Proposal for a SIXTH COUNCIL DIRECTIVE on the harmonization of legislation of Member States concerning turnover taxes Common system of value added tax: uniform basis of assessment (submitted to the Council by the Commission)
Date: 1973-06-20
Institutions: European Commission
Subjects: VAT, approximation of laws, basis of tax assessment, distributive trades, provision of services, tax exemption

COMMISSION OF THE EUROPEAN COMMUNITIES

COM(73)950

final

Brussels , 20 June 1973

Proposal for a

SIXTH COUNCIL DIRECTIVE

on the harmonization of legislation

of Member States concerning turnover taxes

Common system of value added

tax : uniform basis of assessment

( submitted to the Council by the Commission )

COM ( 73 ) 950

COMMISSION OF THE EUROPEAN COMMUNITIES

COM ( 73 ) 950

Brussels , 20 June 1973

Proposal for a
SIXTH COUNCIL DIRECTIVE

on the harmonization of legislation
of Member States concerning turnover taxes

Common system of value added

tax : uniform basis of assessment

( submitted to the Council by the Commission )

COM ( 73 ) 950

- 1 -

Proposal for a Sirth Directive on the harmonization
of turnover taxes

COJJTEIITS

Explanatory Note
Recitals

Introductory Provisions
Field of Application
Territory

Taxable Persons

Taxable Transactions :

Supply of Goods

Works of Construction

Supply of Services
Imports

Place of Taxable Transactions :

Supply of Goods
Supply of Services

Chargeable Event and the charge to tax
Taxable Amount

Rates

Exemptions :

pp . 1-39
pp . 40 - 43

Article 1

Article 2

Article 3

Article 4

Article 5

Article 6

Article 7
Article 8

p. 44

P. 45
p. 46
P. 47

p. 49
p. 51
p. 52
P. 52

Article 9

Article 10

Article 11

Article 12

Article 13

P. 53
P * 53
PP . 54 & 55
pp . 56 - 58
p. 59

within the territory of a country
on imported goods
on exports and like transactions and
international transport

Article 14

Article 15

pp . 60 - 63
pp. 63 - 65

Article 16

pp . 65 - 68

Deductions :

existence and scope of the right to
deduct

rules for exercising the right to
deduct

calculation of the deductible
prepaction
adjustments of deductions

Article 17

pp . 69 & 70

Article 18

Ρ » 71

Article 19
Article 20

p. 72
P. 73

-2-

Persons liable for payment of the tax

Article 21

P. 74

Assessment of the amount of tax to be
paid and liability for payment of the
tax

Obligations of persons liable for
payment i

Article 22

P. 75

under the internal system

Article 23

pp . 7 6 & 77

in respect of imports

Special schemes *

small undertakings

second-hand goods

agriculture

Transitional provisions

VAT Commit tee

Miscellaneous provisions

Annex As List of activities in

agricultural production

Annex Bi List of agricultural services

Annex C * Common method of calculation

Article 24

P. 77

Article 25

Article 26

Article 27

Article 28

Articles 29-
31

Articles 32-
36

pp . 7° & 79
PP . 79 & 80

pp .. 80 - 86
p. 87

pp . 88 & 89

P. 90

P. 91

P. 92

PP . 93 - 10 =

- 1 -

EXPLAMTORY MEMORANDUM

Scope and objectives of this proposal for a directive

This proposal for a sixth directive on a common system of value added tax -
uniform basis of assessment – aims to achieve a number of objectives which
have already been defined in various Council instruments .

The two directives of 11 April 19<>7 on the harmonization of turnover taxes
provided the basio principles for the common system of value added tax, but
numerous and significant derogations were still possible as regards the
scope of application of the tax.
provided that such derogations should be progressively restricted or abolished.

Article 19 of the second Directive only

Tho first step in this direction was taken on 9 December 1969 » when the
Council passed a resolution underlining the necessity for the retail trade
to be included within the scope of application of value added tax from the
time of its introduction in each Member State , and for keeping to a minimum
the number of different rates of tax.

1

Article 4 of that decision provides that from 1 January 1975 *

Then, on 21 April 1970 , the Council decided to replace the financial con­
tributions of Member States to the Communities' budget by the Communities'
own resources .
" own resources" shall include , in addition to customs duties , agricultural
levies , and any other revenue from taxes entered in the Communities' budget ,
resources acoruing from value added tax and obtained "by applyiiig a rate not
exoeeding 1^ on an assessment basis determined in a uniform manner for
Member States according to Community rules .

To achieve a fair and consistent apportionment among Member States , it has
been agreed that a uniform basis of assessment should be achieved by laying
down common rules such that the resources accruing from value added tax
should equal the amount obtained by applying the " community" rate to the

10J No L 94, 28 April 1970, p. 19»

- 2 -

taxable

amount at the last stage at which the tax applies , that is

actual
to say the selling price , less value added tax, for supplies of goods and
services to a customer who is not entitled to make deductions of input tax
in respect thereof .

In other words , the common rules must he arrived at by determining an area
of application for value added tax which will be identical 1 under each
national law, particularly as regards which persons and which transactions
are taxable or exempt , the methods of calculating the taxable amount and
special schemes *

»

In the context of the harmonization of value added tax, mention must also be
made of the important Resolution of the Council and the Representatives of
the Governments of the Member States, passed on 22 March 197 1 ^ concerning
the achievement by stages of economic and monetary union , and the expedition
of effective free movement of persons , goods , servioes and capital .

a uniform system of tax and the interpretation of

The two objectives :
economies , are inseparable , as witness the wording of Title III point 2 of
the abovementioned Resolution of 22 March 1971 » where it is stated that in
the field of taxation euch interpenetration must be achieved, in an
appropriate manner, by the adoption of Community rules on the uniform basis
of assessment within the meaning of the Decision of 21 April 1970 .

It is on the basis of these various Council instruments that this proposal
for a directive has been drawn up.
only of the collection cf the Community 's own resources accruing from value added tax
but also of economic and monetary unior. of which this harmonization is but
one part in the wider context of eoonomic integration *

It should be seen against the background not

For the avoidance of doubt , the Commission has decided to present its
proposal in the form of a complete text , incorporating all those provisions
of the second direotive which it is not proposed to amend.

10J No C 28, 27 March 1971 » P«

1

- 3 -

Arti'le 1 :

Introductory

the Member States are called upon to
Upon the adoption of this Directive ,
take the necessary measures to adapt their value added tax systems to the
previsions of this directive , so that the Community 's own resources accruing
from value added tax may be collected in accordance with Community rules .

Article 2 : Fie-ld cf application

This Article incorporates the provisions of Article 2 of the Second Directive
of 11 April 19^7 on the application of the tax to supplies of goods and

services and imports of goods .

It also subjects to value added tax the

receipt of certain services by persons established in the Community .

This

new case for the application of the tax must be considered in the light of

the situation resulting from the provisions of Article 10 on the place of
supply of services , and the exemption provided for in Article 1 6 ( 1 G ) •

Although difficult to enforce in certain cases ,

the aim of taxing ,

through

the recipient , services supplied by a person established abroad ,

is to make

it impossible ,

legally , to be a recipient of services intended to be utilized

within a Member State -without having borne value added tax .

Artic_e 3î Territrrv

Giver, the importance of this question with regard to the Comnnmity 's 01m resources ,

it proved necessary that each Member State should determine in the same war the terri­

tory on which it applies value added tax .

However , exceptions may be made

in tv>e case of Member States who , for historical reasons particularly , wish

to continue to apply value added tax to a territory smaller than that com­

prised by their national territory plus its territorial waters .

Article 4 : Taxable persons

The new definition of taxable persons demonstrates the concern which exists

that the field of application of value added tax ,
as a general tax on consumption , should be extended to cover all economic
activities , wherever they take place , and all transactions which are in the
nature of such economic activities but which may be carried out separately or

in keeping with its character

Such transactions should be taxed in order to ensure impartial
occasionally .
application of the tax , particularly as regards supplies of immovable property .

- 4 -

The definition of a taxable person, although applicable only in the Member
States , is not confined, to the boundaries of the Community ;
to make the tax more impartial with regard to the plaoe where undertakings
may be carrying on business *

this is in order

In particular , the new definition of taxable person should be read together
with Article 21 ( l )
(person liable for payment of tax inside the country) and
Article 17(2 ) and ( 3 )

(scope of the right to deduction).

Moreover, paragraph 4 goes into finer details , so that, in the interests of
simplifying administration or of combating abuses ( e.g. the splitting up of
one undertaking among several taxable persons so that each may benefit from
a special scheme ) Member States will not be obliged to treat as taxable
persons those whose " independence" is purely a legal technicality.

Lastly, it is provided that legal persons governed by public law must be
treated as taxable persons to the extent that they pursue eoonomio activities
not inherently those of a public authority, that i3 to say activities which
could be pursued by persons governed by private law without usurping the
basic functions and powers of the States , provinces , communes and other
public law bodies in general administration, the administration of justice,
or national security or defence .

A particular result of this definition is that the management of motorways ,
oanals or harbours constitutes a taxable economic activity.

Article 5 *

Taxable supplies of goods

Paragraph 1
The general definition of a supply of goods is that contained in the second
direotive .

It applies therefore to both movable and immovable property.

Immovable property is involved in this directive in two ways :

( 1 ) as products which at the end of an economic cyole are supplied to

individuals as consumers ;

(2 ) as a means of production the cost of which is reflected in the price

of goods or servioes .

"the principle requires that the construction and

Seen from this angle ,
marketing of new buildings crust be subject to the tax ,
the vendor nay be acting .
tween new buildings and old ,
to determine the moment at which the building leaves the production process
and becomes a subject of consumption , that is to say when the building begins
to be used by its owner or a tenant .

To resolve difficulties in distinguishing be­
the notion of first occupation has been used

in whatever capacity

With regard to old buildings , a distinction should be made between residen­
tial and other buildings .
In principle residential buildings are excluded
from the scope of value added tax as being property which has already been
" consumed" by virtue of the first occupation thereof .
However once such
a building is sold to a taxable person , such as a dealer in immovable
property , it re-enters the commercial circuit .

To take account of this

" re–commercialization" of the building , which would involve an unduly heavy
tax burden on the business of the property dealer , it was necessary to tax
it otherwise than under the general rules and to provide ,
that Member States may treat as the chargeable amount for value added tax

in Article 12 A(l)(d )

the difference between the sale price and the purchase price .

With regard to supplies of old buildings which are not residential buildings ,

these transactions are taxable because the vendor is usually a taxable person
pursuing an economic activity within the meaning of Article 4(2 ) and because

all supplies for consideration by a taxable parson axe taxable transactions .
However ,
necessary modifications to the general principles of the tax .

the exemptions provided for in Article 14 B(l ) and (m ) make the

Against i;he background of value added tax seen as a tax on consumption which
applies at all stages of production and distribution ,
land would seem to be a
most unsuitable subject for value added tax , since it is neither produced
nor consumed .
Bat , if earth as such cannot be " produced", it can however
be the subject of certain productive economic activities which may add value
a building site cleared and prepared will be more valuable than such
to it :
a site in its natural state , and the source of the difference in value is
the economic activity .
The selling price will not be broken down into the
price for the land as such and the price of the work which has been carried
out on it .

If supplies of land are exempted from value added tax ,

then

- 6 -

one thereby exempts also the work whioh may have contributed to its value ,
if the land is supplied to an individual ;
by the same token however , the
work will be taxed twice over if the land is supplied to an undertaking .
Moreover , a distinction between a site prepared for construction ( foundation,
roads , levelling, installation of drainage and water supply systems ,
installation of electricity supply, etc ») and a site with a completed
building on it is a completely artificiel distinction, since in both cases
a certain quantity of work is incorporated indivisibly into the earth .
Indeed, plots of land would appear to be a "raw material" of eoonomic
activities .
Even if one considers that they cannot be the subject of con­
sumption in the strict sense of the word , they are nevertheless put to use ,
to satisfy either the needs of individuals ( residential premises ), in which
case they have the nature of consumer goods , or the needs of business under­
takings , in which oaee they constitute investments .

For these reasons it appears necessary that plots of building land should
be subject to value added tax.

The purpose of the provisions of

One of the features of real property in private law is the existence of rights
in rem which give the owner the right of economic utilization of the property
to which they attach ("usufruct", " emphyteusis", "superficie" etc .):
the
transfer of such a right involves the transfer of the right to dispose of
the property as owner, within the limits allowed by the law.
On the other
hand the holding of shares in a property company can be equivalent to having
an interest in immovable property.
paragraph 1 is to charge tc value added tax , for oDvious reasons of
impartiality , transactions which , economically speaking , are equivalent to
The taxation of supplies
a supply of immovable property or part thereof .
of new buildings and building plots must not however involve any undue
increase in the fiscal burden on such operations .
Therefore , for social
reasons , Member States should refrain, at least in respect of oertain of
tuese transactions , from levying- ttatiea in respect of the registration thereof,
and should apply value added tax thereto at a reduced rate .
Paragraph 2
By comparison with the corresponding provisions of the Second Directive of
11 April 1967 , the notion of a supply of goods has been extended, by a provision
relating to certain constructive transfers of movable or immovable properties
( see(b)).
These contracts usually effect a transfer of property upon their
expiry , by virtue of the exercise by the user of the property of an option

-7-

They should therefore, for reasons of impartiality,

to purchase •
treated as taxable supplies within the meaning of this directive since when
the property is made available to the user, what has taken place in fact
can "be described as a Bale with payment "by instalments -

"be

Paragraph 3
The classes of transaction treated as taxable supplies are also added to "by
a new provision (paragraph 3(o));
advantages "by taxable persons who are entitled to deduct input tax,
applications of goods to own use , and transfers of goods from a taxable
business to an exempt business are treated as taxable supplies .

to avoid the enjoyment of unjustified

The same aim could have been attained by means of adjustments to deductions
already made , but the teohnique of treating these transactions as taxable
supplies was chosen for reasons of impartiality and simplicity.

Paragraph 4

contributions to companies can be considered as supplies for consider­

Since
ation, chargeable to tax, and since certain transfers for no consideration
have been treated as taxable pupplies , Member States have the option, in
the interests of simplicity and so as not to overburden the resources of
the undertaking making the contribution, to waive the tax involved»
This
option would be exercized particularly where the undertaking receiving the
contribution intends to apply the goods in question for the purposes of a
taxable business *

Article 6 :

Works of construction

The second directive treats as a supply of goods "the delivery of works of
construction, including those in which movable property is incorporated in
immovable property" (Article 5(2 )( © ))• Annex A(5 ) of that Directive , without
giving a definition of "works of construction", gives a list of various
operations which are examples thereof and, as a measure of tolerance,
permits certain operations to be classified as supplies of servxces where ,
for specifically national reasons , they cannot be considered as supplies of
goods .
It would appear that differences in classification could give rise
to discrepancies as regards the taxable anoint ,
charge to tax arises , the rate of tax and the rules for collection.
the other hand, a definition of what constitutes a contraot for the supply

the time at which the
On

- 8 -

of works of construction, which could solve certain problems , would run
into difficulties "because of the different concepts employed in the national
With a view to eliminating all sources of discrepancy, it seemed
laws .
desirable to draw up a list of operations to be treated as works of con­
struction, in respect of which the detailed rules for the application of
the tax are those laid down in respect of supplies of goods .

Article 7 s

Taxable supplies of services

Under the provisions of this Article , combined with the repeal of Article 6(2 )
and Annex B of the Second Directive of 11 April 19^7 , all supplies of
services are henceforth taxable , with the exception of those covered by
exemptions contained in this Directive .

Paragraph 2 , in the interests of making the tax impartial , deals with two
cases to be treated as taxable supplies of services .
In the first case
(application of goods from a business for purposes not connected with, the
business ) as in the case of taxable applications within the meaning of
Article 5(3 ) (a), tax is only charged if the input tax on the goods so
this provision is to avoid such applications
applied is deductible ;
escaping tax altogether.
persons considered to be a single taxable person), tax is not chargeable
where the input tax thereon would be deductible by the reoipient had they
been supplied by another taxable person.

In the second case ( supplies of services between

Article 9 *

Place of supply of goods

By comparison with the corresponding provisions of the seoond directive of
11 April 1967 f this Artiole contains a new provision to cover the oase
where the goods supplied are to be installed or assembled by the supplier .
This was necessary in view of the difficulties which might have arisen by
reason of the differences which have been noted between certain national laws .

The main result of the new provision is that where a supplier exports an
item in its component parts and assembles it in another country, the place
of supply is deemed to be the plaoe where assembly is effected.
The sup­
plier will be taxed upon importation on the value of the parts and will be
taxed again, in the country whera he becomes a taxable person, in respect
of the value of the item conoorned, including assembly, with deduction of
the tax paid on importation.

- 9 -

Take the special case where a supplier delivers component parts in which
ownership has passed to the purchaser , for example , on their leaving the
this special procedure does not
factory, and then assembles the parts :
defeat the rule as to the place of supply of goods , which is still the plaice
where the assembly takes place .

Article 10 :

Place of supply of services

This choice was made mainly for reasons

For all supplies of services , with the exception of services connected with
immovable property and transport services , the place where the services are
supplied is deemed to be the place where the supplier has established
the seat ef his business activities .
of simplicity and for the avoidance of difficulties of interpretation which
might arise from notions such as the place of utilization or exploitation of
the services .
As a corrollary to this choice , and to avoid overlapping of
taxes , which would be to the distinct disadvantage of national suppliers , a
number of exemptions have had to be provided in respect of services supplied
to customers established outside the country of the supplier (Article 16 ).
When tax boundaries are abolished within the Community, these exemptions will
only apply in respect of customers established outside the Community}
the result that the choice made now as to the place of supply will remain
fully effective .

with

With regard to transport services , and in view of the peculiar nature of such .
services , it seemed advisable to provide that the place where they are
supplied should be the place where transport takes place , ascertained having
regard to the distance covered.
tinder this principle all transport on the
territory of a Member State will be subject to value added tax.

With regard to supplies of services connected with immovable property, such
as the storage of goods , the letting of buildings , or the letting of safes ,
it seemed preferable to connect the tax with the locality of the immovable
property.

Article 11 :

Chargeable event and li ability for tax

The determination of the event by virtue of which the tax becomes dxia (chargeable
event ) and the determination of the moment at which the tax authority
becomes entitled to claim the tax (when the tax becomes chargeable ) and the

- 10 -

moment when the tax must be paid ( liability for payment of the tax) have
given rise to numerous controversies .
Member States , the moment when the " chargeable event" takes place is indis­
tinguishable from that when the tax becomes chargeable . On the contrary
howeveij for practical reasons , the tax usually does not become payable
until a later date *

Under the laws of most of the

Although these differences between the various national laws as regards
these concepts and the times at which they become relevant should not be an
obstacle to the harmonious collection of that portion of own resources which
from 1 January 1975 is "to accrue from value added tax, the determination of
the moment at which the charge to tax arises is nonetheless important for*

( 1 ) determining time limits for invoicing
(2 ) determining the time when the right to deduction arises
( 3) determining the tax period in which a taxable transaction takes

place

(4) fixing the time at whioh the tax must be paid to the collecting

authority, as such payment depends on the declaration

( 5 ) determining, where changes are made in the tax rules or in the rate of
tax, whether a transaction is taxable or not under the new rules or at
the new rate .

j.t seemed necessary therefore to incorporate in the text concerning the uni­
form basis of assessment for value added tax definitions of the concepts of
" chargeable event", the tax becoming "chargeable",
the amount of tax to be paid"
mainly because of the effoets of these notions on the obligations of taxable
persons who, under the value added tax system, act in effect as tax collectors *

1
and "liability for payment of the tax" y

"the assessment of

-

_

1

.

The moments at which these concepts become relevant have been determined
having regard to the following considerations :

Under internal systems
It is generally agreed that tho moment of the chargeable event is that of
each supply of goods or each supply of services, but there is no such general

The definitions of the assessment of the amount of tax payable and the rules
governing payment of tax, in respeot of both domestic and import transactions ,
are contained in Title XIII, Article 22 .

- 11 -

agreement as to when the tax becomes chargeable.
in favour of the view that the tax could become due to the collecting
at a moment other than that of the chargeable event .
that the tax becomes chargeable:

There are numerous arguments

Thus one could consider

(a) in respeot of transactions between taxable persons , at the time when
the invoice is delivered confirming (or accompanying) the supply of
goods or services or , failing the delivery of an invoice , when the time
limit for such delivery expires ,

( b) in all other cases , at the time of receipt of the consideration for the

transaction .

Hiis solution is not only attraotively simple but also makes f T fairness in
the application of the tax by stating the principle that the tax sh juld not
become due before the time when the vight to deduction can be exercized .
the other hand , for small businesses the majority of whose transactions are
with individuals , the rule relating to the receipt of the consideration
avoids practical difficulties and the financing of the tax in advance by
their customers .

On

This solution does not however seem to have been accepted in its entirety in
the laws of certain States , for fear not only of difficulties of inspection
but also of a time lag in collection compared with the present situation,
given the possibility of invoices and payments being delivered and made after
Nor is it possible by commercial custom
the taxable transaction takes place .
to require that in every case the supply of goods or services should be
invoiced or paid for immediately.

For the latter reasons , it seemed preferable to retain the principle set out
in the Second Directive whereby the chargeable event occurs and the tax
becomes ehargeable at the same time, whilst still allowing the Member
States te provide for the tax to become ehargeable when the supply is invoiced
or paid for .

However , when payments on account are received prior to the chargeable
event , receipt of these amounts gives rise to a charge to taxf since the
parties to the transaction in this way demonstrate their intention that all
the financial consequences of the chargeable event should arise in advance .

-

2 -

Inports

The principle set out in the Second Directive has also "been observed, with
regard to imports .

As a general rule , the chargeable event is the importation of the goods into
the country and the tax becomes chargeable at this time . However , if the import
is subject to customs duty , agricultural levies or taxes having equivalent
effect under a common policy, then , for practical reasons , the chargeability
Such linking
of the tax is linked to that of those duties, levies or taxes .
is no longer optional as in the Second Directive , but is obligatory .
The
particular aim of this is to avoid technical difficulties which might arise
in administration if , for example , customs duties to be included in the
chargeable amount only became due after value added tax became due .

There is no longer any reason , however , as regards intra*»Community transactions ,
to link the value added tax to a non-existent chargeable event or charge to
Moreover , certain Member States have already
duty for customs purposes .
abolished as between themselves not only tariff barriers but also customs
barriers .
Therefore the principles and rules to be applied in this area
However , where upon their
henceforth are those proper to value added tax .
importation into a country goods are placed under customs and/or fiscal rule
( including the Community transit procedure ), I .ember States may provide that
the tax shall not become chargeable before the moment when the goods are re­
leased from such control to be put into free circulation ( see also
Article 13 on the rates of tax).

Article 12 : Taxable amount

As in the case of " chargeable event", the definition of "taxable amount "
is a definition applicable to each individual transaction by way of supply
or importation of goods or supply of services .

"taxable amount "

Taxable amount for internal transactions
The definition of
stages of the marketing process ( i.e. in respect of eaoh partial payment of
value added tax) .
The definition must nonetheless be drawn primarily with
a view to its application to the final transaction with the consumer rather
than to transactions between taxable persons .

must be such as to be usable at all

- 13 -

"taxable amount "

Thus "the definition of
should be first and foremost a
definition which can be easily applied to the last stage of the marketing
process , when the full amount of the tax becomes payable by the oonsumer .
There must be available for application at this stage a simple definition
capable of being generally understood and applied by those accountable for
the tax.

In the vast majority of cases , the consideration for a supply of goods or
services is the price , that is a sum of money payable to the supplier .
would therefore seem logical to base the definition of "taxable amount "
in the first place on the price - a notion familiar to all traders - always
provided of course* that it is a true price and constitutes the sole consid­
eration for the transaction concerned.
consideration ( for example transactions in which the supplier receives, over
and above the price, other "advantages", or where the tax authorities oan
prove that the price is not a true one), the taxable
be estimated by applying the mere theoretical notion of the " open-market value".

Where the price is not the sole

amount will have to

It

The purpose of this Article is not to change the substance of the provisions
in this connection of the second Directive, but simply to confirm
on paper an existing situation of fact .
the " consideration" referred to in the second Directive is in fact the price ,
it seemed more logical to provide that the taxable
primarily by reference to the "prioe" and failing this by reference to " open
market value".

Given that in virtually all cases

amount should be determined

For, what has to be taxed is the actual cost to the consumer of goods and
services and not a theoretical value rut upon them.

Paragraph 3 provides that certain items are to be excluded in calculating
These include interest due cm account of deferred
the taxable amount .

or late payment and the cost of returnable packings .

The exclusion of interest on sales on deferred terms is analagous to the
exemption in respect of credit transactions provided for in Article 14(®) (j ) •

The exclusion of interest on account of late payment is justified by the fact
that such interest , being intended to penalize the buyer , cannot be said to
form part of a normal commercial transaction.

-

I -

The purpose of excluding the cost of returnable packings is to avoid having
to adjust the
packing is returned by the customer .

each time , as is normally the case , the

-taxable amount

Taxable amount for importations
The provisions of the second Directive concerning the taxable amount
in the case of imports are somewhat imprecise and in places contradictory .

On the one hand Article 8(c ) of that Directive provides that , in the case of
importations of goods , the basis on which tax is to be charged is the customs
value of the goods , even where the goods are in fact exempt from duty ( e.g.
any goods imported from other Member States ) or not subject to ad valorem
duties .
On the other hand , under the provisions of Annex A relating to
Article 8(c ) Member States are to endeavour to apply to importations of goods
from the other Member States a basis of assessment which corresponds to that
applied to domestic transactions (which is certainly not the customs value ).
Furthermore , in the case of importations from third countries , Member States
may likewise use in place of the customs value a basis of assessment corres­
ponding to that employed for domestic transactions .
Lastly, when the second
Directive was being adopted it was stated in relation to Article 8(c ) that
the Commission planned to present to the Council as soon as possible proposals
laying down common criteria in this matter which would
apply both to intrar-Community trade and , where Member States availed themselves
of the option provided for in the second paragraph of point 14 in Annex A of
the Directive , to importations from third countries .

endeavouring at the same time to retain the notion of

With a view to clarifying the position , it has been sought to put domestic
transactions and importations on the same footing as regards the taxable
amount , while
" customs value" for cases where goods are subject to customs duties .
Thus
the expression " open market value", which can apply both to domestic trans­
actions and to importations , has been defined in such a way as to be virtually
equivalent to " customs value".
Moreover , as is the case with " customs value",
the notion of " open market value" will apply to importations only in those
exceptional cases in which there is no " price paid or to be paid".
To make
the rules absolutely vrcitertight , it has been provided that where the customs
value has to be determined ( i.e. in the case of goods imported from third
countries subject to ad valorem duties ) the

taxable amount for

value added

- 15 -

tax in no case be lower than the value established for customs purposes .

Miscellaneous provisions
It is provided that where the price remains unpaid (whether in whole or in
part ), the taxable
To avoid abuses , the Member
amount may be reduced.
States are to lay down the conditions for applying this provision.

Finally there is a general provision, applicable both to domestic transactions
and to importations , whereby the Member States may, provided they first con­
sult the Value Added Tax Committee , maintain or introduce standard or
minimum rates for certain transactions .

Article 13 * Rates

Paragraphs 2 , 3 and 4 incorporate the provisions of Article 9 of the second
Directive .
Only paragraph 1 contains new provisions , which are required in
connection with the collection of the Community ^ own resources .

Title X i

Exemptions

Article 10(3 ) of the second Directive left the Member States completely free ,
subject to the obligatory consultations provided for in Article 16 , to provide
whereas the purpose of the present
for whatever exemptions they thought fit ;
Directive, dictated by the need to ensure equality of treatment as between
the various Member States as regards collection of the Community 's own re­
sources , is that there should be uniformity as to the transactions whieh are taxable
This necessarily implies uniform rules as to exemptions .

The list of exemptions has been drawn up having regard (i) to the exemptions
already existing in the various Member States and ( ii ) the need to keep the
This need reflects a concern to
number of exemptions as small as possible .
keep exceptions to the minimum in a general system of taxation of consumption,
but also reflecig a desire to avoid the inconveniences which such exemptions
cause, mainly by reason of the fact that , unless the transaction exempted
forms part of an international trading operation, taxes paid on inputs will
not be deductible .

Article 14

The exemptions provided for within the territory of a country are based on a

- 16 -

The exemptions set out in section A are those already-
They relate to th^ postal

variety of grounds .
existing in the majority of the Member States .
services - (a), to medical servioes - (b), ( o), (d), ( e) and (f), to welfare
services - (g), to educational services - (h) and ( i ) f to physical recreation -
( j ), and to "bodies providing services of a social , cultural or educational
nature - (k).

The other exemptions , which are set out in section B, relate to specific
fields , such as insurance , provision of credit and dealings in currency and
on the stock exohange , where they are justified for reasons of general
policy common to all the Member States .

As regards paragraph ( d), it should be noted that in the Member States the
letting of immovable property is generally exempted on technical , economic
and social grounds .
lettings of premises as dwellings and of agricultural tenancies no longer
apply in the oase of hotel premises or of lettings for industrial or com­
mercial purposes *

But the arguments which justify the exemption of

The exemption under paragraph (k) of gaming and lotteries is based on purely
practical considerations .
taxation on a value-added basis and are better dealt with by means of special
taxes .

Such aotivities are in effect ill-suited to

The exemptions provided for in paragraphs ( l) and (m) are the necessary
corollary to the provisions of Articles 4 and 5 conoeming supplies of
buildings or of building land.
plies , even where these are carried out by taxable persons carrying on an
activity coming within Artiole 4(2 ).

The object is to avoid taxing oertain sup­

The exemptions apply in the following cases :

– where tax -aid net become deductible by virtue ©f the transaction whereby the
owner acquired the property (property already outside the field of appli­
cation of VAT, or property acquired under payment of tax but with no right
of deducxion);

– where the property concerned is not building land as defined in

Artiole 4(3)(c ).

- 17-

Artiele 15ï Hjggmrticns cn imrorted ^ cis

They mainly concern goods exempted •under the domestic

x_e exemptions provided for in respect of inpcrtcd goods are also "based an
various grounds .
scheme , "but account has also "been taien of the general principles of cmstoes
legislation, vith a view to coordinating VAT and customs arrangements and
thus simplifying the administrative work involved. Admittedly, the con­
siderations underlying the exemptions in respect of customs doty are not
necessarily the saee as those gav&n.irg YAT exemptions ,
of cases (importations under aipierratic arrangements ,
transit and warehousing,
the aia pursued and the econccic justification are identical .

"but in a good number
temperary importations ,
consignments, etc. . • )

■travellers 1 allowances ,

Paragraphs 1 , 2 , 3» 6, 7 » 8 , 10 and 11 require no special explanation,
whereas the other paragraphs Eerit further comment .

The exemption provided

for in paragraph 4 applies to goods vfrj <»->» qualify for non-tariff exemption from

customs duties , i.e. under cte of the exemptions provided for "by the Member

States , subject to their own conditions ,
national customs tariffs ( e.g. removals , wedding gifts , fruit and crops
grown in frontier zones ).

in the introductory notes to their

In paragraph 5 » it was considered desirable , in order to avoid frequent cases

of double taxation, to extend the provision in respect of goods reimported

into the State free wMoh they ware exported to cover the reimportation of

oct or vehicles

"break down in another Kember State and have to be

repaired there .

Likevise with a view to avoiding double taxation, paragraph 9 covers

importations of used goods not qualifying for exemption under any other

provision of this Article .

It would apply for example to notor vehicles ,

boats etc . owned by a private individual moving residence froo one Kenbrrr

State to another .

Having paid tax on the goods in the first Member State

at the tine of purchase hp would normally be liable on coming to the new

Hember State to pay tax a second time .

It was felt desirable that in such

circumstances tax should be chrjgcabl^ only where a difference in the rate

of tax as between the two Member States concerned eight result in tax evasion.

- 18 -

Article 16 :

Exemption of exports and like transactions and international

In accordance with the basic principle of the system, whereby supplies by
way of export must be relieved of input value added tax, Article 1 6 sets
out the transactions which are exempted from tax "but nevertheless give rise
to a right of deduction in respect of the tax on the value previously added.
The majority of the transactions listed require no commentary since these
are exemptions whioh already exist in the Member States .
as regards the supplies by way of export set out in paragraphs 1,2 and 3
and the transactions of a like nature covered by paragraphs 4» 5 » 6 , 7 » 8,
9 , 11 and 12 .

This is the case

The exclusion of vessels used for non-commercial purposes from the exemption
in respect of supplies of sea-going vessels and of goods and servioes in
connection with the use of such vessels is justified by the nature of such
transactions , which constitute supplies of consumer goods and services and
as such must be subject to VAT.

The exemption provided for in paragraph 10 in respect of supplies of
services is a necessary corrective to the provisions of Article 10 .

Under Article 10 the place where the service is supplied is deemed to be the
place where the person providing the service resides .
supply of servioes to a person in another Member State or outside the
Community would in prinoiple be taxable in the country of the person pro­
viding the service .

It follows that a

It is considered undesirable that such a rule should apply to the supplies
of services sot out in paragraph 10 .

For, in the case of services supplied to a person established in a country
other than that of the person supplying the servioe , application of the
general rule as laid down in Article 10 would make Community supplies subject
to distortions of competition vis-^-vis those in third oountries , while it
would also lead to distortion of competition within the Community, in that ,
beoause of differences in rates as between the Member States , the competitive
position of suppliers would vary according to the State in which they were
established .

- 19-

It is accordingly provided that the supplies set out in paragraph 10 are to
be exempted in the country of the person supplying the service, upon condition
that the latter proves that the customer is established outside the Community;
he is not required to prove that the customer is a taxable person within the
meaning of Article 4-»
On the other hand, where the customer is a person
established in another Member State , it is provided, in order to prevent
the transaction escaping tax altogether, that the person supplying the
service must prove that tho customer is a taxable person, the latter being
required under Articles 2(3 ) and 23(8) to declare the supply to his
national tax authority .

Exemptions in respect of international transport operations are dealt with
in paragraph 13 «

Subparagraph (a) provides for exemption in respect of the carriage of
imported goods to the first place of destination, which is normally the
place indicated in the consignment note accompanying the goods when they
arrive from the country of exportation.
exemption, designed to simplify collection of the tax.
12 B(2)(b) the " exempted" cost of carriage is in fact included in the taxable
amount in respect of the goods imported.

This is a purely "technical"

For , under Article

Subparagraph (b) concerns the transport of goods which are being carried to
a destination outside national territory or to an export bonded warehouse
This exemption, which is based on economic grounds , is in
or in transit .
fact linked to the exemption in respect of the goods being so carried.

The exemption provided for in subparagraph (c ) applies to the domestic
section of international passenger transport operations by air or sea.
This exemption was considered desirable in order to avoid the practical
difficulties which, under present circumstances , a sudden change in the
system of taxation of such transport operations would cause .
Such an
exemption is however contrary to the basic principle of the common system
of value added taxation, whereby all modes of transport should receive
equal treatment as regards taxation.
The exemption is therefore to apply
only until 1 January 1975 ( cf. Article 28 ), the Commission being required
in the meantime to examine methods for putting into effect a system of
taxation applicable to all types of passenger transport within the Community,

- 19a _

irrespective of the nationality of the transport undertaking concerned#

There is a provision for tax on inputs in respect of the transactions
exempted under this Article to "be refunded.

Article 17 :

Existence and scope of the right to deduct

Paragraph 1

This paragraph specifies the time from which the right to deduct may "be
exercised and, consequently, the
may be exercised*

tax period during which the right

A taxable person may only exercise his right to deduct
respect of the previous transaotion has become chargeable .

if the tax in

- 20 -

Paragraph 2

The first subparagraph is largely based, on Article 11(1 ) of the second
Directive j which defines the cases in which tax may be deducted .
The
principle has been maintained that value added tax on goods and services
used for the purposes of non–taxable or exempt transactions ( except for
transactions effected abroad and exports) should not be deductible
A fourth case where deduction is possible has been added , namely where
tax is paid by or due from the recipient of services supplied by a foreign
supplier as described in Article 2(3), where the recipient is a taxable
person .

Paragraph 3

The aim of this text is to render obligatory what was merely an option
given to Member States by paragraph 21 of Annex A to the second Directive .

Paragraph 4

This provision is to avoid cases where a taxable person established
bear value added tax invoioed to him abroad
abroad might have to
without possibility of refund .
of a businessman exhibiting at a trade fair abroad , or indeed a carrier
whose lorry has to be repaired abroad .
is avoided .

Such cases could be those for example

In this way a double economic burden

Paragraph 5

There is nevertheless a

Such inequalities may work to the detriment

This paragraph repeats more or less the corresponding provisions of the
second Directive (Article 11 (2 ), third subparagraph , and Annex A
paragraph 22 ) on the general pro-rata rule .
new provision in the last subparagraph , aimed at avoiding inequalities
in the application of the tax.
or to the advantage of the taxable person , given that the proportion
is a fixed amount which Bay give rise to deductions either greater
or smaller than would have resulted on the basis of actual use .
connection the States may authorize or oblige the taxable person to
determine special proportions send to Bake deduotions on the basis of
actual use to which all or part of the goods and services are put in the
business concerned , where he is able to show such use by means of separate
aocounts .

In this

- 21 -

Paragraph 6

It would appear that certain expenditure , even though incurred in the
ordinary course of business , is also incurred for private purposes , and
apportionment of such expenditure "between ""business" and "private"

purposes could not "be adequately supervised .

For this reason , it is provided that the categories of expenditure listed
in paragraph 6 should "be excluded from the scope of the right to deduct ,
so as to ensure uniform collection of own resources and to avoid abuses ,
and indeed large–scale fraud .

Article 18 : exercise of the right to deduct

Paragraph . 1

This paragraph defines the purely formal prerequisites for the exercise
of the right to deduct
completion of other formaJities ).

(holding of an invoice or customs document or

It should be pointed out however that an invoice is no more than evidence

of a right to deducts
of an actual transaction ( supply of goods or services ).

there is thus no right to deduction in the absence

Paragraph 2

This paragraph maintains the principle of immediate deduction , as already
laid down by Article 11 ( 3), first subparagraph , of the second Directive.

Deduction of the tax deductible in accordance with paragraph 1 must be made
for the tax period dnri
17(1 ).

whissh it becomes deductible under Article

There is one exception only to this rule , in the oase of persons who become
taxable by virtue only of occasional transactions as referred to in
Article 4(3)(b ) and ( c ). Deduction should not be allowed unless it can be
shown that the transaction in question is taxable .

It also seemed necessary to lay down a rule whereby a taxable person who has
been unable to make a deduction at the right time may exercise his right

within a certain time-limit .

- 22 -

Paragraph 3

The aim of the rules laid down in paragraph 3 is to avoid the quasi-taxation

of taxable persons arising from an excess of deductible tax over tax pay­

able in respect of taxable transactions in the same tax period .

Article 19 » calculation of the deductible . proportion

Paragraphs 1 and 3

More precise rules were necessary in order to avoid descrepancios between

the national laws as regards the determination and calculation of the

factors to be taken into account in defining the normal proportion .

Paragraph 2

The factors mentioned in this paragraph must be exoluded from the

calculation of the proportion lest , being unrepresentative of the

taxable person 's business activity , they should deprive the amount of
any real significance .

Such is the case with sales of capital items and

real estate and financial transactions which are only ancillary operations ,
that is to say are only of secondary importance in relation to the total

turnover of the business . These factors are only excluded if they are not

part of the usual business activity of the taxable person .

Article 20 ; adjustments of deductions

Paragraph 1

Deductions already made must be adjusted if they were not correctly made

at the date of the return or if the original circumstances are modified by

later events . Because of the financial consequences which may arise from

adjustments of deductions , they should be governed by common rules .

Adjustments must therefore take place :

– (a ) where the deductions prove to be greater or smaller than those which

the taxable person was entitled to make at the date of the return ;

- 23 -

either in the case of a mistake or "because the deductible percentage
attributable to taxable business was over or underestimated (where

goods and services are used at the same time for taxable and non-
taxable business );

(b) where the difference between the final pro-rata amount and the

provisional pro-rata amount defined in Article 19 exceeds ten points ;

( c) where the factors , used in the calculation of the amounts of tax

deductible come to be altered after the return is made .

Such cases may be as follows :

– where a taxable person , having already deducted the tax in respect of a
purchase , cancels the purchase or obtains a reduction of the price'
originally agreed ;

– where goods , in respect of which a taxable person has already deducted

the value added tax , disappear without an acceptable explanation
being forthcoming. However^ to avoid persons having to pay more tax in
addition to suffering economic loss , it was necessary to provide that
adjustment shall not be required where the loss , destruction or thoft
of the goods is duly proved in accordance with rules to be laid down

by the Member States .

( d ) where a taxable person changes over from the normal system to one of
the special schemes for small businesses (Artiole 25(l)(a)) or for
farmers (Article 27 ).
value added tax to be deducted completely and immediately , espocially
as regards investments , which is riot possible under the special
schemes . Provision should therefore be made for deductions nade by the

In fact the normal system permits input

taxable persen under the normal scheme to be deducted , lest , by opting

for one of the special schemes , the taxable person should receive some

advantage by way of deduction over other taxable persons subject to

that scheme .

- 24-

Paragraph 2

This paragraph reproduces , in more precise wording , the rule in the third
subparagraph of Article 11(3 ) of the second Directive , which provides that
deductions of tax on capital goods shall he subject to adjustment during
a period of five years .
It appeared advisable to add , as done also in
Article 20(l)(b ) that no adjustment need "be made where the variation in
the proportion is less than ten points .

Article 21 : persons liable for payment of tax

Since not only taxable persons as defined by Article 4 but also other
persons may be required to pay value added tax , it appeared necessary to
specify which persons are liable for payment of tax vis-a–vis the
collecting authority .

Under the very wide definition of a taxable person , given in Article 4 ,
it is possible to tax on the territory of a State one single transaction

carried out by a person whose business is carried on abroad .

Certain supplies of services are exempted by Article 16 in the supplier 1 s

country when the recipient is established abroad .
not to escape tax in the country of the recipient , then the recipient
must be made liable for the payment of the tax .

If the transaction is

Any person who mentions value added tax on an invoice must be considered
liable for payment of the tax , by reason of the right to deduction which
invoice nay vest in the recipient if he is a taxable
the issue ©f the

person .

In respect of imports the person liable for payment is the consignee
of the goods . Where goods are imported to be put into free circulation ,
this will usually be the person who , at the moment of importation , is
entitled to dispose of the goods as owner .

Article 22 * assessment of tho amount of tax to bo paid and liability

for payment of tho tax

The following are the necessaiy components of the assessment of & tax !

- 24&-

- the identification and. where necessary the seeking out of the

person liable for payment ;

- the assessment of the amount due , which necessarily implies identification

of the chargeable event , and the taxable amount , that is to say the

- 25 -

identification and valuation of what is to be taxed ;

– calculation of the amount of tax payable .

Once these operations have taken place , pajment or collection ( or the
enforcement thereof , if necessary ) can take place .

Although a chargeable event takes place and tax becomes chargeable

each time a supply of goods or services is effected , it is not
a practical proposition for the value added tax administration to seek

out a multitude of taxable transactions and calculate the tax on them

as and when they take place . This is why provision is mado for the

taxable person to draw up a return showing all transactions which have

taken place during a certain period , to enable the tax administration to
determine the amount of tax payable , to collect payment and to check on the
amount later .

Title XIV : obligations of persons liable for payment

As is stated in Title XIII , the purpose of the obligations imposed on
persons liable for payment of tax is to enable the amount of tax payable

to be determined and collected .

In comparison with the second Directive and the Annex thereto , a certain
number of changes will be noticed which were prompted both "by the

desire to ensure the collection in a balanced manner of that portion of the

value added tax which is to accrue to the Community ^ own resources , and
by the desire to avoid burdening taxable persons with additional formalities .

Article 23 ? obligations under the internal system

Paragraph 1

This paragraph is limited to a confirmation of the situation which exists in
fact in each Member State f whereby every taxable person has to state when
his activity as a taxable person commences , changes or ceases .

Paragraph 2

Ho change has been made to the second Directive as regards the obligation

to keep accounts *

- 26 -

Para.Traph 3

Although the invoice is the key document which enables the taxable person
to exercise his right to deduction (see Article 18), it was not
however considered necessary to harmonize the numerous and detailed

national provisions concerning the delivery of invoices . These are not
only part of tax law but also , and principally , of commercial
parts of the text of the second Directive have been rendered more precise .

law . Certain

Paragraphs 4 and 5

Certain additions have been made to the text relating to periodical returns ,
which provides that every taxable person shall provide in his return !

"all information required to oalculate the tax and the deductions to be

made", so that tax administrations will have the necessary information
at their disposal when the time comes to calculate the portion of the value

added tax revenue which is to accrue to the Community 1 s own resources .

Paragraph 6

Payment of value added tax is still to be made at the same time as the

return is submitted .

Paragraph 7

No change has been made as regards the submission , if necessary , of an
adjustment return during the first six months of each year .

Paragraph 8

The obligation to make a return imposed upon recipients of certain services
which are exempt in the country of the supplier derives from the principle
set out in Article 21 , whereby the recipient is made liable for payment
of the tax on such services .

Paragraph 9

Since by far the greater part of the revenue from value added tax , even
after the arrangements for the Community ^ own resources are introduced ,
will oontinue to go towards financing national budgets , Member States remain
free to introduce additional obligations on their taxable persons , if they
consider this to be necessary for the collection of the tax or to combat
evasion .

- 27 -

Article 24 s

Obligations In respect of imports

Disparities in tax systems are not the only reason for maintaining customs
controls at intrar-Community frontiers .
toms declarations "by reason also of the existence of a large number of
national provisions other than those relating to tax.

Importers are obliged to make cus­

Neverthe­

Experience has shown that it is possible to simplify

In addition , it appears that it is not always disparities in tax systems
alone that necessitate physical control of goods at frontiers .
less , for the purpose of calculating the value added tax payable on imports ,
most Member States still require declarations in each individual case , as
However , when these declarations
they do for calculating customs duties .
relate to imports by taxable persons they are really only " pre-declarations"
enabling assessment and collection of the tax payable which, in this case ,
is deductible .
considerably the declarations and controls at the frontiers , at least as
regards value added tax, and, where appropriate , to carry them out within
the States .
the abolition of tax barriers (abolition of the imposition of tax on
importation and the remission of tax on exportation).
led to the inclusion in this Directive of provisions enabling Member States
to introduce or continue to use a system involving either "deferred payment"
In theory these
or " suspension of payment" of value added tax on imports .
provisions have no effect on the basic rate of value added tax .
They
affect only the methods of payment of the tax on imports by taxable persons -
the tax being deductible - and should not have any effect on the Community 's

The abolition of border controls should not be confused with

Nevertheless , it

own resources .

Article 24 was drawn up with this in mind and also to satisfy the desire ,
expressed in particular by the European Parliament , to see intra-Community
frontier controls abolished.

Article 25 :

Small undertakings

Article 14 of the second Directive provides that each Member State may,
subject to consultations , apply to small undertakings whose subjection to
the normal system of value added tax would meet with difficulties the
special system best suited to national requirements and possibilities .

- 28 -

Despite the more far-reaching requirements of the establishment of a
unilorm "basis of assessment for value added tax, this provision is none­
theless compatible to a certain extent with this aim , on condition that it
can be reconciled with the need for a common policy for small undertakings .

Such a common polioy should prevent national measures which differ too much
from one another from giving rise to doubts as to the transparency and
impartiality of the tax and as to its balanced contribution to the
Community 's own resouroes .

In this respect it would seem adequate to provide , within a common frame­
work, for a number of possibilities which Member States may use to enable
them to cope with problems posed by the application of value added tax
to small undertakings .

Article 25(la) of the draft provides firstly for the exemption from tax of
taxable persons whose annual turnover net of tax does not exoeed 4 000
units of account .

Secondly provision is made for the granting of graduated tax relief
("decote") for taxable persons whose annual turnover net of tax does not
exceed 12 500 units of account#
This provision supplements the previous
It should enable Member States wishing to grant exemption to ensure
one .
a smooth and fair transition to the normal system of taxation.
However ,
it must be stressed that graduated tax relief can only exist as a measure
In fact , if it were able to exist on its own, it
marginal to exemption .
would only constitute a subsidy for the taxable persons concerned , and as
such there would be no grounds for itB existence .

As regards the selection of criteria for determining the area of application
of exemption and possible graduated tax relief , turnover was the oriterian
finally chosen .
complications for calculation by the taxable person and verification by
administrative bodies .

This would in fact present the least number of

Each Member State applying exemption and graduated tax relief will deter­
mine the limits and conditions depending on its own requirements within
a Community framework.

It will therefore determine , in particular !

- 29-

- whether "the national limits within whioh exemption and graduated tax
relief might be applied will "be at the highest level or beyond it ;

- whether the national limits will be expressed in terms of turnover or

of value added, the latter clearly needing to be compatible with
Community criteria expressed in terms of turnover net of tax ;

- whether exemption and graduated tax relief should be identical or
different in the case of persons supplying services and producers/
retailers , depending on the nature of the activity in which they are
engaged ;

- the reference period during which the taxable person must fulfil the

conditions for exemption .

In addition , they may simplify the task of tax

Nevertheless , a system of exemption and graduated tax

Exemption and graduated tax relief are liable to play a part in overcoming
difficulties which may be encountered by the smallest undertakings when
applying value added tax.
authorities .
relief cannot be considered as normal within the framework of a general
tax on consumption such as value added tax.
of different special national systems oould hinder the suppression of
This is the main reason why the proposed provisions
fiscal borders .
are of a transitional nature .

In addition , the coexistence

Article 25(lb) stipulates that each Member State is entitled to introduce
simplified procedures for charging and collecting the tax, provided that
the amount of tax to be paid shall not thereby be reduced.
Subject to
this , each Member State shall draw up detailed rules for its own simpli­
fied schemes depending on its own ideas and possibilities .

Article 25(2 ) lays down the method of determining turnover for the purposes
It excludes unusual
of applying exemptions and graduated tax relief.
transactions which may make drastic changes in the turnover within one
year.
of debts , do not indicate the actual size of the undertaking.
Article 25(3 ) excludes all these operations from exemption and graduated
tax relief .
taxation and exemption.

It also disregards operations which, as in the case of the transfer
Furthermore ,

They are therefore subject to different rules governing

- 30 -

It is the responsibility
The reference "turnover is calculated net of tax.
of Member States to provide formulae for the conversion of turnover before
tax to turnover net of tax, in order to enable taxable persons eligible for
exemption - the only ones for whom the problem arises - to work out as simply
as possible whether their turnover is above the ceiling fixed for application
of exemption .

Article 25(4) enables taxable persons exempt from taxation to opt for the
normal system of value added tax and possibly to be eligible for graduated
tax relief .
exercise such option shall be treated as taxable persons at the lowest level
for graduated tax relief.

This implies that in the Member States concerned those who

Article 26 :

Second-hand goods

When applying the normal taxation rules , supplies of goods - new or second-hand -
made for consideration within the country by a taxable person shall be subject
to value added tax calculated in proportion to their price .
If no speoial
provisions were made , the result would be that a finished item re-introduced
into the economio circuit would once again be fully subject to value added
tax, which could be avoided if the final oonsumer wishing to sell goods were
to get into direct contact with another final consumer .

In order to reduce the cumulative effect of further taxation whioh enoourages
avoidance of the normal trade channels, it seemed expedient to grant taxable
persons who have purchased goods for re–sale without paying tax the right to
a deduction of a certain amount to be deemed to correspond to input tax*
Nevertheless , this special system must be restricted to second-hand goods in
respect of whioh application of the normal system would involve too great a
risk of avoidance .

This deduction is to be calculated on the basis of the purchase prioe of the
item at the rates in force at the time of acquisition.

This system of deduction of input charges has been chosen because it has the
advantage of not revealing the -seller 's profit margin and of enabling the
second-hand item to be exported tax-free .

- 31 -

Nevertheless , for the prevention of frauds which might be occasioned thereby,
the application of this exceptional system is accompanied by safeguard

measures and may be made dependent on authorization from Member States .

Article 27 *

Common flat–rate scheme for farmers

Paragraph 1

The common flat–rate scheme for farmers is only one technical and practical

method of applying value added tax, aimed at allowing farmers to offset at a

flat rate the deductible tax on their purchases and on services rendered to them .

In order to ensure that the Community ^ own resources are collected fairly

and to avoid the application of value added tax in the various Member States

leading to distortions of competition,

the common flat–rate scheme must not

include financial advantages or disadvantages for the totality of farmers

subject to this scheme in Member States applying it .

Paragraph 2

– First and second indents :

" farmer", "agricultural , forestry or fisheries

undertaking"

As a common flat–rate scheme has been provided specially for farmers , it seems

necessary for Member States to adopt , for taxation purposes , a Community

definition of the word "farmer".

The activities enabling a taxable person

to be classed as a " farmer" are listed in Annex A, which has been drawn up on

the basis of the International Standard Industrial Classification of all

Economic Activities issued by the Statistical Office of the United Nations .

1

It would clearly have been preferable if a common definition of the term

"agricultural , forestry or fisheries undertaking" had been provided, but ,

given that no common definition has been provided for the general term

"undertaking" in the normal value added tax scheme , it would have been very
difficult , if not impossible,
to find Community definitions for the specific
It is therefore
notion of "agricultural , forestry or fisheries undertaking".
the responsibility of the Member States to define this notion under their

own laws .

– Fourth and fifth indents :

"agricultural products " – " supply of agricultural

services "

The aim of the common flat–rate scheme is to enable a farmer under the scheme

to have the value added tax on his inputs offset at a standard rate each time

1 Statistical Papers , Series M, No 4, Rev. 1 , New York 195° *

- 32-

he makes a supply of agricultural products or services .

It is clear that application of this scheme would not have the same consequences –
as regards the collection of the Community 's own resources and the conditions of

competition "between farmers of different Member States - if flat–rate farmers in

one State were entitled to offset tax at a flat–rate upon sales of products or

the supply of services in respect of which flat–rate farmers in other countries

were not entitled "to offset tax in this way . Consequently,
the test way to avoid
such unequal treatment of flat–rate farmers would "be to draw up common lists of

goods and services on which tax may "be offset at a flat rate .

Nevertheless ,

"because of the technical difficulties in drawing up an exhaustive

list of agricultural products from European farms , it seemed preferable to

abandon the idea of such a list and to lay down criteria whereby a common

definition of agricultural products may be formulated which will be of value

having regard to the fiscal aims pursued .

The definition of "agricultural products " formulated in the fourth indent of

paragraph 2 does not eliminate completely the danger of differences in inter­

pretation arising, particularly as regards processed agricultural products as

mentioned in point V of Annex A. Nevertheless , it does ensure that all nor*-

agricultural products which could be supplied by a farmer are excluded from

the scope of the common flat–rate scheme .

As regards supplies of agricultural services ,

the list set out in Annex B

remains indispensable in any case, given the fact that it is impossible to lay

down common, simple, clear criteria for fixing the boundary between use of the

farmer 's labour and the normal equipment of his agricultural undertaking for

agricultural purposes on the one hand, and for non–agricultural purposes on

the other .

– Sixth indent ?

"value added tax charge on inputs "

The common flat–rate scheme is intended to compensate solely for value added

tax levied on purchases of goods and services by flat–rate farmers to meet
the needs of production in the agricultural , forestry or fisheries sectors .
Calculation of this charge on inputs must therefore relate solely to amounts

of tax which would be deductible by a farmer subject to the normal

deduction system provided for in this Directive .

- 33 -

In view of the fact that the input tax charge on the totality of forestry

undertakings is lighter than that on the totality of agricultural undertakings ,

a fact which has teen established in Member States already applying a common

flat–rate scheme for farmers , it is expedient , within the framework of the

that
common flat–rate scheme,
one input tax charge be determined for all agricultural and fishery under­

in the case of each Member State,

to provide,

takings , and another for all forestry undertakings .

Paragraph 3

The procedure provided for in this paragraph for the calculation and adoption

of levels of charge on inputs in each Member State is dictated by the

essential need to ensure that the common method of calculation explained in

Annex C should be applied in a uniform way in all countries applying the

common flat–rate scheme#

It is therefore provided that the Commission

should make the necessary calculations , using the common method of calcula­

tion,

to determine the levels of the input tax charge" in the various Member

States , on the basis of macro–economic data to be supplied by these countries

for that purpose . The levels of charge thus calculated are to be submitted

to the Value Added Tax Committee in accordance with the procedure set out in

Article 31 •

The provision for having these calculations brought up to date every three

years will make it possible for contradictory requirements to be reconciled,

developments in the situation to be followed and over–frequent changes in

national legislation to be avoided .

Paragraphs 4 and 5

The levels of charge calculated and adopted in accordance with the rules

in theory, constitute upper limits^ below
provided for in paragraph 3 should,
which Member States may fix freely the fixed percentages which they intend to

apply in their territory .

It must however be kept in mind that , according to the common method of
calculation laid down, calculation of the input tax charge is based on the
inputs and outputs of the whole agricultural sector .

- 34 -

Now, given that already in some Member States an ever–increasing number of
agricultural producers , being of the opinion that the national flat-rate

scheme does not offset sufficiently their input tax charge, are opting for
the normal scheme in order to benefit from a complete and immediate deduo-

tion of input tax, it is to be expected that the number of farmers who opt

for the normal scheme will increase when the common flat–rate scheme enters

into force .

the one hand the input value added tax charge is calcul­
Consequently, if on
ated by reference to all farmers , and on the other hand a considerable number

the result
of farmers with an above–average charge opt for the normal system,
is that the charge thus calculated will be higher than if it were calculated

by reference to individual flat–rate farmers .

In order to ensure that flat–rate farmers do not receive offsetting payments

in excess of their input tax charge , it is provided that the fixed offsetting

percentages may not , on the entry into force of the present Directive, exceed
90$ of the levels of input charge as adopted in accordance with the provisions

of paragraph 3 .

Furthermore , given that the number of farmers subject to the normal value added

tax scheme will steadily increase in the years following the entry into force

of this Directive, not only for tax reasons , but also as a result of the

modernization of Community agricultural structures , it is desirable that

provision be made for further reductions of the maximum fixed percentage

levelsJ this is done in paragraph 5 *

Paragraph 6

The common flat–rate system was conceived to enable farmers to whon it applies

to offset the value added tax charge on their inputs at a flat rate ,

thus

freeing them from those obligations of accounting,

invoicing, declarations

and payment of taxes which are required of other taxable persons .

Nevertheless , bearing in mind that one of the Commission 's aims is that the
majority of European farmers should gradually change over to the normal

system of value added tax, it would have been inconsistent with this aim to

prevent those Member States who so wished from imposing certain of the

– 35 –

obligations provided for in Article 23 of -their flat-rate farmers.
Indeed,
such provisions, which do not affect the functioning of the common flat–rate
svstejj, can only encourage flat–rate farmers to opt for the normal scheme.
Consequently, the Keacer States are given the power,
"but are not obliged, to
execrpt fla-:–rate farcers from the obligations required of other taxable
persons .

me casic secnamcs of the consson flat–rate systec, which are the subject
of these paragraphs , are as follows :

1 » Flai–rate farmers are entitled to offset the value added tax charge on
•neir inputs according to the az>ount of tneir supplies of agricultural
products and services, such acount being determined by applying the
fi^ed percentage fixed for this purpose to the price, net of tax, of
those supplies .

2 . If the recipient of goods or services supplied by a flat–rate farmer is
a taxacle person otner than a flat–rate farmer, the fixed percentage may
be paid, depending on the systecs adopted by the various Member States,
eitr.er by the taxable recipient or by the public authorities .

3 . If the recipient of the goods or services is another flat–rate fanner
or a non–taxable person, the fixed percentage must be paid by such
recipient .

It Eust nevertheless be noted that in the latter case there is nothing to
stop the flat–rate farcer increasing his sale price by an aoount equal to
the fixed percentage, provided market conditions so permit .

The purpose of the Concunity rules provided for in this paragraph is to

transfer froa the flat–rate farcer to the taxable recipient of goods or
services the responsibility for a certain number of formalities , necessary
for purposes of verification, which would normally attach to the person
the taxable supply, and, at the sane tine, to make the necessary
technical provision to cover the operation of the two procedures open to
Kecber States under paragraph 8 as regards transactions between a flat-
rate farrier sr-H a taxable t>erson other than a flat–rate faraer .

- 36 -

For in both cases - payment of the fixed percentage by the taxable

recipient or by the public authorities – the national taxation authorities

must be able to verify the amounts deducted by the taxable recipient , or
as the case may be the amounts claimed from the public authorities by the

flat–rate farmer .

Paragraph 11

The common flat–rate system was conceived to ensure that farmers to whom

it applies may offset the value added tax charge on their inputs . This

charge is determined, by a common method of calculation, by reference to

total supplies of agricultural products and services .

Thus ,

in keeping with the logic and the aims of the common flat–rate system,

it is necessary to provide that supplies by flat–rate farmers of non-

agricultural products or services do not entitle them to payment of the

fixed percentage . Otherwise, all flat–rate farmers could be over–compensated

for the value added tax charge on their inputs , which would amount of giving

them an economic aid from which other farmers under the normal scheme would

not be able to benefit .

With regard to exports by flat–rate farmers , their exclusion from the right

to payment of the fixed percentage is based on the rule laid down by the

first "Value Added Tax" Directive , Article 1 , final sub–paragraph, which

provides that ,

from the entry into force of the common system of value added

tax, no Member State shall maintain or introduce any measure providing for
flat–rate equalization of turnover taxes on exportation or importation in

trade between Member States .

Paragraphs12 and 13

In order that the common flat–rate system may maintain its special character

as a system specially adjusted to the needs of small agricultural producers

who are considered not yet – at least provisionally – capable of being

integrated into the normal system of value added tax,

some obligatory

exceptions have been provided for .

The general aim of "the criteria laid down "to "this effect in paragraph 12
is to exclude from tbe flat–rate system those transactions which,
though
carried out "by an agricultural producer, could not be regarded as
constituting a typically agricultural activity :

commercial distribution

of agricultural products, supplies of agricuihiral products processed "by
industrial rather than agricultural means, or of products bought "by the
farmer for resale ;
of equipment whi en could be regarded as exceeding the needs, dimensions

supplies of services on a regular basis and/or "by means

and characteristics of the agricultural undertaking in question.

For it is considered that by transactions such as these the flat–rate

fareer errtos into competition with tradesmen, manufacturers and service

undertakings ;

consequently the flat–rate farmer ought in respect of such

transactions to be subject to the normal system or to the system for small

undertakings , while remaining subject to the flat–rate system for his

agricultural activities .

The aia of paragraph 13 is to exclude from the flat–rate system all fanners

who , by reason of their activities and the size of their undertaking and
the accounting facilities available to them, cannot be regarded as small

farmers unable to cope with the administrative formalities of the normal

scheoe, or with the reduced ones under the simplified scheme provided for
in Article 25(l)(h ).

16

In the context of this Directive, the oosoon flat-*rate system oust be

regarded as a transitional systea. For, if one considers that this system,
taken as a whole, does not include any element of subsidy or aid for the
farmers to whom it applies, and if one takes account of the progressive
modernization of Coosronity agricultural structures, it is foreseeable that,
in the various member countries, the number and economic importance of
farmers subject to the normal system of Value Mded Tax will increase in
the years following the entry into force of the present Directive .
Consequently,
applied to the category of small farmers will have to be re-considered, for
this category will probably, over the Community as a whole, be far smaller
tVan at present , either in t eras of numbers or of turnover.

the question of what system of Value Added Tax should be

- 38 -

It is accordingly provided "that the Commission is to present new proposals to the
Council on this topic , and this will also enable account to he taken of progress
achieved in the meantime in the harmonization of Community taxes .

Article 28 :

Transitional provisions

In order to ensure collection of the Community 's own resources accruing from
Value Added Tax according to the same Community criteria , any provisions
introduced in the Member States pursuant to Article 17 of the second
directive of 11 April 1967 should cease to apply.

This is why it has been provided that the Member States con­

Nevertheless , it seems impossible , for economic and social reasons , to
abolish zero rating in a very short time .
The maintenance of such a
measure , undor the same conditions as those which were fixed in the above-
mentioned article , for a transitional period , and at the latest until the
abolition of tax barriers , should nevertheless bo subject to the express
condition that it must not affect the determination of the Community 's own
resources , neither as regards their amount nor as regards the method of
calculation .
cerned must take the necessary measures to ensure that taxable persons
declare their actual turnover in respect of zero-rated transactions ; the pro­
visions of Article 22 and Article
23(4 ), relating respectively to the assess­
ment of the amount of tax to be paid and the obligations of persons liable for
payment
Titl* XvII t
This proposal for a directive provides for a great number of general prin­
ciples and rules which are to be applied in a uniform manner .
various Member States are responsible for adopting the detailed rules for
the application of these common principles and rules .
As the directive
comes into operation, it may prove necessary for some of these rules of
application to be harmonized , or indeed made uniform , so as not merely to
ensure fair conditions of competition between the Member States and to faci­
litate free traffic between them , but above all to ensure that own resources
accruing from value added tax are collected in a fair and balanced manner .

Value Added Tax Committee ( Articles 29 to 31 )

must be applied, mutatis mutandis .

However , the

It could arise that such rules of application have to be adopted as a matter
of urgency.
This could not bo done if they had to be adopted by the normal
procedure under a direotive .
technical in nature would not normally be dealt with by legislative procedure ,
but by the procedure for delegated legislation.

Furthermore such measures , being purely

A simplified and

- 39 -

accelerated Community procedure should therefore be provided for the adoption
of these measures , and for this purpose a Value Added Tax Committee should

"be set up .

The role of the Value Added Tax Committee will "be that of a "rule–caking
committee", given that the rules of application to ha adopted "by the
Commission or the Council must not in any way depart from the basic principles
laid down by the instruments on value added tax adopted by the Council .

The measures are adopted by the Commission if they are in accordance with the
opinion of the Committee, and if they are not , by the Council , or, failing a
decision by the Council , by the Commission .

The same Committee also functions as an advisory committee . As such, it can
deal with any question concerning the application of Community instruments on
value added tax .

Annex C

1 . The purpose of this method is to determine,

in respect of the Classes
"agricultural products and game" and "wood in the rough", amended as
indicated in paragraph 1(1 ) of Annex C to the proposal by the addition of
processed products ,

tax charge per monetary unit of

the input

production .

2 . Value of production,

the basic notion currently used in agricultural and

forestry aocounts by the SOEC, is adjusted by the inclusion of processed

agricultural products ;

to the figures obtained for inputs and gross fixed

asset production on the basis of the above Classes as currently defined, are

added the figures for those items relating to the production of processed

products .

3 .

In calculating the amount of tax per monetary unit as re^Vrred to in

paragraph 1 above , the value of production must be determined net of the value
added tax attaching thereto , and the amount of the value added tax on inputs
and gross fixed asset production must be determined separately .

4 « The value added tax charge on inputs will thus appear as a fraction . The

numerator will be the value added tax on inputs and gross fixed asset
production . The denominator will be the value of production net of value

added tax .

- 40-

Proposal for a sixth Council Directive of ..... 1973

on the harmonization of legislation of Member States

concerning turnover taxes - Common system of value

added tax : uniform basis of assessment

THE COUNCIL OF THE EUROPEAN COMMUNITIES ,

Having regard to the Treaty establishing the European Economic Community , and in
particular Articles 99 and 100 thereof ;

Having regard to the proposal from the Commission ;

Having regard to the Opinion of the European Parliament ;

Having regard to the Opinion of the Economic and Social Comnittee ;

Whereas all the Member States have adopted a system of value added tax in accor­
dance with the First and Second Council Directives of 11 April 19^9 (l ) on the
harmonization of the legislation of Member States concerning turnover taxes ;

Whereas the Council Decision of 21 April 1970 ( 2 ) on the replacement of finan­
cial contributions from Member States by the Communities' own resources provides
that the budget of the Communities shall , irrespective of other revenue , be finan­
ced entirely from the Communities' own resources ; whereas these resources are to
include those accruing from the value added tax and obtained by applying a common
rate of tax on a basis of assessment determined in a uniform manner according to
Community rules ;

Whereas the actual liberalization of the movement of persons , goods , services
and capital and the integration of national economies must be speeded up with a
view to the establishment by stages of Economic and Monetary Union ;

Whereas the value added tax constitutes a general tax on consumption and was
therefore chosen as one of the best measures of the contributing capacity of the
Member States ; whereas all supplies and imports of goods and all supplies of ser­
vices should in principle be subject to the tax ;

( 1 ) CJ No . 71 , 1^ April 1967 , p.l .
( 2 ) OJ No . L 9^, 28 April 1970 , p. 19 .

- 41 -

Whereas account Bhould be taken of the objective of abolishing the imposition
of tax on importation and the remission of tax on exportation in trade between
Member States , and the common system of turnover taxes should be made impartial
as regards the origin of goods and services , so that a common market permitting
fair competition and resembling a real internal market may be created $t the
planned time ;

Whereas the Member States can remove the territorial criteria for tax collec­
tion only if the principle of the impartiality of taxes on consumption , and
their contribution to the Communities

own resources , are not endangered ;

enhance the impartiality of the tax , the meaning of "taxable

Whereas , to
person" must be clarified to include persons who occasionally carry out certain
-transactions ;

Whereas the expression "taxable transactions" has led to difficulties , in
particular as regards transactions treated fictively as taxable transactions
and works of constructions ; whereas these concepts must be clarified ;

Whereas the place of taxable transactions has been the subject of conflicts
between Member States' laws , in particular as regards the supplies of goods
for assembly and the place where a supply of services takes place ; whereas
the place where a supply of services takes place should be defined as the
place where the person supplying the services has his principal place of
business so that the laws of the Member States will no longer need to be
amended when the objective set out in Article k of the First Directive has
been attained ;

Whereas the concepts of chargeable event and of the charge to tax must be
harmonized if the introduction and any subsequent alterations of the Commu­
nity rate of value added tax are to become operative at the same time in all
Member States ;

Whereas the basis of calculation of the

taxable

amount must be so harmo­

nized so that the Community rate of value added tax may be applied to taxable
transactions in a comparable manner in all Member States ;

Whereas the rates applied by Member States must be 6uch that the tax applied
at the preceding stage will in the normal way be deductible ;

- 42-

Whereas a common list of exemptions should be drawn up so that the
Community 's own resources may T»« collected in a uniform manner ia all Member
States ;
value added tax may remain a general tax on consumption;

whereas the number of exemptions must be as small as possible, so that

Whereas the rules governing deductions should be harmonized to the extent
that they actually affect the real amounts collected ; whereas , in parti­
cular , there should be a common list of goods and services in respect of
which deductions may not be made and the deductible proportion should
be calculated in similar manner in all Member States ;

Whereas it should be specified which persons are liable to pay tax , in par­
ticular as regards services supplied by a person established in another
country *

Whereas the times at which the amount of tax to be paid is to be assessed
and paid should be defined in common terms so that the Community may exer­
cise its rights to its own resources at the same time in all Member States ;

Whereas the obligations of taxpayers must be harmonized as far as possible

so as to ensure that taxes are collected in uniform manner in all Member

States ; whereas taxpayers should , in particular , make a periodic omnibus
return of their transactions , relating to both inputs and outputs , so that
the collection of own resources may be supervised ;

Whereas the various special ahemes now in force should be harmonized ; where­
as it has been found that the Member States may be left to choose the special
schemes for small undertakings where tax relief cannot be granted to under­
takings whose turnover does not exceed a certain amount , so that the own
resources should not be affected by divergence between the schemes ; where­
as it has been found that the tax on second-hand goods should be reduced in
order to avoid penalizing certain branches of trade ; whereas Member States
who select a flat-rate scheme
have not opted for the normal value added tax scheme should apply the scheme
on a common basis to prevent the value added tax from acting as a hidden
charge varying from country to country and tfi ensure the uniform collection
of own resources is not jeopardized ;

for offsetting input tax for farmers who

- 43 -

Whereas the uniform application of the provisions of this Directive should
be ensured , and whereas to this end an effective Community procedure should
be laid down by which any necessary implementing measures may be adopted when
required ; whereas the setting up of a Value Added Tax Committee would enable
the Member States and the Commission to cooperate closely and effectively ;

HAS ADOPTED THIS DIRECTIVE :

- 44 -

Title I : Introductory provisions

Article 1

Member States shall modify their present value added tax systems

in accordance with the following Articles .

They shall without delay adopt the necessary laws , regulations and

administrative provisions so that the systemsas modified may enter into
force on 1 January 1975 *

- 45 -

Title II : Field of Application

Article 2

The following shall be chargeable to value added tax :

1 ) Supplies of goods or services effected for consideration within the terri­

tory of the country by a taxable person ;

2 ) The importation of goods ;

3 ) Supplies ef services ?e listed in Article 16 ( l© ) f effected within the territory

of the ceuntry to a taxable person "by a person established in another country ,

and supplies ef such services effected within the territory of the country to

a non-taxable person by a person established outside the Community .

- 46-

Title III : Territory

Article 3

1 .

"Territory of the country" means in respect of each Member State , the
entire national territory , including territorial waters . It may also

extend to the continental shelf .

2 . A Member State which , at the date of this Directive, does not apply in toto
the principle laid down by paragraph 1 and proposes to continue thus

shall so inform the Commission not later than three months after the

date of this Directive .

The Commission may , within six months following receipt of such infor­
mation , consult the Member States on the effects of the request , in par­
ticular on the fairness of competition and on the Community 's
sources ; it shall submit proposals to the Council which , acting by a
qualified majority , shall decide thereon within six months .

own re­

If no decision is adopted by the Council within that period, the proposed

measures shall be adopted by the Commission .

Pending a Community decision the Member State may apply the derogation
requested .

- 47-

Title IV : Taxable persona

Article k

1 . "Taxable person" means any person who independently and regularly carries
out in any place transactions pertaining to the occupations specified in
paragraph 2 , or who occasionally carries out ene of the transact ie*« speci­
fied in paragraph 3 , whatever the purposes or results 6f such occupations
or transactions may be .

2 . The occupations referred to in paragraph 1 are the activities of producers
and traders and persons supplying services , including Dining and agricul­
tural activities and activities of the professions .

3 « The transactions referred to in paragraph 1 are :

a ) the exploitation of tangible or intangible property for the purpose of

obtaining income therefrom on a permanent basis ;

b ) the supply of buildings or parts of buildings and the land on wnich they
stand , before first occupation . A building means any structure fixed to
the ground ;

c ) the supply of building land .

"Building land"means :

- land which is prepared for construction , land on which an incomplete
building or a building for demolition stands , and rights to build
on top of an existing building ;

- land other than as defined above on which the person acquiring it ,

at the time of such acquisition , undertakes to erect a building within
four years .

k . The use of the word "independently" in paragraph 1 excludes from the tax
employed persons and other persons bound to an employer by a contract for
the hire of labour or similar contract creating a relationship of employer
and employee .

48 -

Until such time as the objective eet out in Article k of the First Council
Directive of 11 April 1967 is attained , each Member State may treat as a
single taxable person , persons established in its national territory who
are legally independent but are bound to one another by financial , economic
or organizational relationships .

5 . States , regional and local government authorities , and other bodies governed
by public law shall not be considered to be taxable persons as regards their
activities pursued as public authorities .

However , where they carry out transactions covered by paragraph 1 , they
shall be considered to be taxable persons in respect of such transactions .
This provision extends to the activities of broadcasting authorities , and
of the agricultural intervention agencieB in respect of dealings in agri­
cultural products in pursuance of a Regulation on the common organization
of the market in the relevant product .

- 49-

Title V : Taxable transactions

Article 5

Supflly of goods

1 . " Supply of goods " means the transfer of the right to dispose of tangible

property as owner .

The following shall be treated as the property to which they relate :

a ) all rights in IHB giving the holder thereof a right of user over immovable

property ;

b ) all interests or shares giving the holder thereof de .lure or de facto

rights of ownership or possession over immovable property or part there­

of .

2 . The following shall also be considered as supplies within the meaning of

paragraph 1 :

a ) the actual handing over of goods , pursuant to a contract for the hire of

goods for a certain period , or for the sale of goods on deferred terms ,

which provides that ownership shall pass at the latest upon payment of

the final instalment ;

b ) the actual handing over of :

- movable property , pursuant to a contract for the use of the property

for a specified period , with no possibility of unilateral termination

by the user , which provides that the user shall at the end of the con­

tract have the option of purchasing the property , provided that the

total of the periodic payments to be made , excluding financing costs ,

corresponds approximately to the value of the property at the time of

handing over to the hirer ;

- immovable property , pursuant to a contract for the use of the property

for a specified period , with no possibility of unilateral termination by the
user , and in particular pursuant to a contract which provides that the user

shall at the end of the contract have the option of purchasing the land
and/or the building, where the price to be paid for exercising the option:

- 50 -

- is a nominal amount bearing no relation to the economic value of the

property at the time of the exercise of the option ; or

• represents the value of the land as ascertained at the time of for­

mation of the contract and/or the residual value of the buildings at

the time of the exercise of the option ; or

- is fixed in the light of the real value of the property at the time

of the exercise of the option ;

e) the transfer of goods pursuant to a contract under which commission is

payable on purchase or sale ;

d ) supply under a contract to make up work from customer 's materials , that

is to say ,

the delivery by a contractor to his customer of movable proper­

ty made or assembled by the contractor from materials or objects entrusted

to him by the customer for this purpose , whether or not th6 contractor

has provided a part of the products used ;

e ) the handing over of a work of construction as defined in Article 6 ;

f ) the transfer , by order made by or in the name of a public authority , of

the ownership in property against payment of compensation , where the

transfer of such property by private agreement would attract liability

to the tax ;

g ) the supply of electricity , gas , heat , refrigeration and the like .

3 . The following 6hall be treated as supplies made for consideration ;

a ) taxable applications , that is to say the application by a taxable person

of goods forming part of his business assets to his own personal use or that of

his staff or the disposal thereof free of charge, where the value added tax on
the goods in cpiestion or the component parts thereof is wholly or partly deductible#

However , applications for the purpose of giving samples or making gifts of small
value, eligible for classification as general expenses giving tax relief , are

not to be considered as taxable transactions ;

b ) the application by a taxable person for the purposes of his business of

goods produced , nanufactured or extracted in the course of such business ,

save where the value added tax on such goods , had they been acquired from a

taxable person , would be wholly deductible ;

- 51 -

e ) the application of goods by a taxable person for the purposes of a non-

taxable business , where the value added tax on such goods became wholly or

partly deductible upon their acquisition or upon their application in accordance
with subparagraph b ) above .

k . In the case of a transfer by way of contribution to a company , or otherwise ,

or a transmission of a totality of assets or part thereof for no considera­

tion ,

the recipient may be treated by the Member States as the successor to

the business and the personality of the transferor .

Article 6

Works of construction

For the purposes of Article 5(2 ), c ),

"works of construction" means :

a ) all works relating to buildings , bridges , roads , ports and other structures

fixed to the ground , such as :

- demolition ;

- construction ,

including foundations , supply of principal materials , fitting

out ;

- incorporation of moveable property in immovable property ,

including all

installation works ;

- extension , modification and renovation ;

- repairs and maintenance , other than day- to - day maintenance ;

b ^ work on preparing and improving land , such as foundation for work on indue-

strial and residential developments , division into plots , levelling , instal­

lation of water supply and sewers , electricity supply installations , suppor-

ting-walls , planting of gardens .

- 52 -

Article 7

Supply of Services

1 . " Supply of services " means any transaction which does not constitute a

supply of goods within the meaning of Article 5 *

Such transactions include , inter alia :

• the assignment of intangible property ;
*• the observance of an obligation to refrain from an act or to tolerate an

act or situation ;

- the performance of a service in pursuance of an order made by or in the

name of a public authority .

2 . The following shall be treated as sullies of services for consideration :

a ) the use of goods forming part of the assets of a business for purposes not
connected with the business , where the value-added tax on such goods is
wholly" or partly deductible ;

b ) the supply of services as between persons considered to be a single
taxable person within the meaning of the second subparagraph of Ar­
ticle k (*f ), save where the value-added tax on such services , were they
to be supplied by another taxable person, would be wholly deductible .

Article 8

Imports

" Importation of goods" means the entry of goods into the territory of the
country as defined in Article 3 *

- 53 -

Title VI : Place of taxable transactions

Article 9

Sup-ply of g oo ds

The place of supply shall be deemed to be :

a ) in the ca6e of goods dispatched or transported either by the supplier or

by the person to whom they are sunrlieri or by a third person :

the place where

the goods are at the time when dispatch or transport to the person to whom they
are supplied begins . Where the contract provides that the poods are to be

installed or assembled , with or without a trial run , by or on behalf of the

supplier ,

the place of supply shall be deemed to be the place where the goods

are installed or assembled

b ) in the case of goods not dispatched or transported :

the place where the

goods are when the supply takes place .

Article 10

Supply of services

1 . The place where the service is supplied shall be deemed to be the place

where the business of the person providing the service is established or ,
in the absence of such a place , the place where he has his permanent address .

2 . However :

a ) the place of supply of services connected with immovable property and

of services for preparing and coordinating works of construction , such

as the services of architects and of firms providing on-site supervision

of works , shall be the place where the property is situated ;

b ) the place where transport services are supplied shall be the place where

transport takes place , ascertained having regard to the distance covered .

- 54-

Title VII : Chargeable event and the charge to tax

Article 11

1 . a )

"Chargeable event " means the occurrence by virtue of which the legal

conditions are fulfilled for the tax to become due .

b ) The tax becomes "chargeable" when

- the tax authority becomes entitled to claim the tax, notwithstanding

that the time of payment be deferred ; and

- conversely ,

the taxable person becomes liable to discharge the

tax , such liability arising at the same time as the tax autho­

rity becomes entitled to claim as aforesaid .

2 . In respect of supplies of goods and services ,

the chargeable event occurs

at the time when the goods are delivered or the services are performed .

The tax shall become chargeable at the time of the chargeable event . However ,

where in respect of a supply of goods or services a payment is to be made on

account before the goods are delivered or performance the services has been

completed , the tax shall become chargeable on receipt of the payment and on

the amount received .

Moreover , Member States may provide that the tax shall not become chargeable until :

a ) in respect of supplies by small undertakings covered by Article 25 and
supplies to non-taxable persons , the time of receipt of payment for the

goods or services ;

b ) in respect of supplies between taxable persons , the time of issue

of the invoice provided for in Article 23 ( 3 );

3 . As regards imported goods ,

the chargeable event occurs at the time when

the goods enter the territory of the country as defined in Article 3 .

The tax shall become chargeable at the time of the chargeable event .

- 55 -

However , where goods are subject , on importation , to the Common Customs
Tariff duties , to agricultural levies or to charges having equivalent
effect , the tax shall become chargeable at the same time as such coranon duties ,
charges and levies .

Where on importation goods are placed under a transit , bonded warehouse
or temporary importation arrangement under customs and/or fiscal super­
vision , with- suspension of customs duties and/or charges , Member States
may provide that the tax shall become chargeable only when the goods are de­
clared for free circulation .

- 56 -

Title VIII – Taxable amount

Article 12

A. Within the territory of the country

1 ) The taxable amount shall he :

a) in respect of supplies of goods and services, other than those referred
the price, expressed as a sum of money which

to in b ), c ) and d ) below,
has been or is to be obtained by the supplier, where such price

constitutes the sole consideration for the supply ;

b ) in respect of supplies under Articles 5(3 ) and 7(2 ), and supplies by
way of exchange , and , generally , where the price expressed as a sum

of money is not the sole consideration for the supply of goods or

services ,

the "open market value " of the subject of the relevant supply .

"Open market value" of goods or services means the amount which a

customer at the marketing stage at which the supply takes place

would have to pay to a supplier at arm*s length within the territory

of the country at the time of the supply, under conditions of fair

competition,

to obtain the goods or services in question?

c ) in respect of the supplies specified in Article 5(2)(b ),

the total of

the periodic payments plus any sum to be paid on exercising the option ;

d ) in respect of supplies of buildings and land, other than as referred to
in Article 4(3)(b ) and ( c ), purchased for the purpose of resale by a
taxable person to a non–taxable person or to a taxable person for whom

the value added tax on the building or land in question is not deductible ,

the taxable amount may be the difference between the selling price and

the purchase price .

2 ) The taxable amount shall include :

a) taxes, duties ,

levies and charges , excluding the value added tax ;

b ) incidental expenses such as commission, packing,

transport and insurance
costs charged by the supplier to the purchaser even where such costs are

the subject of a separate agreement .

- 57-

3 ) The taxable amount shall not include :

a) price reductions granted by way of discount for advance payment ;

b ) price discounts and rebates allowed to the customer and accounted

for at the time of the supply ;

c ) interest to be paid on deferred or delayed payments ;

d ) returnable packing costs ;

e ) amounts paid in the name or for account of the customer and credited

in the supplier * s book f s to a suspense account .

4 ) In respect of the supplies specified in Article 5(2)(f),

the amount of

compensation paid, excluding reemployment allowance, shall be deemed

to be the taxable amount .

B.

Importation of goods

1 . The taxable amount shall be :

a) the price, expressed as a sum of money paid or to be paid by the

importer, where this sum is the sole consideration for importation ;

b ) the "open market value", where no price is paid or where the price

paid is not the sole consideration for the importation .

"Open market value " of imported goods means tha amount , excluding

value added tax, which an importer at the marketing stage at which

the importation takes place would have to pay to a supplier at arm 's

length in the country from which the goods are exported at the time

when the tax becomes chargeable , under conditions of fair competition,

to obtain the goods in question ;

2 . The taxable amount shall include :

a) the taxes, duties,

levies and charges due outside the country of
importation and those due by reason of importation, excluding the

value added tax ;

b ) incidental expenses, such as commission, packing,

transport and

insurance costs, arising up to the place of destination within the

territory of the country .

- 58 -

3 . The

taxable amount

ehall not include those factors which are not

included under the internal system , as provided in point A 3 (a to d ).

k . The taxable amount in respect of goods temporarily exported and then reimported

by the exporter after repairs , modifications , adaptations or manual opera­

tions have been carried out for his account in another country shall be the

cost of labour and of any materials or parts supplied , plus the taxes ,

duties , levies , charges and incidental expenses mentioned at point B 2

a ) and b ).

5 - The taxable amount in respect of goods imported subject to Common Customs Tariff

ad valorem duties shall in no case be lovrer than the value for customs
purposes defined in Council Regulation ( EEC ) No . 803/68 of 27 June 1968 ,
plus such of the factors listed in point B 2 a ) and b ) as are not alrea­

dy included therein .

C. Miscellaneous provisions

1 . The

taxable amount

shall be reduced to an appropriate extent in the

case of supplies of goods or services which remain unpaid in whole or

in part or which are cancelled , or where the price is reduced after the

supply takes place . The Member States shall lay down the rules for

applying this provision .

2 . Where a Member State proposes to maintain or introduce standard or

minimum rates for certain transactions in order to prevent fraud or

to simplify the calculation and collection of the tax , it shall consult

the Value Added Tax Committee in accordance with the procedure laid

down in Article 31 •

3 . Where the factors for determining the taxable amount are expressed

in a currency other than that of the Member States where valuation takes
place ,
of Council Regulation ( EEC ) No . 803/68 of 27 June 1968 .

the exchange rate shall be determined in accordance with Article 12

- 59 -

Title IX : Rates

Article 13

1 . The rate applicable to taxable transactions shall be that in force at
the time of the chargeable event . However , in the cases provided for
in the last subparagraph of Article 11(3 ), the rate applicable shall
be that in force at the time of release for free circulation .

2 . The standard rate of value added tax shall be fixed by each Member State

as a percentage of the taxable amount
of goods and for supplies of services .

and shall be the same for supplies

3 « In certain cases , supplies of goods or services may be made subject to
increased or reduced rates . Each reduced rate shall be so fixed that

the amount of value added tax resulting from the application thereof
shall be such as in the normal way to permit the deduction therefrom of
the whole of the value added tax deductible under Article 17 *

k . The rate applicable in respect of imported goods shall be the rate applicable

to supplies of like goods within the territory of the country .

- 60 -

Title X : Exemptions

Article lA

Exemptions within the territory of the country

A

Exemptions for cert ai n activities in the public interest

1 . Member States shall exemnt the following :

a ) the supply of services , other than passenger transport , and supplies
of goods incidental thereto , by public postal and telecommunications

services ;

b ) the supply of hospital and medical services , and Supplies of goods

incidental ther<=r.o, by medical establishments run by :

- bodies governed by public law ; or

- non- profit -making organisations ; or

- private charitable organisations ;

c ) the supply of medical services in the lawful exercise of the medical

and like professions ;

d ) supplies of human blood and milk ;

e ) the supply of services by dental technicians in their professional

capacity and supplies of prosthesss by dentists and dental technicians ;

f ) services supplied by independant professional groups of a medical or
like nature to their members for the purposes of their exempted acti­

vities ;

g ) the supply of services directly relating to welfare assistance and
social security and supplies of goods incidental thereto , by :

- bodies governed by public law ; or

- non- profit -making organisations ; or
- private charitable organisations ;

- 61 -

h ) the supply of services for the protection or education of children
and young persons , and supplies of goods incidental thereto , by :

- bodies governed by public law ; or
- non-profit -making organisations ; dr
- private charitable organisations ;

i ) the supply of services , and supplies of goods incidental thereto ,

having an educational purpose or being directly connected with edu->
cation or vocational training or retraining , by :

• bodies governed by public law ; or
- private educational establishments placed under the supervision
of the competent public authorities and authorised to prepare
students for a qualification from a school or university or a professional qualifi­
cation, recognised or approved by the State ;

j ) the supply of services , and supplies of goods incidental thereto ,
by non-profit -making sport or physical training organisations to
their members ; this exemption shall apply only to operations direct­
ly connected with the pursuit of sport and physical training activities
by amateurs ;

k ) the supply of services by theatres , cinema-clubs , concert-halls , museums ,
libraries , public parks , botanical or zoological gardens , educational
exhibitions , and operations within the framework of activities in the
public interest of a social , cultural or educational nature , by :

- bodies governed by public law ; or
- non-profit -making organisations ; or­

- private charitable organisations .

2 . a ) "Non-profit -making organisation" means an organisation meeting the

following requirements :

aa ) it shall not have as its object the making of profits ;
bb ) it shall assign any profits made to the improvement and continuance

of the services which it provides ;

- 62 -

cc ) it shall obtain no material advantages for persons other than the

customers or users of the organization ; this provision shall be

without prejudice to the employment by the organization of wage-

or salary- earning staff .

b ) "private charitable organization " means an organization whose acti­

vities are directed to the public good or to benevolent ends , and

which meets one of the following requirements :

aa ) its prices shall be approved by the competent public authorities ;

or

bb )

its profits shall be assigned to promoting the public interest

or benevolent ends

in accordance with rules to be laid down under na­

tional laws .

B. Other exemptions

Member States shall exempt :

a ) insurance and reassurance transactions and services relating thereto

supplied by insurance brokers and insurance agents ;

b ) the supply of services by undertakers and supplies of goods incidental

thereto ;

c ) supplies of goods and services to organizations responsible for con­

structing , installing and maintaining cemeteries , graves and monuments

commemorating war dead ;

d ) the letting of immovable property , excluding'

1 ) the provision of accommodation in hotels and similar establishments , holiday

camps and camping sites ;

2 ) the letting of immovable property for industrial or commercial

uses , suah as factories , shops and sections of buildings , and

contracts for the supply of cold storage facilities ;

3 ) the hiring of safes , and contracts for the supply of parking facilities ;

e ) supplies of goods having formed part of the assets of a business exempted under
this Article, and of second-hand goods within the meaning of Article 26 , on
the acquisition of which, by virtue of Article 17 (6 ), value added tax

did not become deductible ;

- 63 -

f ) dealings in debts , shares , debentures and other securities , exclu­

ding all documents establishing title to goods and all rights , inte­
rests and shares covered by Article 5(1 )

(a ) and b );

g ) the supply of new postage stamps valid for use on

letters posted in

the territory of the country , excluding supplies by dealers in stamps

for collectors ;

h ) dealings in currency other than for collection , and in gold to be

used as coin , and credit transfers ;

i ) supplies of tax marks , discs , bands or stamps issued by other coun­

tries to be fixed to goods for export to such countries or on invoi­

ces or bills of lading accompanying such exports ;

j )

the making of advances and the granting of credit ;

k ) gaming and lotteries ;

1 ) supplies of buildings or parts thereof and of the land pertaining

thereto , after first occupation , by a taxable person for whom
the value added tax on the building is not deductible or to whom Article 12A
( l)(d ) does not apply.
farmers , as defined in Article 27 , shall be deemed to be taxable

For the purposes of this exemption flat-rate

persons subject to the normal scheme ;

a ) supplies of land , other than building land as defined in Article ^( 3)(c ).

Article 15

Exemptions of

imported goods

The Member States shall exempt the following :

1 ) Final importation of goods the supply of which by a taxable person within

the territory of the country would be exempted under Articles 1*+A(l)(d ),
l*fE(c ), f ), g ). h ) and i ), or 16 (k to 7 );

- 64-

2 ) Importation of goods under a declaration for the transit or bonded ware­

house arrangements , supplies of goods still subject to such arrangements

and supplies of services incidental to such importation or supplies ;

3 ) Importation of goods under a declaration for the temporary importation
arrangement which thereby qualify for exemption from customs duties or
would qualify therefor if they were imported from a third country , sup­
plies of such goods still subject to such arrangement and supplies of ser­
vices incidental to such importation or supplies ; however , to avoid serious

distortions of competition , the exemption may be revised subject to con­
sultation in accordance with Article 31 ;

k ) Final import^Lon of goods qualifying for non-tariff exemption from cus­
toms duties on which would qualify therefor if they were imported from
a third country , but excluding the importation of goods in respect of
which exemption from value added tax would distort competition to the

detriment of the internal market ;

5 ) Reimportation of goods in the state in which they were exported , under
the conditions and within the limits laid down in respect of exemption

from customs duties , or v/hich would qualify therefor if they were im­

ported from a third country ; this provision shall also apply to the
reimportation of motor vehicles which have had to be repaired in another

Member State ;

6 ) Importation of goods :

a ) under diplomatic and consular arrangements , which qualify for exemp­
tion from customs duties or would qualify therefor if they were im­
ported from a third country ;

b ) by international organizations recognised as such by the public
authorities of the host country , in accordance with the terms of
headquarters agreements ;

7 ) Importation of goods in the personal luggage of travellers , under the

conditions and within the limits laid down by Community rules ;

8 ) Importation of goods in small consignments , under the conditions and

within the limits laid down by Community rules ;

- 65-

9 ) Importation of used goods not qualifying for exemption as specified

above where the owner can prove that value added tax was finally paid
on the acquisition thereof in another Member State at least six

months earlier . Member States may , however , collect value added tax by

applying to the market value of the goods a rate equal to the difference "between

the national rate and that in the other Member State as ruling on the

day of importation ;

10 . Importation by sea fishing undertakings of their catches , unprocessed

or after undergoing preservation for marketing ;

11 . The supply of services , other than transport services as defined in
in connection with the importation of goods , and the

Article 16(13 ) t

value of which is included in the taxable amount in accordance

with Article 12B ( 2)(b ).

Article 16

Exemption of exports and like transactions

and international transport

The Member States shall , subject to the conditions and limits laid down

by Community rules , exempt the following :

1 . Goods consigned or transported out of the territory of the country as

defined in Article 3 by or on behalf of the vendor ;

2 . Goods consigned or transported out of the territory of the country as

defined in Article 3 by or on behalf of a purchaser established in another

country , subject to conditions to be laid down by each Member State ;

3 . Goods consigned or transported to an export warehouse under customs con­

trol , or delivered to such warehouse ;

4 . Goods for the fuelling and provisioning of sea–going vessels , in accordance with

rules to be laid down by each Member State , excluding supplies to vessels
which , regardless of tonnage or flag , do not carry passengers for reward
and are not used in the course of commercial , industrial or fishing acti­

vities :

- 66 -

5 . The supply , modification , repair , chartering and hiring of sea-going
vessels , and the supply , repair and hiring of objects - including
fishing equipment - incorporated or used therein , excluding vessels
not qualified for the exemption provided for at point 4 ;

6 . The supply , modification , repair , chartering and hiring of aircraft
used by airlines on international routes , and the supply , repair and
hiring of objects incorporated or used thereon ;

7 . Goods for the fuelling and provisioning of aircraft as referred to in point 6 ;

8 . Operations carried out within ports for the direct needs of sea-going
vessels other than pleasure boats , and services of pilots , tugs and
salvage vessels ;

9 . Operations carried out in international airports for the direct needs

of aircraft as referred to in point 6 ;

10 . Supplies of the following services , upon condition that the person sup­

plying the service proves that the customer :

- ie established outside the Community ; or
• is a taxable person established in the Community but in a country

other than that of the person supplying the service ;

a ) assignments of patents , trade marks and like rights , and the granting

of licences ;

b ) work on movable tangible property , other than work under a contract

to make up work within the meaning of Article 5(2 ) ( d );

c ) advertising services ;

d ) the' hiring out of movable tangible property other than motor vehicles ,

aircraft and ships }

e ) services of consultants , engineers and planning offices ,

and similar services ;

f ) obligations to refrain from carrying on or exercising , in whole or

in part , a business activity or a right included in this paragraph 10 ;

- 67-

g ) banking and financial transactions not specified in Article l*f ;

11 . Services supplied by brokers and other intermediaries , acting in the name

and for account of another person , where they form part of transactions

specified in this Article , and other usual services directly rela­

ting to exportation as defined in points 1 , 2 and 3 ;

12 . Supplies of goods and services to diplomatic and consular missions

accredited to each Member State , or to international organizations

recognised as such by the host Member State .

This exemption shall apply under the conditions and within the limits

laid down by each Member State until common rules are adopted in accor­

dance with the procedure laid down in Article 31 .

The benefit of the exemption may be granted by means of a drawback pro­

cedure :

13 * Supplies of services in :

a ) the transport of goods from another country to the first place of

destination ;

b ) the transport of goods which are being carried to a destination outside

national territory, or to an export bonded warehouse or in transit ;

c ) international passenger transport by sea or air , subject to the time

limit set in Article 28 .

- 68 -

By way of derogation from a ) and b ) above , the transport of goods accom­
panying passengers or connected with the transport of passengers , such

as luggage , motor vehicles , 6hall be exempted only where the transport
of such passengers is itself exempted .

- 69 -

Title XI : Deductions

Article 17

Existence and scope of the right to deduct

1 . The right to deduct shall arise at the time when the deductible tax

becomes chargeable .

2 . Where goods and services are to be used for the purposes of his taxable

business ,
tax which he is liable to pay :

the taxable person shall be entitled to deduct from the

a ) value added tax invoiced to him in accordance with Article 25(3 ) in

respect of goods or of services supplied to hin ;

b ) value added tax due or paid in respect of goods imported and declared

in accordance with Article 2^;

c ) value added tax due under Articles 5(3)(b ) and 7(2)(b );

d ) value added tax due from a person to whom services have been

supplied in one or other of the circumstances described in Article 2(3 )-

3 * Member States shall also grant to taxable persons the right to deduct

or to be refunded value added tax invoiced to thorn in respect of

goods and services ^supplied to them for the purposes :

a ) of occupations or transactions covered by Article 4(2), carried

out in another country , where these occupations or transactions wolild
be taxed if carried out in the territory of the country ; or

b ) of occupations which are exempt under Article 16 .

k . Each Member State shall refund to any taxable person established in

another country who supplies no goods or services within its territory
the value added tax invoiced to him in respect of goods and services
supplied to him in the said territory , where the value added tax on
such goods or services would be deductible, if the taxable person

in question carried on his business within its territory .

- 70 -

The refund shall be made upon application from the taxable person . No
application shall be made in respect of an amount of tax lower than 100
units of account , but several invoices nay together form the subject
of a single application .

5 . As regards goods and services used both for transactions covered by para­

graphs 2 and 3 » in respect of which value added tax is deductible , and for
transactions in respect of which value added tax is not deductible , only
such proportion of the value added tax shall be deductible as is attributable
to the former transactions (general proportion rule).

This proportion shall be determined , in accordance with Article 19 *

for all the transactions carried out by the taxable person .

However , to ensure that the tax is applied consistently , Member States

may :

a ) authorise the taxable person to determine a

proportion for each

sector of his business ,
each sector ;

provided that separate accounts are kept for

b ) compel the taxable person to determine a proportion for each seo-

tor of his business and to keep separate accounts for each sector ;

c ) authorise or compel the taxable person to make the deduction on the
basis of the actual use of all or part of the goods and services .

6 . Value added tax on the following shall not be deductible:

a ) expenditure on accomodation , lodging , restaurants , food , drink , enter­
tainment and passenger transport , unless incurred by an undertaking
whose principal or subsidiary business is the pursuit of such acti­
vities ;

b ) expenditure on luxuries ;

c ) entertainment expenditure ;

d ) goods relating to the expenditure and costs listed in a ), b ) and c )

above , and supplies of services in connection with such property, expen­
diture and costs .

- 71 -

Article 18

Rules for exercising the right to deduct

1 . To exercise his right to deduct ,

the taxable person must :

a )

b )

in respect of deductions under Article 17(2 ) (a ) t hold a detailed invoice,
drawn up in accordance with Article 23 (3 ) »

in respect of deductions under Article 17(2)(b ), hold an import document ,
specifying him as consignee and permitting calculation of the amount

of tax due ;

c)

in respect of deductions under Article 17(2 ) (c ) and (d ), comply with the
formalities established by each Member State ;

2 . The taxable person shall effect the deduction by subtracting from the

total amount of value added tax due for a given tax period the

total amount of the tax in respect of which , during the same period ,

the

right ID deduct
deduct ion ).

has arisen and can be exercised under paragraph 1

( immediate

However , as regards taxable persons who carry out occasional transac­
tions as provided in Article k(3 ) b ) and c ),

the right to deduct shall

be exercised only at the time of the supply .

Where by error or omission the taxable person does not make the deduction

at the right time , he may exercise his right to deduct at any time up to

and including 31 December of the year following that in which the deduc­

tion should have been made in accordance with the first subparagraph . The

deduction shall in such case be made in accordance with the provisions

in force at the time when the deduction should have been made . It may be

exercised when the return provided for in Article 23(7 ) is made .

3 - Where for a given tax period, the amount of authorised deductions

exceeds the amount of tax due the Member States may either make a refund

or carry the excess forward to the following period .

However , upon application from the taxable person ,

the excess amount at

31 December shall be refunded to the taxable person within three months .

- 72-

Article 19

Calculation of the deductible proportion

1 . The proportion deductible under the first subparagraph of Article

17(5 ) shall be made up of a fraction having :

- as numerator ,

the total amount , exclusive of value added tax , of turn­

over per calendar year attributable to transactions in respect of which

value added tax is deductible under Article 17(2 ) and ( 3 );

- as denominator ,

the total amount , exclusive of value added tax , of turn­

over per calendar year attributable to transactions included in the nu­

merator and to transactions in respect of which value added tax is not

deductible .

The proportion shall be determined each calendar year , fixed as a

percentage and rounded up to the next unit .

2 . By way of derogation from paragraph 1 ,

there shall be excluded from the cal­

culation of the deductible proportion, amounts of turnover attributable
to transactions specified in Article l^B(f ),

to the sale of capital goods

used by the taxable person for the purposes of his business , and to inci­

dental real estate or financial transactions , except where th°«ie operations

form part of the regular business activity of the taxable person .

3 . The provisional proportion for a calendar year shall be that calcu?-

lated on the basis of the preceding year 's transactions . In the absence

of any such transactions to refer to , or where they were insignificant

in amount , deductible proportion shall be estimated provisionally , under

supervision of the tax authorities , by the taxable person ffom his own

forecasts . Deductions made on the basis of such provisional proportion

shall be adjusted when the final proportion is fixed during

the next calendar year .

- 73-

Article 20

Adjustments of deductions

1 . The taxable person shall adjust the initial deduction :

a ) where that deduction was higher or lower than that to which he was

entitled under Articles 17 »

l8 and , if applicable , 26 ;

b ) where the difference between the final proportion and the provisional

proportion defined in Article 19 exceeds 10 points ;

c ) where after the return is made some change occurs in the factors used

to determine the amount to be deducted ,

in accordance Article 18(2 ),

in

particular where purchases are cancelled or price reductions are obtained ;

however , adjustment shall not be required in cases of destruction , loss

or theft of property , duly proved or confirmed , nor in the cases
specified in Article 5(3 );

d ) where ,

instead of being taxed in the normal way , he becomes subject

to one of the special schemes provided for in Articles 25(l)(a ) and 27 .

Member States shall take all necessary measures to ensure that the taxable

person does not unduly benefit under these special schemes from deduc­

tions made under the normal scheme .

2 . As regards capital goods , adjustment shall be spread over five years

beginning with that in which the property is acquired . The annual adjust­

ment shall be made only in respect of one fifth of the tax imposed on the

goods .
the final proportion for the four years following the year of acqui­

adjustment shall be made on the basis of the variations in

sition in relation to the final proportion for the year of acquisi­

tion . However no adjustment need be made where the difference is less

than 10 points .

- 74-

Title XII : Persons liable for payment of tax

Article 21

Persons liable to pay tax to the tax authority

The following shall be liable to pay value added tax :

1 . Under the internal system :

a ) taxable persons who carry out taxable transactions , and agents
of taxable persons established in another country who carry out

taxable transactions ;

b ) persons to whom services covered by Article 2(3 ) are supplied ;

c ) any person who mentions the value added tax on an invoice or other

document in that behalf ;

2 . On importation :

the person specified as consignee in the import docu­

ments or ,

in the absence of such documents or specification ,

the impor­

ter . The consignee ,

the declarant and his agent shall be jointly liable

for tax .

- 75-

Title XIII ; Assessment of the amount of tax to be paid and

liability for payment of the tax

Article 22

1 . The amount of tax to be paid shall be assessed by the tax autho­

rity on the basis of the return made by the person liable for payment .
Such return may be verified by the tax authority
lead to reassessment of the amount to be paid . In the absence of a re­

this may

turn , the amount may be assessed by the authority .

2 . Liability to pay tax means the obligation to pay the amount of the tax
at the end of the period prescribed by law following either the submis­
sion of the return or assessment of the amount of tax due .

- 76-

Title XIV : Obligations of persons liable for payment

Article 23

Obligations under the internal system

1 . Every taxable person shall state when his activity as a taxable person

commences , changes or ceases .

2 . Every taxable person shall keep sufficiently detailed accounts to permit

application of the value added tax and inspection by the tax authority .

3 . a ) Every taxable person shall issue an invoice in respect of all goods

and services supplied by him to another taxable person , and shall keep

a copy thereof .

Every taxable person shall likewise issue an invoice in respect of pay­

ments on account made to him by another taxable person before the supply

of goods or services is effected or completed .

b ) The invoice shall state clearly the price exclusive of tax and the

corresponding tax at each rate as well as any exemptions .

c ) Where a Member State has made provision as authorised by Article ll(2)(b ),

the invoice shall be issued within 30 days following the chargeable

event .

k . Every taxable person subject to the normal tax systemsshall each month

submit a return setting out the supplies in respect of which tax has

become

chargeable during the preceding month together with all information re­

quired to calculate the tax and the deductions to be made ,

including the

total amount of the relevant supplies and the total amount of exanpted.
supplies .

5 . Taxable persons subject to the special schemes provided for in Articles

25 and 27 may be authorised by Member States to submit quarterly , half-

yearly or annual returns setting out the same information as required un­

der paragraph 4 .

- 77-

6 . Every taxable person shall pay the net amount of the value added tax

when submitting the return .

7 . During the first six months of each year the taxable person shall submit

a return covering all supplies made in the preceding year and setting

out all the information required for any adjustment .

8 . Every person who to whom a service covered by Article 2(3 ) is supplied

shall declare to his national tax authority the object of the ser­

the price which has been or is to be paid and the amount of tax

vice ,
chargeable, and shall , where appropriate, pay the amount thereof.

9 . Member States may where necessary impose other obligations should this
prove necessary for the collection of the tax or the prevention of fraud .

10 . Member States may release from certain obligations taxable persons who

make only exempt supplies .

Article 2k

Obligations in respect of imports

Detailed rules relating to accounts and payments to be made on the basis

thereof in respect of imported goods shall be laid down by each Member State .

Member States may provide inter alia that the value added tax on goods im­

ported by certain categories of taxable persons , payable by reason of im­
portation , need not be paid at the time of importation , upon condition that
the tax be mentioned , as a tax due by reason of importation, in the periodic
returns to be submitted by the taxable person under Article 23(4 )»

- 78-

Title XV ; Special schemes

Article 25

Special scheme for small undertakings

1 . Where the application of the normal tax scheme to small undertakings

would give rise "to difficulties , each Member State may , under such con–
ditions and within such limits as it may prescribe , and subject to consul­

tation with the Value Added Tax Committee as provided for in Article 30 ,

apply :

a ) until such time as the objective specified in Article k of the First

Directive ( 67/227/EEC of 11 April 1967 ) is attained ;

aa ) exemption from tax for taxable persons whose annual turnover does

not exceed 4 000 units of account ; and

bb ) if appropriate , graduated tax relief for taxable persons whose

annual turnover exceeds the maximum amount fixed by that State

for total exemption but does not exceed 12 500 units of account ;

b ) simplified procedures for charging and collecting the tax , provided

that the amount of tax to be paid shall not thereby be reduced .

2 « The relevant turnover for the purposes of the application of paragraph 1 a )

shall be the total pre-tax amount of the supplies of goods and services

defined in Articles 5 and 7 ,

including exempt supplies and supplies

made in another country .

However , disposals of tangible or intangible investment property which

formed part of the fixed assets of the undertaking , supplies of buil­
dings and of building land ,
and f )

the transactions specified 4n Article Ik B d )
and the letting of buildings shall be disregarded in calculating

the turnover .

3 « Paragraph la ) shall not apply to taxable persons whose main or subsi­

diary business consists of real property transactions , nor to the trans­

actions specified in the second subparagraph of paragraph 2 .

- 79 -

k . Taxable persons totally Exempted from tax shall not be entitled to de­
duct tax invoiced to them or to mention the tax on invoices issued by
them or any other documerte in that behalf . They may , however , opt for
the normal value added tax scheme and , where applicable , qualify for
the graduated relief provided for in paragraph 1 a ).

5 . Without prejudice to the application of paragraph 1(b), taxable persons who
qualify for graduated relief shall be treated as taxable persons subject to
the normal value added tax scheme .

Article 26

Special scheme for second-hand goods

1 .

" Second-hand goods" means used movable property which can be re -used as
it is or after repair , excluding original works of art created "by the
hand of the artist , antiques , collectors' items , and stamps and coins
being collectors' items .

2 . By way of derogation from Articles 17 and 18 :

a ) where Becond-hand goods are supplied by a non-taxable person to a
taxable person for resale the taxable person shall be entitled to
deduct the value added tax calculated on the purchase price of such
goods at the rate in force at the time of acquisition , save where the
taxable person is subject to the special scheme provided for in Ar­
ticle 25(l)(a );

b ) where a taxable person supplies second-hand goods the value added tax on

which is by virtue of Article 17(6 ) not deductible, the recipient shall
likewise be entitled to deduct the value added tax calculated as in (a)
above where he is a taxable person and intends to resell the goods in question.

- 80 -

3 . The deductions provided for in paragraph 2 shall not exceed 4/ 5 of the

amount of tax due on the resale . The initial deduction shall , where

necessaiy , be adjusted at the time of resale .

4 . Member States may make the application of the provisions referred to in

paragraphs 2 and 3 subject to special administrative obligations .

Article 27

Common flat–rate scheme for farmers

1 • Where the application to farmers of the normal value added tax scheme,
or the simplified scheme provided for in Article 25(l)(b ), would give
rise to difficulties , Member States may apply to farmers the common

flat–rate scheme provided for in the following paragraphs .

2 . For the purposes of this Article ,

the following definitions shall apply :

– "farmer": a taxable person carrying on any of the productive activities

listed in Annex A on an agricultural , forestry or fisheries undertaking

operated by him ;

– "agricultural , forestry or fisheries undertaking": an undertaking

considered to be such by the Member State concerned ;

– "flat–rate farmer": a farmer subject to the flat–rate scheme provided

for in paragraphs 7 et seer . ;

– "agricultural products": goods produced by an agricultural , forestry or

fisheries undertaking in a Member State as a result of the activities

listed in Annex A ;

– "agricultural service": any service as set out in Annex B supplied by a
farmer personally and/or by means of the equipment normally available
on the agricultural , forestry or fisheries undertaking operated by him ;

– ."value added tax charge on inputs ": the respective amounts in each

Member State of ( a) the total value added tax, calculated in accordance
with paragraph 3 below, attaching to the goods and services purchased
by all agricultural and fisheries undertakings and (b ) the like total
in respect of all forestry undertakings, where such tax would be

- 81 -

deductible under Article 17 by a farmer subject to the normal value

added tax scheme ;

– ••fixed offsetting percentages": the percentages fixed by Member States

in accordance with paragraph 4» and applied "by them in the cases

specified in paragraph 7»

to enable flat–rate farmers to offset at a

fixed rate the value added tax charge on inputs .

3 . The Commission shall be responsible for calculating the level of the value

added tax charge on inputs in each Member State, using the common method

of calculation set out in Annex C.

Such calculation shall be based on

macro–economic statistics for the preceding two years supplied by the

Member States for the purposes of the common method of calculation set

out in Annex C.

The calculations shall be updated by the Commission every three years and

also whenever in any Member State the rates in force or the lists of goods

and services subject to such rates are so changed as to be likely to affect

the level of the input charge in the Member State concerned .

The levels of input charge so calculated,
tenth of one per cent, shall be so fixed in accordance with the procedure

rounded down the the nearest

laid down in Article 31 that they may be adopted *

– for the first time, not later than 30 September 1974 ?
– for each three–yearly updating: not later than 30 September of the

third year ;

– in the oase of changes likely to affect the level of the charge as soon

as possible *

Member States shall supply the Commission with the maoro–economic
statistics and other data required for the common method of calculatation :

– for the first time, not later than 30 May 1974 ;
– for each three–yearly updating, not later than 30 June of the third

.year ;

- 82 -

– in the case of changes likely to affect the level of the charge, as

soon as possible .

4 . Member States shall fix, at levels not exceeding JOfo of the levels of

input charge adopted in accordance with paragraph 3,
percentages as follows :

two fixed offsetting

a) the first to offset the input charge in respect of agri cultural

fisheries undertakings, and applicable to supplies by a flat–rate farmer
of agricultural products from suoh undertakings and of agri cultural
servioes ;

b ) the second to offset the input charge on forestry undertakings, and

applicable to supplies by a flat–rate farmer of agricultural products

from such undertakings#

Member States may, subject to consultation with the Value Aided Tax

Committee as provided for in Article 30, vary the offsetting percentage
provided for in ( a) above by reference to subdivisions of agriculture or

by treating separately agriculture proper and fisheries *

In such case

they shall fix different fixed offsetting percentages for agricultural

products from each such subdivision or from agriculture proper and from

fisheries . Bone of these different fixed offsetting percentages shall
exceed the level of the fixed percentage provided for under ( a).

- 83 -

5 . In order that flat–rate farmers may gradually transfer to the normal

value added tax scheme or, as the case may "be ,
provided for in Article 25(l)(b ),
applied in each Member State shall not exceed :

to the simplified scheme

the fixed offsetting percentages

– from the fourth year following the entry into force of this Directive,
80% of the value added tax charge on inputs adopted in accordance with

paragraph 3 ;

– from the seventh year following the entry into force of this Directive,
70$ of the value added tax charge on inputs adopted in accordance with

paragraph 3 .

6 . Member States may release flat–rate farmers from the obligations imposed

upon them by Article 23 •

7 . Plat-rate farmers shall be entitled, subject as provided in the following

paragraphs ,

to offset the value added tax charge on inputs by applying

to the price , exclusive of tax, of the agricultural products and agricultural

services supplied by them the fixed percentage provided for in paragraph 4 «

This offsetting shall exclude all other forms of deduction .

8 . As regards supplies of agricultural products and agricultural services

by a flat–rate farmer to a taxable person other than a flat–rate farmer,

the fixed percentage shall be paid, according as the Member States shall

provide :

a) either by the taxable person to whom the goods or services are supplied ;

or

b ) by the public authorities .

9 . As regards all supplies of agricultural products and agricultural services

other than those covered by paragraph 8,

the fixed percentage shall be

paid by the recipient of such supplies .

10 . In respect of the transactions specified in paragraph 8,

the taxable person

to whom the goods or services are supplied :

– shall draw up in duplicate a purchase document to be used in place of

the invoice, which shall clearly state, inter alia,
the price exclusive
of tax and , where pursuant to paragraph 8(a) the fixed offsetting per­
centage is payable by him,

the amount paid by him to the flat–rate

- 84-

farmer m respect of that percentage ;

such person may however draw up a

combined purchase document setting out , for a stated period, all his

transactions with a particular flat–rate farmer ;

– shall give the flat–rate farmer a copy of such purchase document ;

– shall keep ,

in accordance with rules to he laid down "by the individual

Member States , a copy of the document countersigned by the farmer ;

– shall be entitled, where he is required pursuant to paragraph 8(a) to pay

the fixed offsetting percentage ,

to deduct from the value added tax due

from him an amount equal to that paid , as indicated on the purchase

document ,

to the flat–rate farmer in respect of that percentage ..

11 . No fixed offsetting percentage shall be payable to a flat–rate farmer in

respect of the following transactions :

a) supplies by such farmer by way of exportation ;
b ) the supply by such farmer of non–agricultural products or non–agricultural

services .

12 . The following transactions shall not qualify for the flat–rate scheme :

a) commercial distribution by a flat–rate farmer or :

– supplies of agricultural products which have been processed with means

not normally employed on an agricultural , forestry or fisheries Tinder-

taking; or

– supplies ,

in excess of limits to be determined by the Member States

subject to consultation with the Value Added Tax Committee as provided
in Article 30, of goods not produced in the agricultural , forestry or
fisheries undertaking of the flat–rate farmer in question ;

b) services provided by the flat-rate farmer on a regular basis and/or by

means of equipment not normally associated with an agricultural , forestry
or fisheries undertaking of the type operated by him .

- 85 -

In respect of these transactions the flat–rate farmer shall be subject to the

normal value added tax scheme or, as the oase may he ,
scheme provided for in Article 25(l)(b ).

to the simplified

Detailed rules for the application of this paragraph shall "be adopted "by

the Member States .

13 . The following shall "be excluded from the flat–rate scheme and shall be

subject to the normal value added tax scheme or, as the case may be,
the simplified scheme provided for in Article 25(l)(b ):

to

a) farmers who also carry on a non–agricultural occupation in respect of

which they are already subject to the normal value added tax scheme or
to the simplified scheme provided for in Article 25(l)(b );

b ) farmers operating an agricultural , forestry or fisheries undertaking

the annual turnover of which exceeds 50 000 units of account ;

c ) any agricultural , forestry or fisheries undertaking legally constituted

as a partnership or company .

14 . Each Member State may exclude from the flat–rate scheme certain categories

of farmers , and farmers to whom the normal value added tax scheme, or as
the case may be the simplified scheme provided for in Article 25(l)(b ), can

be applied without giving rise to administrative difficulties .

- 86 -

15 . Every flat-rate farmer may opt , subject to the rules and conditioBs to be laid

down by each Member State , for application of the normal value added

tax scheme or , as the case may be ,

the simplified scheme provided for in

Article 25(1 ) ( b ).

16 . The Commission shall , before the end of the sixth year following the

entry into force of this Directive , present to the Council new proposals con­

cerning the application of the value added tax to transactions
respect of agricultural products and services .

in

17 # The Annexes A, B

C referred to in this Article may be amended in

accordance with the procedure laid down in Article 31 .

- 87-

Title XVT ! Transitional provi si ons

Artide 28

1 . The exemption provided for in Article 16(13 )( C ) shall apply until 1 January

1977 .

The Commission shall in due course make to the Council proposals concerning

the tax scheme to be applied from 1 January 1977 to international passenger

transport by sea and air .

2 . Any provisions "brought into force "by the Member States in exercise of the

rights conferred on them by Article 17 of the Second Council Directive
No 67/228/EEC of 11 April 1967 shall with effect from 1 January 1975 cease
to apply .

However,

those Member States which have exercised the right conferred under

the last indent of this Article regarding exemption with refund of any tax

paid at the preceding stage, may maintain in force the exemptions existing
on 1 April 1973 oij on the date on which Council Directive No 67/228/EEC of
11 April 1967 came into force, until such date as shall be fixed by the

Council on a proposal from the Commission .

Such date not to be later than

that on which the charging of tax on imports and the remitting of tax on

exports in trade between the Member States are abolished .

The Member States

shall adopt the necessary provisions to ensure that taxable persons declare

the real turnover, calculated in conformity with this Directive,

in respect

of such exempt transactions .

3 . Member States which avail themselves of the provisions of the second subpara­

graph of paragraph 2 shall supply to the Commission in every two years , and

for the first time before 30 June 1975 » with such information as will enable

it to determine whether the grounds on which the exemptions referred to in

that subparagraph have been maintained in force still obtain .

The Commission

shall take such information into account in the reports provided for in

Article 32 and will make proposals in such reports for the adaptation by

stages of the abovementioned exemptions to the obligations resulting from

the achievement of Economic and Monetary Union .

- 88 -

Title XVII : Value Added Tax Committee

Article 29

1 . A Value Added Tax Committee , hereinafter called "the Committee ", is

hereby set up and shall consist of representatives of the Member States
with a representative of the Commission as Chairman .

2 . The Committee shall establish its own rules of procedure .

Article 30

In addition to the consultations made compulsory by Articles 25 and 27 , the
Committee may examine any question relating to the application of any Commu­
nity act concerning the value added tax , raised by the Chariman either on
his own initiative or at the request of the representative of a Member State .

Article 31

1 . Without prejudice to Articles 12 , 15 , 16 and 27 , the measures necessary
for applying this Directive shall be adopted in accordance with the pro­

cedure laid down in paragraphs 2 and 3-

2 . The representative of the Commission shall submit to the Committee a draft

of the measures to be taken , considering in particular the consequences
thereof both on the fairness of competition at national and international
level and on own resources . The Committee shall deliver its Opinion on
such measures within a time-limit which may be set by the Chairman accor­
ding to the urgencyoof the matter . Opinions shall be delivered by a majo­
rity of 'fl votes , the votes of the Member States being weighted in accor­
dance with Article 1^8(2 ) of the Treaty . The chairman shall not vote .

- 89 -

3 . a ) The Commission shall adopt the proposed measures where they are in

accordance with the Opinion of the Committee .

b ) Where the measures are not in accordance with the Opinion of the

Committee , or in the absence of such Opinion , the Commission shall
without delay make to the Council proposals concerning the measures
to be taken . The Council shall act by a qualified majority .

c ) If , three months after the proposal was made to the Council , the

Council does not act , the proposed measures shall be adopted by the

Commission .

- 90-

Title XVIII : Miscellaneous provisions

Artide 32

For the first time on 1 January 197b and thereafter every two years , the
Commission shall , after consulting the Member Staes , send the Council -a.

report on the application of the common value added tax system in the

Member States .

Article 33

At the appropriate time the Council , acting on a proposal from the Com­

mission and in accordance with the interests of the common market , shall
adopt further Directives on the common value added tax system , in parti­
cular to restrict progressively or to repeal measures taken by the Member
States by way of derogation from the system , in order to achieve complete
paralellism of the national value added tax systems and thus permit the
attainment of the objective stated in Article k of the First Directive .

Article 3^

The following provisions of the First Council Directive , No . 67/227/EEC
of 11 April 1967 , are repealed :

a ) the fourth subparagraph of Article 2 :
b ) Article 5 .

Article 35

The Second Council Directive , No . 67/228/EEC , of 11 April 1967 is hereby
repealed with effect from 31 December 1974 *

This Directive is addressed to the Member States .

Article 36

- 91 -

LIST OF ACTIVITIES IN AGRICULTURAL PRODUCTION

ANNEX A

I. CROP PRODUCT! Off

1 . General agriculture ,

including wine-growing .

2 . Growing of fruit ( including olives ) and. of vegetables, flowers and

ornamental plants, both in the open and under glass .

3 . Production of mushrooms , spices , seeds and propagating materials ;

nurseries .

II . STOCK FARMCTG ïïSTfTO BPs LATO?

1 . General stock farming

2 . Poultry farming

3 . Rabbit fanning

4 . Beekeeping

3' Silkworm farming

6 . Snail farming

III . FORESTRY

IV .

FISHERIES

1 . Fresh water fishing

2 . Fish farming

3 . Breeding of mussels , oysters and other molluscs and crustaceans

4 . Frog farming

V. Where a farmer processes, using means normally employed in an agricultural,

forestry or fisheries undertaking, products deriving essentially from his

agricultural production, such processing shall also be regarded as

agricultural production*

- 92 -

LIST OF AGRICULTUHAL SERVICES

ANNEX B

Field work, reaping and mowing,

threshing, haling, collecting, harvesting,

sowing and planting;

Packing and preparation for market , for example drying , cleaning ,

grinding , disinfecting and ensilage of agricultural products ;

Storage of agricultural products ;

Stock minding, rearing and fattening;

Hiring out of agricultural machinery ;

Technical assistance ;

Destruction of weeds and pests , dusting and spraying of crops and land ;

Operation of irrigation equipment ;

Lopping, +,ree felling and other forestry services .

- 93 -

COMMON METHOD OF CALCULATION

ANNEX C

1

I. For the purposes of calculating the value added tax charge on inputs in a

Member State for, respectively, all agricultural and fisheries undertakings

and all forestry undertakings ,

the following shall be taken into account :

1 ) The value of the total final production, exclusive of value added tax,
of respectively the Classes "agricultural products and game " and "waod

in the rough" as set out below at points III and IV, plus the output of
the processing activities referred to in point V of Annex A ;

2 ) Total inputs in respect of the production and output

referred to in ( l );

3 ) Gross fixed asset production in connection with the activities listed

in Annex A.

II . The respective value added tax charges on inputs shall be expressed as the

relationship between the stun of the total value added tax deductible under
Article 17 of the Directive attaching to inputs as referred to in point 1(2 )
and to gross fixed asset production as referred to in point I ( 3 ) , and the
value of total final production, exclusive of value added tax, as referred
to in point l(l ).

III . Agricultural products and game

SPEC code number

Cereals ( excluding rice )

Wheat and spelt

Winter wheat and spelt

Winter wheat and spelt

Spring wheat

Durum wheat

Winter wheat

Spring wheat

10.01.11

10.01.19

1

1

10.01.51

10.01.59

' The classification in this Annex is that used in the 30EC Economic

Accounts for Agriculture .

- 94-

Rye aad meslin

Rye

Winter rye
Spring rye

Meelin

Barley

Spring barley
Winter barley
Oats and summer me si in

Oats

Summer meslin

Maize

Other cereals ( excluding rice )

Buckwheat

Millet

Grain sorghum
Canary seed
Cereals , not elesewhere specified
( excluding rice )

Rice ( in the husk or paddy )

Puises

Dried peas and fodder peas

Dried peas (other than for fodder )

Dried peas ( excluding chick peas )
Chick peas

Fodder Peas

Haricot beans , broad

and field beans

2

2

10.02.00

10.01.11

10.01.19

10.03.10
10.03.90

10.0^.10

îo.oif . 90

10.05.10

10.05.92

10.07.10

10.07.91

10.07.95

10.07.96

10.07.99

10.06.11

07.05.11

Haricot beans

Broad

and field beans

07.05.15

07.05.95

- 95-

Other pulses

Lentils

Vetches
Lupins
Dried pulses
not elsewhere classified, pulse
mixtures and cereal and
pulse mixtures

Roots, brassicas group for fodder

Potatoes

Potatoes ( excluding seed potatoes )

New potatoes

Main crop potatoes

Seed potatoes
Sugar beet
Mangolds and fodder "beet ; swedes, fodder carrots
and dodder turnips ; other roots and fodder "brassicas

Mangolds and fodder "beet
Swedes , fodder carrots ,
fodder turnips
Swedes
Fodder carrots ,
fodder turnips

}
i
1
\
!
!

1

Fodder cabbages and kales

Other roots and fodder brassicas

Jerusalem artichokes
Sweet potatoes
Roots and fodder brassicas not
elsewhere specified

Industrial crops

Oil seeds and oleaginous fruit
( excluding olives )

Colza and rape seed
Winter colza
Summer colza
Rape

Sunflower Seed
Soya beans
Castor 6eed
Linseed

07.05=91

12 . 03.31
12.03.^9

07.05.97

2
*

07.01.13

07.01.15

07.01.17

07.01.19

07.01.11
12.04.11

12.10.10
12.10.10

12.10.99

07.06.10
07.06.50

O7.O6.3O

12.10.99

12.01.91

12.01.95
12.01.^0
12.01.50
12.01 . 6l
12.01.69

- 96-

Sesame , hemp , mustard and poppy seed

Sesame seed

Hemp seed

Mustard seed

Oil poppy and poppy seed

Fibre plants

Flax

Hemp

Unmanufactured tobacco ( including dried tobacco )

Hops
Other industrial crops
Chicory roots

12.01.97
12.01.9^

12.01.92

12.01.93

5^.01.10

57.01.10

2^.01.10
2^.01.90
12.06.00

12.05.00

Medicinal plants , aromatics , spices
and plants for perfume extraction

Saffron

Caraway
Medicinal plants , aromatics ,
spices and plants for perfume
extraction

not elsewhere specified

'
>
■

09.10.31
07.01.82
09 . 09 ( 11- 13-15-17-18 )
09 . 10 ( 11- 20-51-55-71 )
12.07 ( 10- 20-30- ^0-50-
60- 70- 80-91- 99 )

Fresh vegetables

Cabbages for human consumption

Cauliflowers

Other cabbages

Brussels sprouts
White cabbages
Red cabbages
Savoy cabbages
Green cabbages
Cabbages

)
)

!
!
!
Leaf and stalk vegetables other than cabbages

not elsewhere specified

Celery and celeriac

Leeks

Cabbage lettuces

07.01.21
07.01.22

07.01.26

07.01.23

07.01.27

07.01.51
07.01.53
07.01.97
07.01.68

07.01.31
07.01 ."

1

2

- 97-

Endives

Spinach

Asparagus
Witloof chicory-
Artichokes

Other leaf and stalk vegetables

Corn salad

Cardoons and edible thistle

Fennel

Rhubarb

Cress

Parsley

Brocoli

Leaf and stalk vegetables not
elsewhere specified

Vegetables grown for fruit

Tomatoes

Cucumbers and gherkins

Melons

Aubergines ,

^narrows and pumpkin^ courgettes

Sweet capsicum
Other vegetables grown for fruit

Root and tuber crops

Kohlrabi
Turnips
Carrots

Garlic

5
5

Onions and shallots
Beetroot (red beet )
Salsify and scorzonera
Other root and tuber crops ( chives ,

radishes , French turnips , horse radishes )

Pod vegetables

Green peas

Bean 8

Other pod vegetables

Cultivated mushrooms

07.01.36

07.01.29

07.01.71
07.01.34

07.01.73

07.01.36

07.01.37

07.01.91

07.01.97

07.01.75
07.01.7 7
07.01.83
07.01.85
08.09.10

07.01.95

07.01.93

07.01.97

07.01.27

07.01.54

3

2

07.01.67
07.01 . ( 62-63- 66 )

307.Ol.56
307.01.59

07 . 01 . 41
07.01.^3
07.01.45
07.01.47

07 . 01 . 49
07.01.87

- 98 -

Fresh fruit , including citrus fruit
( excluding grapes and olives )
Dessert apples and pears
Dessert apples
Dessert pears

Cider apples and perry pears

Cider apples
Perry pears

Stone fruit

Peaches

Apricots

Cherries
Plums ( including greengages ,
mirabelles and quetsches )
Other stone fruit

Nuts

Walnuts

Hazel nuts

Almonds

Chestnuts
Other nuts ( excluding tropical nuts )

Pistaches

Nuts

not elsewhere specified

Other tree fruits

Figs

Quinces
Other tree fruits , not elsewhere specified
( excluding tropical fruit )

Strawberries

Berries

Black currants and red currants

Black currant 8

Red currant 8

Raspberries

08.06 ( 13-15-17 )
08.06(36-38 )

08.06.11
08.06.32

08.07.32
08.07.10
08.07(51-55 )

08.07(71-75 )
08.07.90

08.05.31
08.05.91
08.05.11
08.05.19
08.05.50

08.05.70
08.05.97

08.03.10
08.06.50

08.09.90
08.08(11-15 )

08.08Λ1
Ο8.Ο8Λ9

1

1

08.08.90
Gooseberries
Other berries ( e.g. cultivated blackberries ) 5o8 . 09«90

- 99 -

Citrus fruit
Oranges
Mandarines and Clementines
Lemons
Grapefruit
Other citrus fruit

Citrons

Limes

Bergamots
Citrus fruit

Grapes and olives

Grapes

not elsewhere specified

08.02 ( 21-22-24-27 )
08»02 ( 32-36 )
08.02.50
08.02.70
08.02.90

*

-

-

-
-

Table grapes
Other grapes ( for wine making, fruit juice
production and processing into raisins )

08.04 (21-23 )

08.04 (25-27 )

Olives

Table olives
Other olives ( for olive oil production)

O7 . Ol .78
07.01.79
07.03.13

Other crop products

Fodder crops
Nursery products

Fruit trees and "bushes
Vine slips
Ornamental trees and shrubs
Forest seedlings and cuttings

Vegetable materials used primarily for plaiting

Osier , rushes , rattans
Reeds , bamboos
Other vegetable materials used primarily for
plaiting

Flowers , ornamental plants and Christmas trees

12 . 10.99

1

06.02 ( 19-40-51-55 )
06.02 ( 10-30 )
06.02 ( 71-75-79-98 )
06.02 . 60

14.01 ( 11-19-51-59 )
14.01 (31-39)
I4. OI . 9O

Flower bulbs , corms and tubers

06.01.10

( l ) e.g. Hay , clover ( excluding brassicas )

- 100 -

Ornamental plants

Cut flowers , branches and foliage
Christmas treea

Perennial plants

Seeds

Agricultural seeds

( 1 )

Flower seeds

Products gathered in the wild

(2

By-products from cultivation ^ 'ofi
Cereals ( excluding rice )

Rice

Pulses

Root cropB

Industrial crops

Fresh vegetables

Fruit and citrus fruit

Grapes and olives

Other crops

Crop products not elsewhere specified

06.01 ( 31-39)
06.03 ( 11-15-90 )
06.04 ( 20-40-50 )
06.04.90
06.02.92

06.02.95
12.03 ( 11-19-35-39-44-

46–84–86–89)

12.03.31

12.03.49

1

1

12.03.81
07.01 ( 88-89 )
08.05.97

2

08.08.31

08.08. 35

08.08.90

23.06.10

08.08.49

2

1

2

12.08 ( 10-31 )
12.08.90

12.09.00

13.03.12
14.02 ( 10-21-23-25-^9 )

14.03.00

I4.O4.OO
14.05 ( 11-19 )
15.16.10

23.06.10

2

23.06.30

13.01.00

( 1 ) Excluding cereal seeds , rice seeds and seed potatoes (011*1 , 011.2 , 011*4)
( 2 )

e.g. wild mushrooms , cranberries , bilberries , blackberries , wild raspberries,
2tc ...

( 3 )

e.g. straw, beet and cabbage tops, pea and been husks

- 101 -

Grape must and wine

Grape raust

Wine

By–products of wine production

(1

Olive oil

Pure olive oil v

( 2 )
'

Olive oil - unrefined

2

By-products of olive oil extraction (3

Cattle

Domestic cattle

Calves

Other oattle , less than 1 year old

Heifers

Cows

Male breeding animals

1-2 years old

More than 2 years old

Cattle for slaughtering and fattening

1-2 years old

More than 2 years old

Pigs

Domestic pigs

Piglets

22.04.00
22.05 ( 21-25-31-35-41-44-

45-47-51-57-59-61-69 )

23.05.00

i5.O7.O6
15.07 (07-08 )

23.04.05

01.02 <11-13-14-15-17 )

01.03 ( 11-15-17 )

( 1 )
( 2 )

( 3 )

e.g. wine lees , argol , etc ...
the distinction "between these two products is based on the method of pro­

cessing rather than on different production stages
e.g. olive oil oakes and other residual products of olive oil extraction

- 102-

Young pigs
Pigs for fattening
Sows and gilts for "breeding
Breeding boars

Eqruines

Horses
Donkeys
Mules and hinnies

Sheep and goats

Domestic shee?
Domestic goats

Poultry , rabbits , pigeons and other animals

Hens , cooks , cockerels, pullets, chicks
Ducks
Geese
Turkeys
Guinea-fowl
Domestic rabbits
Domestic pigeons
Other animals

Bees

Silkworms

Animals reared for fur
Snails ( excluding sea-snails )
Animals

not elsewhere specified

Game and game meat

( 1 )

Game

Game meat

_
_
_
_

01.01 ( 11-15-19)
01.01.31
01.01 .50

OI.O4 ( 11-13 )
Ol.O4.l5

01 .05 ( 10-91 )
01.05,93
Ol . O5.95
Ol. O5.97
Ol. O5.98
01.06.10
01.06.30

1

-

-

-
03,03.66
01.06. 99
02.04.99

01,01.39
01.02.90
01.03.90
01.04.90
01.06.91
02.04.30

(l ) Live game includes only speoially reared game and other game kept in capti­

vity.

- 103-

Milk , untreated

Cow 's milk

Ewe 's milk

Goat 's milk

Buffalo milk

Hen eggs

Hatching eggs

Other

Other eggs

Hatching eggs

Other

Other livestock prod-acts
Raw wool

(including animal hair v ^)

Honey

Sikworm cocoons

By–products of livestock production

2 )

Livestook products not elsewhere specified

AGRICULTURAL SERVICES (3

AGRICULTURAL PRODUCTS ALMOST EXCLUSIVELY IMPORTED

Tropical oil seeds and oleaginous fruit

Ground-nuts

Copra

Palm nuts and kernels

Cotton seed

Oil seeds and oleaginous fruit not elsewhere
specified

04.05.12

1

O4.O5.i4

04.05.12

04.05.16
O4.O5.I8

53.01 ( 10-20 )
53.02 ( 93-95 )
04.06.00

50.01.00

15.15.10
43.01 ( 10-20-30-90 )
53.02.97

12*01*11
12.01.15
12.01.20

12.01.30

12.01.96

12.01.99

( 1 ) If it is a principal product .
( 2 ) e.g. skins and animal hair and pelts of slaughtered game , wax, manure ,

liquid manure

( 3 ) i.e. services which are normally provided by agricultural holdings

themselves , e.g. ploughing , mowing and reaping,
shee]>-shearing, care of animals .

threshing,

tobacco drying,

55.01.00

57.02.00

57.03.10

57.04.10

57.04.30
54.02.00

57.04.50

09.01.11
18.01.00

12.04.30

O8.Ol.75
08.01.77

08.01.80

08.05.80

08.01.10
08,01 ( 31-35 )
08.01.50
08.08.50
08.01 ( 6O-99)

05.10.00

- 104 -

Tropical fibre plants

Cotton

Other fibre plants
Manila hemp
Jute

Sisal

Coir

Ramie

Fibre plants , not elsewhere specified

Other tropical plants for industrial use

Coffee

Cocoa

Sugar cane

Tropical fruit

Tropical nuts
Coconuts

Cashew nuts

Brazil nuts

Pecans

Other tropical fruit

Dates

Bananas

Pineapples
Papaws
Tropical fruit , not elsewhere specified

Ivory , unpolished

IV.

WOOD IN THE R0UGH

Coniferous timber for industrial uses

Coniferous long timber
- 1 logs

( 1 ) fir , spruce , douglas
(2 ) pine , larch

- 2 mine timber

( 1 ) fir, spruce , douglas
(2 ) pine , larch

- 105 -

•* 3 other long timber

(1 ) fir, spruce , douglas
( 2 ) pine , larch
Coniferous ply–wood
- 1 fir , spruce , douglas
- 2 pine , larch

Cor.iferous firewood

Pir , spruce , douglas
Pine , larch

Leaf-wood for industrial uses
Long timber ( leaf-wood)
- 1 logs

( 1 ) oak
(2 ) beech
( 3 ) poplar
( 4) other
- 2 mine timber
( 1 ) oak
(2 ) other

- 3 other long timber

( 1 ) oak
(2 ) beech
( 3 ) poplar
( 4) other

Ply-wood ( leaf)
- 1 00k

- 2 beech

- 3 poplar
- 4 other

Firewood ( leaf)

oak

beech

poplar

other

Forestry services^
Other products (e.g. bark , cork , resin)

( l ) i.e. Services which are usually performed by forestry undertaking themselves

( e.g. felling of timber )