ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(82)358
Vol.1982/0127

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COMMISSION
OFTHE
EUROPEAN COMMUNITIES
GenerolSecretariatCOM(82)358 final
Brussels,^h,19g2
FOROFFICIAL USEONLY
NEGOTIATIONS FOR THE ACCESSION OFPORTUGAL
PROPOSAL CONCERNING THE INTRODUCTION OFVALUE ADDED
TAX INPORTUGAL
(Communication fromtheCommissiontotheCouncil)
COM (82)358 final

EXPLANATORY MEMORA1TOUM
Inthenegotiations withthePortugueseauthorities,andmorespecifically
instatementsmadebythePortugueseDelegationandinthecourseofthe
examinationofsecondarylegislationinthechapterontaxation,anumber
ofsubstantive problemswereidentifiedinrespectofwhichPortugalrequested
appropriatesolutionsintheformoftemporaryderogations.
Initsmemorandumof29January1981,theCommissionpresentedtotheCouncil
generalguidelineswithaviewtoresolvingtheseproblems.Inparticular
itformulatedproposalsinresponsetothePortugueserequestsforderogations
inrespectofmanufactured tobacco,capitaldutyandmutualassistance.
Onthebasisoftheprogressmadeinthisarea,asemergesfromthe
2 3Portuguese andCommunitystatementsonthischapter,essentiallyallthat
remainstobedoneistonegotiatethequestionoftheintroduction ofVAT.
Inthisconnection,theCommission,initsmemorandumof29January1981,
acceptedtheprincipleofatemporaryderogationafteraccession,butwithout
specifyingtheduration.
Itisnowpossibletobespecificregardingthislastpoint.Thismeans
thatallthatremainstobedealtwithatalaterstageinthenegotiations
arethePortugueserequestsrelatingspecifically tothepractical
arrangements fortheintroduction ofVAT,namelyremissions,exemptions ,
zeroorreducedrates,andspecialarrangements ;theserequestswereonly
transmittedtotheCommissionon26Aprilandneedexaminingindepth.
Hence,thepurposeofthisdraftcommunication ,whichtheCommissionis
askedtotransmittotheCouncilafterapproval,istoadoptaposition
ontheprincipleandthedurationofatemporaryderogationforthe
introduction ofVAT.
çCOM(8l)l3final
^CONP(P)21/80,21/81and.../82JC0NF(P)6/81and35/82.

CONTENTS
Page
Introduction 0
I.Progressofthenegotiations
A.Commission mémorandum 1
B.Communitystatementof4fey1981 2
C.Portuguesestatementof26June1981 3
D.Portuguese memorandumof26April1982and
Portuguesestatementof28May1982 4
E.ProgrammeofthePortugueseauthoritiesfor
theintroduction ofVAT 5
P.Examination ofsecondarylegislation 7
II.Commissionproposal 8

INTRODUCTION
Asalready pointed out "bytheCommission initsmemorandum of29January 1981
ontaxation ,itisnowcertain that thePortuguese authorities will notbe
able tointroduce asystem ofvalue added taxasfrom accession .In
addition ,theimplementation ofseveral directives relating tovalue added
tax inPortugal raises anumber ofsubstantive problems which have been
identified bythePortuguese authorities andmentioned inthememorandum
2 .. .._ . 1of26April 1982 andinthePortuguese statement of28May 1982 ".
These problems concern inparticular :
(i)theimplementation timetable .
(ii)thepossibility ofapplying zero orreuuced rates
(iii)exemptions
(iv)thearrangements applicable totheautonomous regions oftheAzores
and Madeira .
These specific problems require lengthy consideration andcannot beresolved
inavery short time .
However ,theCommission considers that thetime isripe foraproposal
concerning thePortuguese request foratemporary derogation relating to
theintroduction oftheVATsystem inPortugal ,particularly inthe light
ofthedetailed programme submitted totheConference bythePortuguese
Delegation regarding thepreparations ,legislation andadministrative work
involved .
1C0M(81)13 final
rMEMO -P-1-82
3CONP(P ).../82.

