amending Implementing Decision 2013/676/EU authorising Romania to continue to apply a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax

EXPLANATORY MEMORANDUM

1.CONTEXT 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 9 February 2016, Romania has requested an extension of the derogation from Article 193 of the VAT Directive in order to apply the reverse charge mechanism to wood products. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 23 March 2016 of the request made by Romania. By letter dated 29 March 2016, the Commission notified Romania that it had all the information necessary to consider the request.

•General context

As a general rule, Article 193 of the VAT Directive stipulates that the taxable person supplying goods or services is normally liable to pay value added tax (VAT).

Pursuant to Article 395 of the VAT Directive, Romania requested in 2009 a derogation in order to be authorised to apply the reverse charge mechanism to, inter alia, supplies of wood products. Under this procedure, the taxable person, to whom the supplies are made, becomes liable for the payment of the VAT. These woods products include, more specifically, standing timber, round or cleft working wood, fuel wood, timber products, as well as square-edged or chipped wood and wood in the rough, processed or semi-manufactured wood.

This request was approved by Council Implementing Decision 2010/583/EU until 31 December 2013 and, as regards the wood products, subsequently extended until 31 December 2016 by Council Implementing Decision 2013/676/EU.

Romania has now again asked for an extension of the derogation regarding the application of the reverse charge mechanism to supplies of these wood products.

On the basis of the report provided by Romania, which was presented together with the request for extension of the measure, designating the recipient as the person liable for the payment of VAT for supplies of the above-mentioned wood products had the effect of preventing tax evasion and avoidance in this sector which is characterised by a large number of small resellers and intermediaries which have proved difficult to control. An extension for another limited period seems therefore justifiable as it would not appear that the measure has had a negative impact on fraud at the retail level, in other sectors or in other Member States.

However, any new extension should be limited in time in order to assess whether the conditions on which it is based would still be valid. It is therefore proposed that the request will be granted until 31 December 2019 and that Romania shall again present a report, which includes a review of the efficiency of the measure and an evaluation of the risk of fraud in the wood sector, if a new extension request would be envisaged beyond that end date.

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 proposal falls under the exclusive competence of the Union. The subsidiarity principle therefore does not apply.

•Proportionality

The Decision concerns an authorisation granted to a Member State upon its own request and does not constitute any obligation.

Given the limited scope of the derogation, the special measure is proportionate to the aim pursued, i.e. to prevent certain forms of tax evasion or avoidance in a specific sector.