amending Decision 2009/790/EC authorising the Republic of Poland to apply a 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 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.

By letter registered with the Commission on 1 June 2016, Poland requested an authorisation to exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 40 000. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 22 September 2016 of the request made by Poland. By letter dated 23 September 2016, the Commission notified Poland that it had all the information necessary to consider 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 cannot deduct the VAT on his input.

Under Article 287(14) of the VAT Directive, Poland may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 10 000 at the conversion rate on the day of its accession.

In 2009, Poland 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 Decision 2009/790/EC of 20 October 2009, the Council authorised Poland to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 30 000 until 31 December 2012. By Council Implementing Decision 2012/769/EU, the derogation was extended until 31 December 2015 and again, by Council Implementing Decision 2015/1173/EU, until 31 December 2018.

Poland has now requested to be authorised to raise the exemption threshold from EUR 30 000 to EUR 40 000 for the remaining period of the current derogation. Via this demand, Poland wants to simplify the burden on business for a higher number of taxable persons who have a limited business activity and to stimulate the development of such small businesses. At the same time, Poland wants to reduce the burden on the tax administration by limiting the need to control small taxable persons, which is relatively costly in comparison to the amount of VAT at stake, and to strengthen its control activities towards larger taxable persons. It is in this context to be noted that the measure is and will remain fully optional for taxable persons.

The derogation measure is currently applicable until 31 December 2018. It is appropriate to maintain this end date. Derogations from the VAT Directive should always be limited in time so that their effects can be assessed. Moreover, the provisions of Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises are currently subject to review. As announced in the VAT Action Plan, the Commission's proposal in the form of a comprehensive simplification package is due to be presented by the end of 2017. A Directive, amending the provisions of the VAT Directive on a special scheme for small enterprises, might therefore enter into force before the above-mentioned date.

•Consistency with existing policy provisions in the policy area

Similar derogations have been granted to other Member States. Belgium and Luxemburg were granted a threshold of EUR 25 000, Lithuaniaa threshold of EUR 45 000, Latviaand Sloveniaa threshold of EUR 50 000, Italy and Romaniaa threshold of EUR 65 000.

•Consistency with other Union policies

The measure is in line with the Union's objectives for small businesses, as laid out in Commission Communication "Think small first" – a "Small Business Act" for Europe" which calls on the Member States to take account of the special features of SMEs when designing legislation and, therefore, to simplify the existing regulatory environment.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

Article 395 of the VAT Directive.

•Subsidiarity (for non-exclusive competence)