I.PROGRESSOFTHENEGOTIATIONS
A.Commission memorandumof29January1982
Initsmemorandumof29January1981totheCouncil,theCommissionproposed
"thatPortugalbegrantedatemporaryderogationintheintroduction ofthe
1
VATsystemafteraccession".
However,theCommissionspecifiedthat,initsview,"thetransitional
Ρperiodcouldnotbeformorethanashorttimeafteraccession".
Moreover,theproposalwassubjecttospecificconditions,namelythat:
"(i)asregardsPortugal'spaymentsintotheCommunitybudget,theproposed
derogationwillinvolverecoursetothesubsidiaryprovisionsofthe
Decisionof20April1970»wherebythefinancialcontribution ofMember
Stateswhichhavenotbeenabletoapplytheuniformbasisofassessment
ofVATarecalculated onthebasisofGUPratherthanbyanycombination
ofmethods;
(ii)consequently ,theSixthVATDirectivemustbeappliedinfullbythe
endofthederogationperiod;
(iii)Portugalshouldnowbeaskedtomakeanimmediatestartwithtaxreform
withaviewtointroducing VAT;
(iv)thePortugueseauthoritiesshouldprovidetheCommunitywithregular
reportsontheirprogrammeandontheprogressofthelegislative
timetableforadoptionofaPortuguese VATlaw,plusthestepstaken
orplannedforimplementationofsuchalaw".^
^C0M(81)13final,page13,finalparagraph
i:COM(8l)l3final,page14,firstparagraph
3C0M(81)13final,page14,finalparagraphs.

TheCommissionnevertheless reserveditspositionasregardstheexact
scopeandlengthofthetemporaryderogation.
B.Communitystatementof4May1981
InthelightofthisCommissionproposal,theCounciladoptedon4May1981
thefollowingstatementwhichinfactconstituted apostponement ofthe
decision:
"TheCommunityisunableatthisstagetostateitspositionontheprinciple
ofatemporaryderogationfortheintroduction ofthissystem.Itwould
againdrawthePortugueseDelegation'sattentiontotheimportanceofPortugal'
1introducingthecommonsystemofVATintheshortesttimepossible".
InthissamestatementtheCommunitydeclaredthat"itwouldlikePortugalto
stepupitseffortsandthrowitselfimmediatelyintotheprocessofadjusting
itstaxsystem".FurthermoretheCommunitywishedto"pointouttothe
PortugueseDelegationtheurgencyofitsdrawingupaprecisetimetable
forthevariouspreparatorystagesoftheprospective reform".
COHF(P)6-81.
)

-3-
C.PortusmeseStatementof26June1981
On26JuneISo],thePortugueseDelegationstateditsintentionswith
1regardtoVATasfollows:
"thePortugueseauthoritieswill,assoonaspossible,replace
theexistingsystemofturnovertaxandotherindirecttaxeswithasystem
ofvalueaddedtax.
Giventhecomplexityoftheproblemswhichariseinthisconnection,however,
thePortugueseDelegationconsidersthattheremustbeatemporaryderogation
forfiveyearsdsferringtheintroduction oftheCommunityVAT.Extratime
willalsohavetobeallowedforapplyingcertainprovisionsoftheSixth
Directive,whichmustinanyeventbeimplemented underthesameconditions
asforcertainMemberStatesinrelationtotransitional measures,especially
asregardstaxprotectionforaseriesofessentialgoodsandprotection
oftheagricultural sector."
Inthissamestatement,thePortugueseDelegationspeltoutwhatwouldbe
theimplications ofthisderogationfortheapplicationofotherdirectives,
inparticular :
1.Taxexemption–thePortugueseDelegationconsideredthat"consideration
mustbegiventotheproblemswhichmayariseintheapplication ofsome
aspectsoftheDirectivesuntiltheintroduction ofVAT".
2.Muj^ual_aissistance io^revent_tax_avojLdan£e_ajid_eva£i£n_internati£nall (y--
AccordingtothePortugueseDelegation,"therewillhavetobeatemporary
derogationdeferringbyfiveyearstheapplicationofCommunityprovisions
onmutualassistancebetweentaxauthorities topreventinternational tax
avoidanceandevasion,asregardsbothdirecttaxationandVAT."
CONF-P/21/81.

-4-
3.Mi^ual _assistance ,forthe£ec°very_of claiBS _inresj5e^ct _£f–value_add£d –tar
ThePortuguese Delegation considers that "atemporary derogation forfive
years asregards mutual assistance onclaims relating tovalue added tax"
isnecessary .
D.Portuguese statement of28May 1982
These requests forderogations were spelled outandamended inthememorandum
of26April 19^2 andwere subsequently confirmed inthestatement of
28May1982 .Bence ,with regard toVAT fthePortuguese Delegation stated on
28Meyatthe20th meeting oftheConference atDeputy level that steps
were "being taken tomake thenecessary prior adjustments with aview tothe
adoption ofVATwithin ashorter transitional period than that which had
been requested .
Furthermore ,thePortuguese Delegation stated that itwould like tospecify
thespecial conditions which itconsiders necessary fortheapplication of
Community legislation .These areasfollows :
(i)thepossibility ofapplying thelast indent ofArticle 17ofthe
Second Council Directive ,67/228/EECof11April 1967 ,upuntil
thetime when taxes onimports andremissions oftaxonexports in
respect oftrade between theMember States areabolished ;
(ii)thepossibility ofexempting ,under theconditions provided forin
Article 28oftheSixth Council Directive ,77/388/EECof17May1977 ,
theoperations provided forinAnnex FoftheDirective ,under
mcnbers 2,3f6,9,10,16,17,18,26and27;
(iii)thepossibility ofapplying ,inthecontext ofarrangements specific
tosmall enterprises ,ataxexemption fortaxable persons whose
annual turnover islower than theequivalent innational currency
of15000ECU ;
:Memo -P-1-82.
Conf(P ).../82.

