PROPOSAL FOR A COUNCIL DECISION AUTHORIZING THE UNITED KINGDOM TO APPLY A MEASURE DEROGATING FROM ARTICLE 11 ( A ) ( 1 ) ( B ) OF THE SIXTH COUNCIL DIRECTIVE ( 77/388/EEC ) ON THE HARMONIZATION OF THE LAWS OF THE MEMBER STATES RELATING TO TURNOVER TAXES
Date: 1989-06-20
Institutions: European Commission
Subjects: United Kingdom, building industry, building plot, derogation from EU law, tax exemption

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

C0M(89) 312 final 

Brussels,  20  June 1989 

Proposal for a 

COUNCIL  DECISION 

authorizing the United  Kingdom to apply a measure  derogating 

from  Article 11(A)(1)(b) of the Sixth Council  Directive 

(77/388/EEC) on the harmonization of the laws of the Member  States 

relating to turnover taxes 

(presented by the Commission) 

- 6 -

EXPLANATORY  MEMORANDUM 

By  letter  received by the Commission  on 9 January  1989, the United 

Kingdom  Government  submitted  a request  for a derogation based on 

1 

Article  27 of the Sixth VAT  Directive  in respect  of a special measure 

described  as being  aimed  at  simplifying  the procedure  for charging 

VAT on supplies of building  land  intended  for commercial  or  industrial 

use. 

In accordance  with  Article  27(3)  of the Sixth  Directive, the other 

Member  States were  informed, by  letter dated  9 February  1989, of the 

United  Kingdom's  request. 

Having  concluded  that  it had  fundamental  objections  to the 

United  Kingdom's  request, the Commission  requested, by way of a 

communication  dated  10 April  1989 and  in accordance with  Article  27(4) 

of the Sixth  Directive, that  the matter be raised by the Council. 

Following  this  referral  request, the United  Kingdom  Government 

informed  the Council  that  it  intended  to modify  the scope of the 

measure  so as to  limit  it to a derogation  from  Article  11(A)(1)(b) 

of the Sixth  Directive. 

In the  light of the Court  of Justice's* ruling  in case 416/85, the 

United  Kingdom  has decided  to tax  supplies of buildings used for 

commercial  or  industrial  purposes at the standard  rate. 

10J  No 145, 13.6.1977. 

-  7 -

In addition, the United  Kingdom  has decided  to make use of  the option 

provided  for  in the  Sixth  Directive  of defining  buildings  as  including 

the  land  on  which  they  stand, while  at  the  same  time maintaining  a 

general  exemption  for  supplies of building  land  based  on  the  transitional 

provision  in Article  28(3)(b)  read  in conjunction  with  point  16 of 

Annex  F to the  said  Directive. 

To that  end  and  in order  not  to overcomplicate  control  of  the use (commercial, 

industrial  or housing  use) of  the  land  (simplification  measure) 

and  in particular  to prevent  tax  avoidance  through  separate  acquisition 

of  land  followed  by development  of  it, the United  Kingdom  plans  to 

tax  commercial  or  industrial  buildings  and  the  land on which  they 

stand  when  they  go  into  consumption.  For that  purpose, it  is using 

the option  provided  for  in Article  5(7)(a) and  (b) of  the  Sixth  Directive 

by  taxing  the  self-supply  of  the building  and  the  land on which  it 

stands on  the basis of  the open  market  value  at  that  time.  However, 

use of this option  is necessary  only  where  the building  is occupied 

by a taxable person  who has  constructed  it and  who  is not  entitled 

to  full deduction  of  the  tax  or where  that  taxable  person  lets it 

on an exempt  basis.  The United  Kingdom  argues  that, where  the 

building  is sold  or  its  letting  is taxed, the price  received  for the 

sale or  letting  necessarily  includes  the value  of  the building  and 

the  land on which  it  stands at  the time either  of  those  transactions 

takes place. 

The use of  the open market  value  as the taxable  amount  for  the  self-

supply  therefore  constitutes  the  special  measure  in  respect  of  which 

the  United  Kingdom  is currently  requesting  a derogation. 

- 8 -

Article  11(A)(1)(b) of the Sixth  Directive  stipulates that, where 

use  is made of the option provided  for  in Article  5(7)(a) and (b), 

the purchase price of the goods or the cost  price determined  at the 

time of supply  should  serve as the basis for determining  the taxable 

amount. 

The Commission  notes  that  the derogation  now  submitted  by the 

United Kingdom  is fairly  limited  in scope  in relation  to the 

provisions of the Sixth  Directive.  It is also convinced  that the 

measure  in question  is designed  to simplify  the procedure  for 

charging  tax and  to prevent  tax avoidance or evasion  within the meaning 

of Article 27 of the Sixth  Directive. 

The Commission  therefore  considers  it appropriate  for the United  Kingdom 

to be authorized  to introduce  the planned  special measure.  It 

nevertheless  takes the view that  the situation  should be re-examined 

when the transitional  provision  in point  16 of Annex  F, read in 

conjunction  with that  in Article  28(3)(b) of the Sixth  Directive, 

is abolished  and accordingly proposes that  the authorization be  limited 

as to duration. 

