EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

By letters registered with the Commission on 15 July 2015 and 20 August 2015, Belgium requested an authorisation to continue to exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 25 000. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 3 September 2015 of the request made by Belgium. By letter dated 4 September 2015, the Commission notified Belgium that it had all the information necessary to consider the request.

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereafter ‘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.

•General context

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 cannot deduct the VAT on his input.

Under Article 285 of the VAT Directive, Member States which did not make use of Article 14 of Council Directive 67/288/EEC, can exempt taxable persons whose threshold is no higher than EUR 5 000. As Belgium did not make use of this option, this resulted in the application of a particularly low threshold which in 2012 corresponded to EUR 5 580.

In 2012, Belgium requested a derogation in order to simplify VAT obligations for small traders and to ease the collection of the tax for the national tax administration. By Council Implementing Decision 2013/53/EU of 22 December 2013, the Council authorised Belgium to exempt from VAT taxable persons whose annual turnover is no higher than EUR 25 000 until 31 December 2015. This measure is optional for taxable persons. Belgium has now requested an extension of that measure.

Although authorised to apply the exemption up to a turnover of EUR 25 000, Belgium applied in practice, and as first step, a lower threshold of EUR 15 000 as from 1 April 2014. From the information provided by Belgium, this first change of the threshold resulted in 2014 in an increase of 18 942 taxable persons exempt from VAT under the SME scheme (from 79 190 to 98 132 or 23,9%). In relation to the total number of taxable persons, this represents an increase from 7,4% to 11,4%. As from the introduction of this threshold, the budgetary impact of the measure was 0,0074% of the total VAT revenues in 2014. Extrapolated for the whole year 2014, the impact would correspond to 0,0188% of the total VAT revenues.

On the basis of this experience, Belgium considers that the derogating measure has brought simplification, both for taxable persons and for the tax administration, and would therefore like to increase the threshold up to the initial maximum of EUR 25 000 as from 2016. In Belgium's view, this should reduce the administrative burden for an additional number of small businesses who, as mentioned, would remain entitled to opt for continuing the application of the normal VAT rules. At the same time, the impact of the measure on the overall amount of the VAT revenue collected at the stage of final consumption would remain negligible.

Since Belgium does not request a threshold which goes beyond what was previously already authorised, the derogation can be extended without the need to change its content. It is therefore proposed to extend the derogation for another period until the earliest of 31 December 2018 or the entry into force of a Directive on the annual turnover thresholds below which taxable persons may be exempt from VAT.