(iv)thepossibilityofbeingabletosetupaspecialsystemforapplying
valueaddedtaxtotheautonomousregionsoftheAzoresandMadeira.
Withregardtotaxexemptions,thePortuguesestatementof28May1982
statesthatitisnotfeltthatitwillbenecessarytomakeagreat
adjustmenttothePortugueselegislationinthisfieldpriortothe
introduction ofVAT.
Moreover,thesaidPortuguesestatementnolongerincludedtherequestfor
aderogationconcerningmutualassistancetopreventtaxavoidancearid
evasionintheCommunityinrespectofdirecttaxation,thePortuguese
Delegationhavingsaiditwaspreparedtowithdrawtherequestfora
temporaryderogation.
E.ProgrammeofthePortugueseauthorities fortheintroduction ofVAT
Intheirmemorandumof26April1982thePortugueseauthoritiessupplied
thefollowingproposedtimetablefortheintroduction ofVAT:
"Themainactionscompletedsincethesetting-upoftheSpecialCommittee
onVATinApril1980untilthepresenttimearethefollowing:
(i)preparationofamemorandumonthefundamental VAToptions,completed
inMarch1981,andsubmittedforassessmenttotheappropriatebodies
(ii)carrying-outofthefirsttrainingcoursesforVATadministrators ;
(iii)preliminarystudyonadministrative problems;

-6-
(iv)preparationofthedata'baseandcompletionofthepreliminary
macroeconomic studies;
(v)preparationofthefirstversionofthebillontaxabletransactions,
taxablepersons,exemptionsandthetaxableamount.
Bearinginmindtheprogressmadewiththiswork,itisnowpossibleto
drawupthefollowingprogramme:
Fourthquarter1982–Conclusionofthefirstversionofthebill.
Firsthalf1983–AnalysisofthebillbytheGovernmentandconsultations
withtheeconomicoperators.
(i)ConclusionoftheBtudiesontheadministrative organizationofVAT.
(ii)Preparationofthegeneraltrainingcoursestobecarriedoutin1983-84*
Secondhalf1983-Conclusionofthefinalversionofthebill;submission
toParliament .
1January1984-Entryintoforceoftheinstrumentsofaccession.
Firsthalf1984-Approvalofthelawintroducing VATinPortugal.
Secondhalf1984-Conclusionandpublicationofthedecreesandregulations
ontheimplementation ofthesystem.
1985/86-Preparationoftheadministrative machinery.
Intensification ofthetrainingprogrammesfortaxofficers.
1986/87-Publicityandinformationcampaignsdirectedtowardseconomicoperators.
Registeringoftaxablepersons."

-7-
P.ETamimtjon ofsecondarylegislation
BesidesthederogationsrequestedbythePortugueseauthorities ,itshould
"berememberedthatthegrantingofatransitional periodfortheimplementation
ofVATinPortugalafteraccessionraisesproblemswhichwerehighlighted
duringtheexaminationofsecondarylegislation.
1.ApplicationofDirective79/l07l/EECot6December1979withtheaim
ofextendingtoVATtheCommunitymachineryfortheenforcedrecoveryof
claimsinthefieldofagricultural leviesandcustomsdutiesintroduced
underDirective76/308/EEC.
TheCommissionpointsoutthat,forsuchtimeastheintroduction in
PortugaloftheVATsystemmaybedelayed,therecoverymachineryshould
beextendedduringsuchatransitional periodtoturnovertax,whichwould
bemaintainedinforceinPortugal.
ThissameobservationappliesequallyinthecaseofDirective79/l070/EE(5,
aimedatextendingtoVATtheCommunitymachineryformutualassistance
introducedinthefieldofdirecttaxationunderDirective77/799/eEc«
2.ApplicationoftheEighthCouncilDirective(79/1072/EEC)of
6December1979ontheharmonization ofthelawsoftheMemberStates
relatingtoturnovertaxes(arrangementsfortherefundofvalueaddedtax
totaxablepersonsnotestablishedontheterritoryofthecountry).
IntheeventthatPortugalispermittedtopostponeintroduction ofthe
VATsystem,duringthetransitional perioditshouldbetreatedasa
thirdcountryforthepurposesofapplication oftheaboveDirective.

