concise, unnecessary elements should be excised from provisions.

Under Article 11(B)(1) of the Sixth Directive, the taxable amount in respect of the importation of goods is their value for customs purposes. However, importation does not consist only in the entry into the Community of goods which are not in free circulation. It also consists in the entry of goods which are in free circulation if those goods come from third territories forming part of the customs territory. The definition of importation of goods covers both situations. It is not necessary, therefore, to refer separately to the importation of goods in free circulation (see Article 82 of the recast text).

Whenever a provision derogates from another, that fact is expressly stated. In many cases, the inclusion of such reference is not required. One example is Article 11(B)(6) of the Sixth Directive. Those Member States which, at 1 January 1993, did not apply a reduced rate may provide that, in respect of the importation of works of art, collectors' items or antiques, the taxable amount is equal to a fraction of the taxable amount established in accordance with the normal rules. Since it is clear that this provision governs a particular situation, it is not necessary to state that the rule applies by way of derogation (see Article 86 of the recast text).

4.4.2.3. More straightforward language

In order not to create uncertainty in the mind of the reader, the text needs to be specific and detailed, which inevitably means that the text is often complicated. Nevertheless, the fact remains that the main objective must be a text that is not too difficult to understand.

As regards simplicity, it is possible, in certain cases, to improve the existing text while maintaining the requisite degree of precision. Sometimes, all the language versions can be simplified, but sometimes only particular language versions are amenable to simplification.

When the existing text refers to the various Member States, it uses their full names. As a general rule, the short form of Member States' names should be used. The full official names should be used only when acts concern individual Member States, such as when derogations are granted under Article 27 of the Sixth Directive.

Throughout the existing text, reference is made to value added tax. It is simpler, and entirely consistent with the approach taken in recent years, to refer to VAT. In some language versions, however, such as the German version, reference should continue to be made to value added tax.

When an option is granted, the French version frequently refers to the fact that Member States "ont la faculté". It is much simpler to say "peuvent".

4.4.3. Greater precision

The existing text sometimes lacks precision. Where this is the case, the text has been adapted so as to leave no uncertainty in the mind of the reader.

4.4.3.1. Accuracy of references

The recast procedure often necessitates the renumbering of articles. That is so if new articles have been inserted by subsequent amending acts. Renumbering has an impact on the internal references, which must be amended accordingly.

In the course of restructuring the text, paragraphs or subparagraphs of existing articles have been converted into separate articles. All internal references have had to be replaced.

The existing references are not always accurate, and sometimes they may be inappropriate. In order to ensure that each new reference is sufficiently precise, some adjustment may be necessary.

In order to make certain references as precise as possible, they have been limited to cover only the relevant parts of the provision referred to.

In the case of bodies governed by public law which are exempt under Article 13 or 28 of the Sixth Directive, Member States may regard their activities as activities in which such bodies engage as public authorities. To be exact, those are the exempt activities covered by Article 13(A) and (B) and Article 28(3)(b). That is why the reference has been limited to Articles 129, 132, 133 and 364 and Article 367 to 383 (see Article 14 of the recast text).

Circular references (reference to an article which itself refers back to the initial provision) and serial references (reference to a provision which itself refers to another provision) should be avoided [27].

[27] See Guideline No 16 of the 1998 Agreement.

Article 11(A)(4) of the Sixth Directive allows Member States which, at 1 January 1993, did not apply reduced rates to opt for a reduction of the taxable amount in respect of the supply of works of art. That provision derogates from Article 11(A)(1), (2) and (3), while providing that the taxable amount is to be equal to a fraction of the amount determined in accordance with those same provisions. Since there is no doubt that the provision derogates from Article 11(A)(1), (2) and (3), it is not necessary to continue to refer to that fact (see Article 79 of the recast text).

Simplification measures have been introduced for triangular transactions. That has implications for the place of intra-Community acquisition of goods. This follows from the third subparagraph of Article 28b(A)(2) of the Sixth Directive. However, those measures apply only if the person to whom the goods are subsequently supplied is designated in accordance with Article 28c(E)(3) as liable for payment of VAT. Article 28c(E)(3) refers in turn to Article 21(1)(c), which is the provision which actually lays down the specific rules for payment of the tax by the recipient. Accordingly, the latter provision is the one now referred to, in order to avoid a serial reference (see Article 43 of the recast).

4.4.3.2. Precise terminology

Not all terms used in the Sixth Directive are sufficiently precise. They have been replaced by more accurate terms.

Pursuant to the first subparagraph of Article 28(1)(a) of the Sixth Directive, Member States which, at 1 January 1993, applied exemptions with refund of the tax paid at the preceding stage may maintain those exemptions. Those are exemptions with entitlement to deduction. To be accurate, the recast text now refers to exemptions with deductibility of the VAT paid at the preceding stage (see Article 106 of the recast text).

