amending Implementing Decision (EU) 2017/1768 authorising Croatia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

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

By letter registered with the Commission on 18 May 2020, Croatia requested an authorisation to continue, after 31 December 2020, to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 45 000.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 6 June 2020 of the request made by Croatia. By letter dated 11 June 2020, the Commission notified Croatia that it had all the information it considered necessary for the appraisal of the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT on his inputs. Under Article 287(19) of the VAT Directive, Croatia may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the day of its accession. By virtue of Council Implementing Decision (EU) 2017/1768 Croatia is authorised to apply a higher threshold and thus to exempt from VAT taxable persons with an annual turnover not exceeding EUR 45 000. This Decision expires on 31 December 2020 and Croatia requested to prolong its application. According to the Croatian authorities, the measure facilitates VAT collection, enabling Croatia to simplify administrative procedures for small enterprises and thus reduce the administrative burden on them. Moreover, the measure also reduces the workload for the tax authorities. Further, the Croatian authorities observed that in the last years the increase of the threshold did not lead to the reduction of state budget revenues. The measure has an optional character. Therefore, small businesses whose turnover does not exceed the threshold will still have the possibility to exercise their right to apply the normal VAT arrangements. Derogations are normally granted for a limited period to allow an assessment of whether the derogating measure remains appropriate and effective. Moreover, the provisions of Articles 281 to 294 of the VAT Directive on the special scheme for small enterprises have recently been reviewed. Council Directive (EU) 2020/285, laying down simpler VAT rules for small enterprises, requires that Member States adopt and publish the laws, regulations and administrative provisions, which are necessary to comply with the new rules, by 31 December 2024 at the latest. Member States will have to apply those national provisions from 1 January 2025. It is therefore appropriate to authorise Croatia to apply the derogating measure until 31 December 2024.

•Consistency with existing policy provisions in the policy area