4 

Proposal  for a 

COUNCIL  DECISION 

authorizing  the United Kingdom  to apply, 

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

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

on the harmonization  of the laws of the If ember  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) on the harmoni 

zation of the laws of the Member States relating  to turnover  taxes - Com 
mon system of value added  tax  : uniform basis of assessment*1», hereinaf 

ter  referred  to  as  the  "Sixth  Directive",  and  in  particular  Article 27 

thereof, 

Having regard  to the proposal  from the  Commission, 

O.J. N. L 145, 13.6.1977, p. 1 

10 

Whereas, 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  cer 

tain types of tax evasion or avoidance; 

Whereas the United Kingdom, by letter received by the Commission  on 9 Ja 

nuary  1989, requested  authorization  to  introduce  a special  measure dero 

gating from Article  11 of the said Directive; 

Whereas the other Member States were  informed  of the United Kingdom's re 

quest on 9 February  1989; 

Whereas,  by  letter  dated  10 April  1989,  the  Commission,  having  decided 

that  it had fundamental  objections to the United Kingdom Government's re 

quest,  asked,  in -accordance  with  Article  27(4)  of  the  Sixth  Directive, 

that  the matter be raised by the Council; 

Whereas,  by  a  note  dated  10 May  1989,  the  United  Kingdom  informed  the 

Council  that  it was modifying  and  narrowing  the  scope  of  the  derogation 

notified to the Commission  on 9 January 1989; 

Whereas  the United Kingdom  currently  exempts  all building  land under Ar 

ticle 28(3)(b), read  in conjunction with point  16 of Annex F to the Sixth 

Directive; 

Whereas,  in order  to  comply  with  the spirit  of  the  Court  of  Justice  ru 

ling  in Case 416/85,  the  United  Kingdom  wishes  to  tax  supplies  of  buil 

dings and  the  land  on which  they  stand  where  these  are used  for  commer 

cial  or  industrial  purposes, while  retaining  zero  rating  for  supplies of 

residential  buildings and exemption  for supplies of building  land; 

Whereas,  in order  to  simplify  the  procedure  for  charging  the  tax  and  to 

prevent  certain  types  of  tax  evasion  or  avoidance,  the  United  Kingdom 

wishes to apply  the  tax  to transactions  relating  to commercial  or indus 

trial buildings  and to the  land on which  they  stand  before  first  occupa 

tion on the basis of the open market value at the time they are taken in 

to use; whereas, in the case of  supply  or  letting with  the developer  op 

tion for taxation under Article  13(C)(a) of the Sixth Directive, this ob 

jective  is achieved  because  the price of  the supply  or the rent  necessa 

rily  reflects  the  value  of  the  land  at  the  time  of  such  supply  or  let 

ting; 

Whereas,  in order to achieve the objective  in question where the building 

is to be occupied  by a  taxable person  who has  constructed  it  and  who  is 

not entitled  to full deduction of  the  tax or where  the same  taxable per 

son  lets  the  building  on  an  exempt  basis  under  Article  13(B)(b)  of  the 

Sixth  Directive,  the  United  Kingdom  intends  to  make  use  of  the  option 

provided  for in Article  5(7)(a) and  (b) of the said Directive  to tax such 

occupation or letting of the property on the basis of its open market va 

lue; 

11 

? 

Whereas, as a result  of  the taxable  amount  being determined  by  reference 

to the open market  value  in this way,  the amended  request  derogates  from 

Article  11(A)(1)(b)  of  the  Sixth  Directive,  which  stipulates  that,  for 

supplies  referred  to  in  Article  5(6) and  (7), the  taxable  amount  is  the 

purchase price  of  the  goods or  of  similar  goods or,  in the  absence  of a 

purchase price, the cost price, determined  at the time of supply; 

Whereas  it is appropriate  to accede  to this request  pending  abolition  of 

point  16 of  the  above-mentioned  Annex F,  which  permits  Member  states  to 

exempt  temporarily  supplies of new buildings and building  land; 

Whereas  the above-mentioned  special  measure will  not have  a negative  ef 

fect on the European Communities' own resources accruing  from value added 

tax, 

HAS ADOPTED THIS DECISION : 

1 2 

{ 

Article  1 

1 3 

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

united  Kingdom  Is hereby  authorized  to use the open  market  value as the 

taxable amount  for the supply, within the meaning of Article 5(7)(a) and 

(b)  oi  the said  Directive,  of  buildings  or  parts  of  buildings  before 

first occupation and of the land on which they stand. 

Article  2 

This authorization  shall be granted pending the abolition of the transi 

tional  provision  in  point 16  of  Annex F  together  with  that  of  Arti 

cle 28(3)(b) of the Sixth Directive. 

Article  J 

This Decision is addressed to the United  Kingdom. 

Done at Brussels, 

For the Council, 

The President 

1 

•9 

Commission of the European Communities 

COM(89)  312  final 

Proposal for a 
COUNCIL  DECISION 
authorizing  the  United  Kingdom  to  apply  a  measure  derogating  from 
Article  11(A)(1)(b)  of  the  Sixth  Council  Directive  (77/388/EEC)  on  the 
harmonization  of  the  laws  of  the  Member  States  relating  to  turnover 
taxes 
(submitted  by the  Commission) 

20.6.1989 

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

Series:  DOCUMENTS 

1989 — 9 pp. — Format:  21.0 *  29.7 cm 

EN 

ISSN  0254-1475 

ISBN  92-77-51216-4 

Catalogue number:  CB-CO-89-267-EN-C 

COM(89)  312  final 

ISSN 0254-1475 

DOCUMENTS 

Proposal for  a 

COUNCIL  DECISION 

authorizing the  United  Kingdom to  apply a 
measure  derogating from  Article  11(A)(1)(b) of 
the  Sixth  Council  Directive  (77/388/EEC)  on the 
harmonization  of  the  laws  of  the  Member  States 
relating to turnover  taxes 

(submitted  by the  Commission) 

09 

Catalogue  number:  CB-CO-89-267-EN-C 

ISBN  92-77-51216-4 

€ 

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

20.6.1989