Under Article 3(2) of the Sixth Directive, the territory of the country is the area of application of the EC Treaty as defined in respect of each Member State in Article 227. When reference is made to the territory of the country, it is not always clear what that term covers. It mostly refers to a particular Member State. However, where several Member States are involved, that term is not sufficiently precise. The rules laid down in Article 21, in the version set out in Article 28g, regarding the person liable for payment of the tax, illustrates that point. For the sake of accuracy, that term has been replaced with more descriptive terms such as the Member State in which dispatch or transport of the goods ends (see Article 18(2)(e) of the recast text); the Member State in which the supply of [the service] is taxable (see Article 76 of the recast text); their territory (see Article 85 of the recast text); the Member State (see Article 91 of the recast text); the Member State in which the VAT is due (see Article 187 of the recast text); the Member State in which the return must be submitted (see Article 243(b)); and the Member State in which the customer is established (see Article 296(2)(b)).

4.4.4. Updating the text

The recast exercise means that the Sixth Directive will be replaced by a new instrument. Moreover, in some cases adaptation is necessary to avoid substantive changes.

4.4.4.1. Updating of provisions

Provisions may have been overtaken by events and the text should reflect the current legal situation. Such provisions must therefore be brought up to date.

Article 7(1)(a) defines importation of goods as the entry into the Community of goods which do not fulfil the conditions laid down in Articles 9 and 10 of the EEC Treaty or, if covered by the ECSC Treaty, that are not in free circulation. The reference to the ECSC Treaty has been deleted since it no longer exists (see Article 31 of the recast text).

4.4.4.2. Maintenance of the status quo

Leaving the text unchanged is not necessarily an option. Some changes are indispensable if the status quo is to be maintained and substantive changes avoided.

Pursuant to Article 17(6) of the Sixth Directive, common rules are to be agreed providing for restrictions on entitlement to deduction. No such rules have yet been adopted. Pending their adoption, Member States may retain all the exclusions that were provided for under their national laws when the Sixth Directive came into force, that is to say, on 1 January 1978. In order to make sure that that option is not widened, the existing reference must be replaced with the exact date of the entry into force. Since, for most Member States, the cut-off date was postponed by one year, the most rational solution has been to refer to 1 January 1979. Since that provision applies also to Member States acceding to the Community after that date, it is specified that, in those cases, the cut-off date is the day of their accession (see Article 170 of the recast text).

In order to facilitate the changeover to the Sixth Directive, Article 28(3) allows the then Member States, as a transitional measure, to continue to avail themselves of certain derogations. The derogations listed in Annexes E and F are not open to Member States which acceded to the Community later. Those Member States need to have obtained similar derogations at the time of accession. Any such derogations are integrated in the recast text alongside the derogations allowed under the Sixth Directive. At the same time, the necessary distinction is made between options open only to Member States which belonged to the Community on 1 January 1978 (see Articles 363 to 367 of the recast text) and other provisions (see Articles 368 to 383 of the recast text).

4.4.5. Revision of the various language versions

In order to prevent substantive changes, it is necessary to exercise caution when revising the text.

In the case of certain language versions drafted for the accession of new Member States, the quality is not always satisfactory. The recast exercise offers an opportunity to perform a thorough check of the terminology used and to make any rectification necessary.

This mainly affects the Swedish and Finnish versions in which the terminology has been revised. Changes have also been made to the Portuguese and Spanish versions. Those changes serve to bring the quality of those versions into line with the other language versions, without affecting the meaning of the text.

Clearly, with a text dating back to 1977, the use of language may have changed in various ways. The recast text must take account of any such changes.

Recent reforms have introduced changes in the spelling of German. Those changes are reflected in the German version of the recast text.

Some of the terms used in the Danish version are out of date. In an attempt to modernise the text, more contemporary terms are used. This has meant, for example, that "goder" has been replaced by "varer" and "tjenesteydelser" by "ydelser". Those are not changes which in any way affect the content of the text.

5. Changes affecting the substance

The majority of changes made to the text are not substantive. However, a handful of changes inherent to the recasting exercise slightly affect the substantive content of the text.

Article 33(2) of the Sixth Directive defines products subject to excise duty. That definition covers mineral oils, alcohol and alcoholic beverages, and manufactured tobacco. In order to make the definition dynamic, the wording has been changed so that it covers products subject to harmonised excise duties (see Article 2(1) of the recast text). Those are excise products which are subject to excise duty but governed by Community legislation, which means that any future amendment introduced in the field of excise duties will be reflected in the VAT legislation. That is important if the parallelism between the VAT rules and rules governing excise duty is to be maintained.