II.COMMISSION PROPOSAL
Inview ofthesituation inthenegotiations and ,inparticular ,onaccount
ofthestandpoint expressed bythePortuguese authorities intheir
memorandum of26April 19^2 ,theCommission considers that thetime is
ripe toamplify itsproposal of29January 1981 "bysetting aprecise
timetable forintroduction oftheVATsystem inPortugal .Thequestion of
theintroduction ofVATinvolves atemporary derogation ofageneral nature ,
which depends essentially onanassessment ofthetime required tointroduce
thevarious laws andregulations and setupthenecessary administrative
machinery .
However ,theCommission isnotyetinaposition toadopt proposals on
thespecific Portuguese requests relating tothepractical arrangements
fortheintroduction ofVAT .namely ,
(i)exemptions ,
(ii)zero orreduced rates ,
(iii)arrangements to "beapplied intheautonomous regions oftheAzores
and Madeira .
These specific requests foraderogation from theSixth VATDirective raise
other issues ,many ofwhich areofastructural nature andconsequently
require amore detailed analysis "before theCommission cancomment .
Moreover ,theCommission does notyethave theinformation which would
enable ittoassess theprecise implications ofallthese specific derogations .
However ,theCommission canstate nowthat ,assuming maximum extension of
thezero rate ,thespecific derogations requested byPortugal would lead to
alowering ofthebasis ofassessment toaround 60jooffinal consumption ,
which ,according tothePortuguese authorities *estimates ,would substantially
affect thenature ofVATasageneral taxonconsumption .This isclearly
oneofthe points which merit consideration .
CŒÎ(81)13 final .

Initsmemorandumof29January1981,theCommissionhadalreadyadopted
theprincipleofatemporaryderogationwithregardtoVATfstressingthat
thiswasanexceptionalallowancethatwasbeingmadeforPortugaland
onethatcouldonly"bepermittedtolastforashortperiod.
Atthetime,theCommissionusedthreemainargumentstojustifyits
proposals
(i)theneedtobringtheturnovertaxsystemintolinewiththeTreaty
rules "beforeaccession;
(ii)thelackoflegislativeandadministrative preparationandtheneed
fortechnicalassistance;
(iii)theneedfortraininginenterprises.
Atpresent,inthelightoftheinformationgivenintheforegoingpages
andwithtaxreformstillonlyonthedrawingboard,itwouldseemoutof
thequestiontoaskthePortugueseauthoritiestoshortenthetimetable
proposedinthememorandumof26April1981.TheCommissionconsiders
thattheintroduction ofVATcouldnotreasonablybeenvisagedbefore
1January1988.
ForthisreasontheCommissionproposestoacceptthetimetablecontained
inthememorandumof26April1981andtoauthorizePortugaltopostpone
theintroductionofVATuntil1January1988,whateverthedateofaccession.
Thisproposalisnecessarilysubjectto
whichwereadoptedbytheCommissionin
Theymaybedefinedasfollows:preciseconditions,,certainof
1itsmemorandumof29January1981.
CŒÏ(81)13final.

-10-
«
(i)thedeadline of1January 1988 should heobserved whatever the
date ofaccession ;
(ii)Portugal should takeallappropriate steps toobserve thetimetable
proposed inthememorandum of26April 1982 ;
(iii) "th®Community should bekeptregularly informed bythePortuguese
authorities oftheprogress ofthelegislative process leading to
theadoption ofaVATlawinPortugal andofsteps taken orplanned
toimplement such alaw .
Inaddition ,theCommission 'sproposal hasthefollowing implications :
(i)asregards Portugal 'spayments intotheCommunity budget ,the
subsidiary provisions oftheDecision of20April 1970 ,whereby
the financial contribution ofMember States which have not been
able toapply theuniform basis ofassessment forVATarecalculated
onthebasin ofGKPrather than byanycombination ofmethods ,will
apply with respect toPortugal until 31December 1987 ;
(ii)theCommunity machinery fortheenforced recovery ofclaims ,introduced
under Directive 76/308/EECandextonded toVATbyDirective 79/1071/EEC
of6December 1979 »will apply toturnover tax ,which will remain in
force inPortugal until 31December 1987 •
This will also apply inthecase oftheCommunity machinery for
mutual assistance introduced under Directive 77/799/*®^andextended
toVATunder Directive 79/1070/EEC^;
(iii)asregards theapplication oftheEighth Council Directive (79/1072/EEC)
of6December 1979 ontheharmonization ofthelaws oftheMember States
relating toturnover taxes (arrangements fortherefund ofvalue added
taxtotaxable persons notestablished intheterritory ofthecountry ),
Portugal willbetreated asathird country until 31December 1987 ;
however ,theCommunity directives relating totaxexemptions will
apply toPortugal asfromaccession ,thePortuguese authorities having
withdrawn their request foraderogation onthis point .
Seepage 7»