amending Decision 2013/678/EU authorising the Italian Republic to continue to apply a special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

Reasons for and objectives of the proposal

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 5 April 2016, the Italian Republic requested authorisation to continue to exempt from VAT taxable persons below a turnover threshold of EUR 65 000. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 21 June 2016 of the request made by the Italian Republic. By letter dated 22 June 2016, the Commission notified the Italian Republic that it had all the information necessary to consider the request.

Consistency with existing policy provisions in the policy area

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 VAT on his inputs.

This measure was first introduced in accordance with the provisions of Article 14 of Council Directive 67/228/EEC. However, those Member States which did not make use of the option provided for under that provision could subsequently, according to Article 24(2)(b) of Directive 77/388/EEC now recast as the first paragraph of Article 285 of the VAT Directive, only exempt taxable persons from VAT whose annual turnover is no higher than EUR 5 000. The Italian Republic did not make use of the option provided by Article 14 of Council Directive 67/228/EEC.

Because of a significant number of taxable persons with a very low annual turnover, the Italian Republic requested a derogation in 2007 in order to simplify VAT obligations for small businesses and to ease the collection of the tax for the national tax administration by exempting taxable persons whose annual turnover is no higher than EUR 30 000. This derogation was authorised by Council Decision 2008/737/EC until 31 December 2010, subsequently extended by Council Decision 2010/688/EU until 31 December 2013 and then until 31 December 2016 by Council Decision 2013/678/EU which, in addition, increased the maximum authorised exemption threshold to EUR 65 000 of annual turnover. The Italian Republic has now requested that the measure, which is optional for taxable persons, be extended until 31 December 2019. The Italian Republic has also requested the Commission to consider an extension until 31 December 2022.

From information provided by the Italian Republic it appears that the impact of the measure on tax revenue collected at the final consumption stage will be negligible.

Derogations are normally granted for a limited time as to allow an assessment whether the special measure is appropriate and effective. Moreover, it should be noted that the provisions of Articles 281 to 294 of Directive 2006/112/EC on 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.

It is therefore proposed to extend the derogation for another period until the earliest of 31 December 2019 or the entry into force of a Directive amending the provisions of Directive 2006/112/EC on special scheme for small enterprises. Due to the ongoing review, the extension of the derogation until 31 December 2022 should not be considered. Taxable persons should continue to be able to opt for the normal VAT arrangements.

Consistency with other Union policies

The derogation requested is in line with the objectives of the 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. Moreover, no problems have been identified in the application of the measure, nor in monitoring of the businesses it covers.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

Article 395 of the VAT Directive.

•Subsidiarity (for non-exclusive competence)

Considering the provision of the VAT Directive on which the proposal is based, the subsidiarity principle does not apply.