The invoicing rules cover various aspects concerning the transmission and storage of invoices by electronic means. In the first subparagraph of Article 22(3)(e) in the version set out in Article 28h of the Sixth Directive, a definition is given of what is meant by electronic means. That definition is based on those laid down in Directive 98/48/EC of the European Parliament and of the Council of 20 July 1998, which amended Directive 98/34/EC laying down a procedure for the provision of information in the field of technical standards and regulations. The positioning of that definition at the beginning of the new text, in view of the fact that it is a definition of general application which is going to apply throughout the Directive, is consistent with the way in which Community legislation ought to be structured (see point (2) of Article 2 of the recast text). As a consequence, the definition applies also in the context of other provisions of the Directive, notably those concerning services supplied by electronic means. Even though this may be regarded as a substantive change, it is difficult to imagine that the term in question could be held to have a meaning other than that ascribed by Community legislation.

When the supply of goods is carried out on board a means of transport, the place of supply is, under Article 8(1)(c) of the Sixth Directive, the place of departure of the transport. There are no common rules on the place of taxation of goods supplied for consumption on board. The Commission was to present a report by 30 June 1993, but no such report has been made. Meanwhile, Member States may exempt or continue to exempt such supplies, but only until a certain date. Even though it is linked to the forthcoming adoption of common rules, that provision cannot, at the moment, be extended beyond the date given. In the absence of a Commission proposal, however, that provision is still being applied by Member States. In order to remedy that situation, it is proposed to leave that option open until the adoption of the new legislation (see Article 38(3) of the recast text).

In respect of the supply, by a taxable person established outside the Community, of telecommunications services to a non-taxable person established within the Community, Member States are to apply, pursuant to Article 9(4) of the Sixth Directive, the criterion of actual use or enjoyment. That provision has been temporarily replaced by a version covering both telecommunications services and radio and television broadcasting services. As a result of the new version, the notions of non-established supplier and established non-taxable person have been fleshed out in greater detail. A return to the original provision would see that degree of precision lost, even if, according to Member States, that is not the intention. To rectify the situation, the provision has been adapted accordingly (see Article 59 of the recast text).

Under Article 13(B)(e) of the Sixth Directive, Member States are to exempt the supply at face value of postage stamps valid for postage within the territory of the country. To be in line with Community law, stamps valid for postage in another Member State should also be exempt. Accordingly, no specification is made as to the Member State in which the stamps are valid for postage (see Article 132(1)(h) of the recast text). While that is indeed a change, it would only entail substantive changes once stamps are sold across borders.

The final importation of goods qualifying for exemption from customs duties, other than as provided for in the Common Customs Tariff, is exempt pursuant to the first subparagraph of Article 14(1)(d) of the Sixth Directive. It is also laid down that Member States may decide not to grant that exemption if it is likely to have a serious effect on conditions of competition. However, implementing acts, such as Directive 83/181/EEC, have subsequently been adopted which delimit the scope of the exemption and in consequence that option may no longer be invoked by Member States. It has therefore been removed (see Article 140(b) of the recast text).

When converting the amounts of the transitional arrangements into national currency, Member States are to use, pursuant to Article 28m of the Sixth Directive, the rate of exchange as at 16 December 1991. That provision is relevant only for Member States outside the euro zone. In order to place all Member States on the same footing, the date of conversion has been adapted to reflect the date of changeover to the euro. That date does not apply in the case of the new Member States. For practical purposes, the date fixed by the Act of Accession should continue to apply (see Article 392 of the recast text).

Pursuant to Article 34 of the Sixth Directive, the Commission, after consulting the Member States, is to send a report to the Council every two years on the application of the common VAT system. That report is to be transmitted by the Council to the European Parliament. However, that obligation proved untenable because of the arduous timetable set. In the recast text, reports are to be made every four years, on the basis of information gathered from the Member States. Similar provisions are to be found in other Community acts (see Article 398 of the recast text).

2004/0079 (CNS)

Proposal for a COUNCIL DIRECTIVE of [...] on the common system of value added tax

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 93 thereof,

Having regard to the proposal from the Commission [28],

[28] OJ C [...], [...], p. [...].

Having regard to the opinion of the European Parliament [29],

[29] OJ C [...], [...], p. [...].

Having regard to the opinion of the European Economic and Social Committee [30],

[30] OJ C [...], [...], p. [...].

Having regard to the opinion of the Committee of the Regions [31],

[31] OJ C [...], [...], p. [...].

Whereas:

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HAS ADOPTED THIS DIRECTIVE:

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