COMMISSION OF THE EUROPEAN COMMUNITIES 
• C0M(93> 450 final 
: Brussels, 29 September 1993 
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Proposal for a 
COUNCIL DECISION 
authorising the Portuguese Republic to apply a measure derogating fro» 
Article 2(1) and Article 17 of the sixth Directive (77/388/EBC) 
on the harmonization of the laws of the Member states 
relating to turnover taxes 
(presented by the Commission) 
EXPLANATORY MEMORANDUM 
The present proposal for a Council Decision authorizes the Portuguese 
Republic to introduce a special measure in accordance with Article 27 of 
the Sixth VAT Directive 77/388/EEC of 17 May 1977 on the common system 
of value added tax , as last amended by Council Directive 92/ill/EEC of 
14 December 1992 . 
With the completion of the Single Market, the arrangements for the 
taxation of services supplied within the European Community have been 
modified. The exemptions related to the exportation of goods and to the 
placing of certain goods under a customs procedure have been 
discontinued, as have the arrangements for including the value of 
services in the taxable amount in the case of imported goods. 
Under these circumstances, the territoriality principle as applied to a 
number of services, with these services being taxed in the place where 
they are physically carried out, has the effect of obliging taxable 
persons who are not established within the Member State of performance 
of the services to pay VAT in the Member State where the services are 
carried out, and subsequently to apply for refund under the Eighth or 
Thirteenth Directives. This concerns above all services supplied in 
respect of work on movable tangible property and the supply of transport 
services which are of a purely domestic nature but which are directly 
linked to intra-Community goods transport services (the national leg of 
an intra-Community movement of goods). 
The resulting proliferation of cases in which a refund is applied for 
under the Eighth and Thirteenth Directives is hindering the freedom to 
supply services within the Single Market. 
Moreover, prior systematic vetting of applications, coupled with an 
increase in the number of cases, could well cause delay of VAT refunds 
under the Eighth and Thirteenth Directives. 
It is, therefore, most important in this context to consider measures 
which can rapidly simplify matters for traders but which will not 
undermine the principles of taxation associated with the Single Market. 
To that end, the Portuguese Republic has submitted a request for 
authorization on the basis of Article 27 of the Sixth VAT Directive, to 
introduce special measures derogating from Article 2(1) and 17. The 
purpose of such measures would be to exempt the services rendered in the 
third and forth indents of Article 9(2)(c) and the supply of domestic 
goods transport services directly linked to intra-Community goods 
transport services, provided that those services are supplied to taxable 
persons not established within the Member State of performance of the 
OJ No. L 145/1, 13.6.1977 
OJ No. L 384/47, 30.12.1992 
Council Directive 79/1072/EEC OJ No. L 331 of 27.12.1979, p. 11 
Council Directive 86/560/EEC OJ No. L 326 of 21.11.1986, p. 40 
1 
services and who in any case qualify for a refund of VAT on those 
services by means of the procedures laid down in the Eighth and 
Thirteenth Directives. Given this proviso, such a derogation would in no 
way affect the amount of tax payable at the final consumption stage. 
In order to qualify for the exemption, a person to whom these services 
are supplied, but who is not established in the Member State of 
performance of the services, would have to establish his status as a 
taxable person in the manner laid down in the Eighth and Thirteenth 
Directives, and would, in addition, have to undertake to repay the VAT 
payable on any supply of services which might have been exempted in 
error. It would also be necessary for the supplier who is liable to pay 
tax within the territory of the country to state the actual grounds for 
exemption on the invoice and the number by which his customer is 
identified for VAT purposes within the Community. 
However, given that the possibility of using customs procedures remains 
for work carried out on movable tangible property temporarily imported 
into the Community from third countries, the scope of the present 
derogation does not extend to cover supplies of such services when 
supplied to persons not established within the Community. 
As a result of this derogation, the growth of intra-Community activity 
in the service sectors concerned would not be hindered by the tax 
charges resulting from difficulties in applying refund procedures, and 
sufficient time would be given to consider other more permanent 
solutions. 
The Commission notes that the special measure proposed shall not alter 
the fundamental principles of the Sixth VAT Directive, in particular 
concerning the place of supply, but simplifies the arrangements for 
refunding the tax which would in any case be refundable under the Eighth 
and Thirteenth Directives. Consequently, the derogation in question does 
not have a negative effect on the own resources of the European 
Communities accruing from VAT. 
The Commission is convinced that the measure in question is intended to 
simplify the procedures for charging the tax. The Commission, therefore, 
considers it appropriate for the Portuguese Republic to be authorized to 
apply the planned special measure, but that such an authorization should 
be limited in time, for a duration lasting until 31 December 1995. 
Proposal for a 
COUNCIL DECISION 
authorizing the Portuguese Republic to apply a measure derogating from 
Article 2(1) and Article 17 of the sixth Directive (77/388/EEC) 
on the harmonization of the laws of the Member States 
relating to turnover taxes 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic 
Community, 
Having regard to the sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States relating to 
turnover taxes - Common system of value added tax: uniform basis of 
assessment, and in particular Article 27 thereof, 
Having regard to the proposal from the Commission, 
Whereas, under Article 27(1) of Directive 77/388/EEC, the Council, 
acting unanimously on a proposal from the Commission, may authorize any 
Member State to introduce special measures for derogation from that 
Directive, in order to simplify the procedure for charging the tax or to 
prevent certain types of tax evasion or avoidance; 
Whereas, by letter dated 28 July 1993 and received by the Commission on 
2 September 1993, the Portuguese Republic requested authorization to 
introduce a measure for derogation from Article 17 of 
Directive 77/388/EEC; 
Whereas the other Member States were informed on 13 September 1993 of 
the request made by the Portuguese Republic; 
Whereas implementation of the transitional VAT arrangements leads to VAT 
being charged on certain work on movable tangible property and certain 
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services are supplied, irrespective of the place where the taxable 
person to whom these services are supplied is able to exercise his 
rights of deduction, and whereas this results in growing use of the 
refund procedures provided for by Directives 79/1072/EEC and 86/560/EEC; 
Whereas the increasing use of the refund procedures provided for by 
Directives 79/1072/EEC and 86/560/EEC may impede the development of 
intra-Community trade in certain services; 
Whereas the measure for derogation in question aims to introduce a 
simplification consisting in the exemption of certain services supplied 
to taxable persons not established in the territory of the country but 
identified in the Community, for which these taxable persons would in 
any event be entitled to a refund; 
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Whereas certain requirements should be imposed on taxable persons with a 
view to preventing tax evasion or avoidance; 
Whereas it is desirable for this derogation to be limited to the time 
necessary to enable the Council, acting on a proposal from the 
Commission, to adopt a definitive solution; 
Whereas the measure for derogation in question has no effect on the 
European Communities' own resources accruing from value added tax, 
HAS ADOPTED THIS DECISION: 
Article 1 
By way of derogation from Article 2(1) of Directive 77/388/EEC, the 
Portuguese Republic is hereby authorized to exempt the supply of 
services referred to in Article 3(1) and (2) rendered to taxable persons 
identified in a Member State other than the Portuguese Republic in 
accordance with Article 22(l)(c),(d) and (e) of Directive 77/388/EEC who 
would have qualified for a refund in accordance with 
Directive 79/1072/EEC if these services had been taxed. 
Article 2 
By way of derogation from Article 2(1) of Directive 77/388/EEC, the 
Portuguese Republic is hereby authorized to exempt the supply of 
services referred to in Article 3(2) and rendered to taxable persons 
identified in a Member State other than the Portuguese Republic in 
accordance with Article 22(1)(c), (d) and (e) of Directive 77/388/EEC 
who would have qualified for a refund in accordance with 
Directive 86/560/EEC if these services had been taxed. 
Article 3 
In the circumstances provided for in Articles 1 and 2, the Portuguese 
Republic is authorized to exempt: 
1. the supply of services referred to in the third and fourth indents of 
Article 9(2)(c) of Directive 77/388/EEC; 
2. the transport services located in the territory of the country, 
directly linked to the intra-Community transport of goods as defined 
in Article 28bC(l) of Directive 77/388/EEC. 
Article 4 
By way of derogation from Article 17 of Directive 77/388/EEC, the 
services referred to in Article 3 and supplied in the circumstances laid 
down in Articles 1 and 2 shall be eligible for deduction of input tax. 
Article 5 
In order to be eligible for exemption from tax in accordance with 
Articles 1 and 2, a taxable person shall in particular: 
1. In the case of the supplies of services referred to in Article 3(1): 
- be in possession of a certificate establishing that the person to 
whom the services have been supplied is a taxable person and 
issued in the form laid down by Directives 79/1072/EEC and 
86/560/EEC; 
be in possession of a declaration in which the person to whom the 
services have been supplied acknowledges that he is jointly and 
severally liable for payment of the tax due on any operation which 
may have been exempted in error and undertakes to repay this tax 
to the supplier of the service; 
- mention, on his invoice, the grounds for exemption and the 
identification number of the person to whom the services have been 
supplied. 
2. In the case of the supplies of services referred to in Article 3(2): 
satisfy the requirements referred to in point 1; 
- provide proof that the transport service is directly linked to an 
intra-Community transport within the meaning of Article 28bC(l) of 
Directive 77/388/EEC. 
Article 6 
The Portuguese Republic is hereby authorized to apply this 
simplification measure until 31 December 1995. 
Article 7 
This Decision is addressed to the Portuguese Republic. 
Done at Brussels 
For the Council 
The President 
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KSN 0254-1475 
COM(93) 450 final 
DOCUMENTS 
EN 09 
Catalogue number : CB-CO-93-497-EN-C 
ISBN 92-77-59517-5 
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