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 Council Directive 2006/112/EC of 28 November 2006 on the common system of valued 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 1 March 2021, Poland requested authorisation to continue applying the derogating measure consisting in granting a VAT exemption to taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 40 000 until 31 December 2024.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 25 March 2021, and Cyprus on 26 March 2021 of the request made by Poland. The Commission notified Poland by letter dated 29 March 2021 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 or she cannot deduct the VAT on his inputs. Under Article 287 of the VAT Directive, particular Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the amounts at the conversion rate on the day of their accession as specified in that provision. Under point 14 of Article 287 of the VAT Directive, Poland may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 10 000. By Council Decision 2009/790/EC, Poland was authorised, until 31 December 2012, to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 30 000 at the conversion rate on the day of its accession. Poland introduced this measure into national tax law in two steps: from 1 January 2010, the exemption threshold was increased to PLN 100 000, and from 1 January 2011, was further raised to PLN 150 000. The authorisation to apply that special measure was subsequently extended by Council Implementing Decision 2012/769/EU until 31 December 2015 and by Council Implementing Decision (EU) 2015/1173 until 31 December 2018. Council Implementing Decision (EU) 2016/2090 increased the exemption threshold to the equivalent in national currency of EUR 40 000. Poland implemented this measure on 1 January 2017 by raising the threshold for VAT exemption for small enterprises to PLN 200 000 annual turnover. This scheme is currently in force on the basis of Council Implementing Decision (EU) 2018/1919, authorising Poland to apply this derogation until 31 December 2021. An authorisation to continue to use the exemption beyond 2021 for taxable persons whose annual turnover is no higher than the equivalent in PLN of EUR 40 000 would be a significant simplification for persons operating relatively small businesses. Taxable persons covered by this exemption do not have to deduct and pay VAT, be registered for VAT or keep a full detailed record of transactions subject to VAT. Thanks to these simplifications, small business owners can devote more time and resources to developing their business. The derogating measure remains voluntary for taxable persons. Moreover, the cost of collecting VAT from taxable persons operating businesses with relatively low turnover, resulting from providing taxpayer services to these taxable persons and auditing their tax returns, is disproportionately high in comparison to the amount of tax collected. Accordingly, by applying a VAT exemption to small business owners, the revenue administration may direct more resources towards preventing and combating tax fraud, evasion and avoidance, and towards improving the quality of taxpayer services and the effectiveness of collecting VAT from large‑scale business operators.

The measure does not significantly affect the total amount of revenue from VAT or the overall amount of tax revenue collected at the stage of final consumption.

The derogating measure, simplifying the obligations of small operators, is in line with the objectives set out by the European Union for small businesses.

It is therefore appropriate to authorise Poland to apply the derogating measure until 31 December 2024.

•Consistency with existing policy provisions in the policy area