amending Implementing Decision (EU) 2017/563 authorising the Republic of Estonia to apply a special 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 9 October 2020, Estonia requested an authorisation to continue to apply, until 31 December 2024, a measure derogating from Article 287 of the VAT Directive, allowing Estonia to exempt from VAT taxable persons whose annual turnover is no higher than EUR 40 000.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 15 October 2020 of the request made by Estonia. The Commission notified Estonia by letter dated 19 October 2020 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. Pursuant to point (8) of Article 287 of the VAT Directive, Estonia may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 16 000 at the conversion rate on the day of its accession. By Council Implementing Decision (EU) 2017/563 Estonia was authorised to increase the threshold concerning taxable persons, the annual turnover of which, does not exceed EUR 40 000. Estonia, according to the implementing decision, may apply the derogating measure from 1 January 2018 until 31 December 2020. The special procedure for small enterprises has been amended by the Council Directive (EU) 2020/285, which comes into force 1 January 2025. Estonia requested to prolong the application of the derogating measure until 31 December 2024. The new threshold, starting from 1 January 2025, according to Article 284 of the VAT Directive is EUR 85 000. Therefore the threshold value of EUR 40 000, established for small enterprises in Estonia, complies with the new provision. The maintenance of the value of the threshold for registering as a taxable person, allows for persons whose taxable turnover is in the range of EUR 16 001 to EUR 40 000, to maintain a smaller administrative burden without a significant impact on the total amount of value added tax (VAT) revenue. The workload of the tax administrator is also slightly reduced. The derogating measure remains voluntary for taxable persons.

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

The application of the measure does not significantly impact the total amount of VAT revenue collected in the phase of end consumption. The reduction, as a result of the measure, in the VAT that is paid into the state revenue is EUR 15.6 million per year, which accounts for 0.6% of the total receipt of value added tax. The derogating measure does not affect the own resources from VAT, as Estonia will calculate the compensation in accordance with Article 6 of Council Regulation (EEC, Euratom) No 1553/89. It is therefore appropriate to authorise the Republic of Estonia to apply the derogating measure until 31 December 2024.

•Consistency with existing policy provisions in the policy area