amending Implementing Decision 2010/99/EU authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 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 (‘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 27 April 2018, the Republic of Lithuania requested the authorisation to continue to apply a measure derogating from Article 193 of the VAT Directive, which determines the person liable for the payment of VAT. By letter registered with the Commission on 23 July 2018, the Republic of Lithuania submitted a report on the application of that measure.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 16 August 2018 of the request made by the Republic of Lithuania, except for Spain and Cyprus who have been informed by letters dated 17 August 2018. By letter dated 20 August 2018, the Commission notified the Republic of Lithuania that it had all the information necessary to consider the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

As a general rule, Article 193 of the VAT Directive stipulates that the taxable person supplying goods or services is normally liable to pay VAT. Pursuant to Article 395 of the VAT Directive, Member States may apply measures derogating from the provisions of the VAT Directive to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance if they have been authorised by the Council. The Republic of Lithuania requested to continue to apply the reverse charge mechanism to supplies of timber and to supplies of goods and services by a taxable person under an insolvency or a restructuring procedure subject to judicial oversight, i.e. to make the person to whom these goods or services are supplied liable for the payment of VAT.

The derogating measure for the Republic of Lithuania had initially been granted by Council Decision 2006/388/EC of 15 May 2006 for a period until 31 December 2009 and was again granted by Council Implementing Decision 2010/99/EU of 16 February 2010 until 31 December 2012 and by Council Implementing Decision 2012/704/EU of 13 November 2012 until 31 December 2015 and by Council Implementing Decision (EU) 2015/2395 of 10 December 2015 until 31 December 2018.

In its current request and its evaluation report, the Republic of Lithuania informed the Commission that the application of the reverse charge mechanism to supplies of timber and to supplies of goods and services by a taxable person under an insolvency or restructuring procedure has proven to be very effective in order to prevent fraud. The reverse charge mechanism is not only a means for controlling and collecting VAT more easily for the tax administration, but also encourages taxpayers to meet their obligations. According to the Republic of Lithuania, the number of infringements in the above-mentioned areas has fallen significantly since the introduction of the reverse charge mechanism. Moreover, this special measure does not have a negative impact on the total amount of VAT revenue collected at the final stage of consumption and thus, does not affect the Union's VAT own resources in a negative way. Derogations are in general granted for a limited period of time as to allow an assessment whether the special measure is appropriate and effective and in order to grant Member States time to introduce other conventional measures to tackle the respective problem until the expiry of the derogating measure, thus making an extension of the derogation redundant. A derogation allowing making use of the reverse charge mechanism is only granted exceptionally for specific fraudulent areas and constitutes a means of last resort.

Taking into consideration the unchanged legal and factual situation, it is therefore proposed to extend the derogating measure the last time, allowing the Republic of Lithuania to continue to apply this derogating measure until 31 December 2021. Until the expiry of this derogation the Republic of Lithuania should implement other conventional measures to fight and prevent further spreading of VAT fraud in the sector of timber and in the situation of taxable persons under insolvency or restructuring procedures. As a consequence there should be no further need to derogate from Article 193 of Directive 2006/112/EC with regard to these supplies.

•Consistency with existing policy provisions in the policy area

Similar derogations in relation to Article 193 of the VAT Directive have been granted to other Member States. The proposed measure is, therefore, consistent with the existing provisions of the VAT Directive.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis