PROPOSAL FOR A COUNCIL DECISION AUTHORIZING THE UNITED KINGDOM TO APPLY IN RESPECT OF CERTAIN SUPPLIES TO UNREGISTERED RESELLERS A MEASURE DEROGATING FROM ARTICLE 11 ( A ) ( 1 ) ( A ) OF THE SIXTH DIRECTIVE ( 77/388/EEC ) ON THE HARMONIZATION OF THE LAWS OF THE MEMBER STATES RELATING TO TURNOVER TAXES
Date: 1989-05-16
Institutions: European Commission
Subjects: United Kingdom, VAT, delivery, derogation from EU law, tax system

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

COM(89) 240 final 

Brussels, 16 May 1989 

Proposal for a 

COUNCIL  DECISION 

authorizing  the United  Kingdom to apply in respect of certain  supplies 

to unregistered  resellers a measure derogating  from Article  11(A)(1)(a) 

of the Sixth  Directive  (77/388/EEC) on the harmonization of the laws of 

the Member  States  relating to turnover  taxes 

(presented  by the Commission) 

EXPLANATORY HEHORAMDUH 

1. On 15 March 1985 the United Kingdom submitted to the Commission a re 

quest for a derogation under Article 27 of the Sixth VAT Directive in 

respect of a special measure to counter  tax avoidance  in connection 

with the collection of VAT at the retail stage in situations where, by 

virtue of the pattern of distribution, tax is avoided. The derogation 

was authorized for an initial two-year period with effect from 13 Ju 
ne 1985C1>. 

2. By Council Decision of 25 May 1987e2>, the United Kingdom was autho 

rized to extend the measure for a further two-year period. The period 

of validity of the measure was limited in this way because of two ca 

ses before the European Court of Justice (Joined Cases 138 and 139/86 

"Direct Cosmetics Ltd" and  "Laughtons Photographs Ltd") in which the 

taxable persons concerned were challenging the validity of the deroga 

tion granted. In its judgment of 12 July 1988, the Court confirmed the 

validity of the Council Decision of 13 June 1985 authorizing the dero 

gation requested by the United Kingdom"'. 

3. Following the judgment of the Court of Justice and in order to main 

tain its domestic law, under which it is able to combat tax avoidance 

in the situations described above, the United Kingdom, by letter re 

ceived by the Commission on 24 February 1989, requested an extension 

of the measure for an indefinite period. 

4. By letter dated 22 March 1989, the Commission  informed the other Mem 

ber States of the united Kingdom's request. 

<1>  OJ H° L 199, 31.07.1985, p. 60 and 

L  93, 07;04;1987, p. 17 
<a> OJ N° L 188, 08.07.1987, p. 52 
<•> OJ N° C 205, 06.08.1988, p. 5 

<L 

Proposal  for a 

COUNCIL DECISION 

authorizing  the United Kingdom  to apply  in respect of 

certain supplies to unregistered  resellers 

a measure derogating  from Article  11(A)(1)(a) 

of the  Sixth  Directive  (77/388/EEC) on the 

harmonization of the  laws of the Member 

States  relating  to turnover  taxes 

THE COUNCIL OF THE EUROPEAN  COMMUNITIES, 

Having regard  to the Treaty establishing  the European Economic  Community, 

Having  regard  to  the  Sixth  Council  Directive  (77/388/EEC) of  17 May 1977 

on the harmonization  of  the  laws  of  the  Member  States  relating  to  turn 

over taxes  - Common  system of value  added  tax  : uniform  basis of assess 

ment41 », hereinafter referred  to as the "Sixth Directive1^ and  in particu 

lar Article 27 thereof, 

Having regard  to the proposal from the Commission, 

Uhereas, under  Article 27(1) of the Sixth Directive, the Council, acting 

unanimously  on  a proposal  from  the  Commission,  may  authorize  any  Member 

State  to  introduce  special  measures  for derogation  from  that  Directive, 

in  order  to  simplify  the  procedure  for  charging  the  tax  or  to  prevent 

certain types of tax evasion or avoidance; 

Whereas the United  Kingdom  was authorized  by Council Decision 85/369/EEC  , 

(2) 

in accordance with  the procedure  laid down by Article 27(4) of  the Sixth 

Directive, to  introduce for a two-year period  a derogation  to combat  tax 

avoidance; 

C 1>  OJ N° L 145, 13.06.1977, p. 1. 
C 2>  OJ N° L 199, 31.07.1985, p. 6a 

Whereas  certain  marketing  structures based  on  sales of goods  effected by 

taxable persons to non-taxable persons with a view  to their resale at the 

retail  stage  result  in  avoidance  of  tax  at  the  stage  of  final  consump 

tion; 

Whereas,  in  order  to  prevent  such  tax  avoidance,  the  United  Kingdom 

applies a measure permitting  the  tax authorities  to adopt  administrative 

decisions the effect of which  is to tax  supplies made by  taxable  persons 

operating such marketing  structures on the basis of the open market value 

of the goods at the retail stage; 

Whereas that measure constitutes a derogation  from Article  11(A)(1)(a) of 

the  Sixth  Directive,  which  stipulates  that,  within  the  territory  of  the 

country, the taxable amount  in respect of supplies of goods is everything 

which constitutes  the consideration  which  has been  or  is  to be  obtained 

by the supplier from the purchaser or a third party for such supplies; 

Whereas  the  United  Kingdom  was  authorized  by  the  Council  Decision  of 

25 May  1987c1>  to extend for two years the derogation authorized by 

Decision 85/369/EEC; 

Whereas  the  United  Kingdom's  application  for  that  extension  was  limited 

to two years because of  the proceedings  in Joined  Cases  138 and 139/86 : 

reference  to  the Court  of Justice  by  the  "London  Value  Added  Tax  Tribu 

nal" for a preliminary ruling  in the proceedings pending before that Tri 

bunal  between  "Direct  Cosmetics  Ltd"  and  "Laughtons  Photographs  Ltd" 

against  "Commissioners  of  Customs  and  Excise"  on  the  interpretation  of 

Article 27 of the Sixth Directive and on the validity of Decision 

85/369/EEC; whereas, in its judgment  of 12 July 1988  , the Court of 

(2) 

Justice confirmed the validity of that  Decision; 

Whereas  the  United  Kingdom,  by  letter  received  by  the  Commission  on 

24 February 1989,  requested  authorization  to  extend  the  measure  for  an 

indefinite period; 

">  OJ N° L 188, 08.07.1987, p. 52. 
< a>  OJ N° C 205, 06.08.1988, p. 5-

4 

Whereas,  in  its  ludgment  of  12 July  1988,  the  Court  of  Justice  ruled 

inter alia  that  Article  27 of  the Sixth  Directive  permitted  the  adoption 

of  a derogating  measure  such  as  that  at  issue  on  condition  that  the  re 

sultant difference  in treatment  was justified  by objective  circumstances; 

Whereas,  in  order  to  satisfy  itself  that  this  condition  is met  the  Com 

mission  must  be  informed  of  any  administrative  decisions  adopted  by  the 

tax authorities  in connection with the derogation  in question; 

Whereas  the other Member States were notified  of the United Kingdom1s re 

quest on 22 March  1989; 

Whereas this measure will not have a negative  effect on the European  Com 

munities' own resources accruing  from value added tax, 

HAS ADOPTED THIS DECISION  : 

Article  1 

By way of derogation from Article 11(A)(1)(a) of the Sixth Directive, the 

United Kingdom  is hereby authorized to prescribe, in cases where a mar 

keting structure based on the supply of goods through non-taxable persons 

results  in  non-taxation  at  the  stage  of  final  consumption,  that  the 

taxable  amount  for  supplies  to such persons  is  to be  the open market 

value of the goods as determined at that stage. 

Article  2 

The  United  Kingdom  shall  inform  the  Commission  of  any  administrative 

decisions subsequently adopted in connection with the derogation. 

Article  J 

This Decision is addressed to the United Kingdom. 

Done at Brussels, 

For the Council 

The President 

Commission of the  European  Communities 

COM(89)  240  final 

Proposal for a 

COUNCIL  DECISION 

authorizing the United Kingdom to apply in respect of  certain supplies to 
unregistered  resellers  a  measure  derogating  from  Article  11(A)(1)(a)  of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member  States  relating to turnover  taxes 

16.5.1989 

Office for  Official  Publications of the  European  Communities 
L - 2985  Luxembourg 

Series:  DOCUMENTS 

1989 -  6 pp. — Format:  21.0 x 29.7  cm 

EN 

ISSN  0254-1475 

ISBN  92-77-49640-1 

Catalogue number:  CB-CO-89-191-EN-C 

COM(89)  240  final 

ISSN 0254-1475 

DOCUMENTS 

Proposal for  a 

COUNCIL  DECISION 

authorizing the  United  Kingdom to  apply  in 
respect  of  certain  supplies to  unregistered 
resellers  a  measure  derogating  from 
Article  11(A)(1)(a) of  the  Sixth  Directive 
(77/388/EEC)  on the  harmonization  of  the  laws 
of  the  Member  States  relating to turnover  taxes 

09 

Catalogue  number:  CB-CO-89-191-EN-C 

ISBN  92-77-49640-1 

€ 

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

16.5.1989