Proposal for a COUNCIL DIRECTIVE SUPPLEMENTING THE COMMON SYSTEM OF VALUE ADDED TAX AND AMENDING DIRECTIVE 77/388/EEC - SPECIAL SCHEME FOR GOLD
Date: 1992-10-27
Institutions: European Commission
Subjects: VAT, gold, investment

COMMISSION OF  THE EUROPEAN  COMMUNITIES 

mz 

C0M(92) 441  final 

Brussels,27  October  1992 

Proposal  for a 

COUNCIL  DIRECTIVE 

SUPPLEMENTING 

THE  COMMON  SYSTEM  OF VALUE ADDED  TAX 

AND AMENDING  DIRECTIVE  77/388/EEC 

-  SPECIAL SCHEME  FOR GOLD -

(presented  by  the  Commission) 

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^o- -

EXPLANATORY  MEMORANDUM 

I. INTRODUCTION 

Under  the  sixth  VAT  Directive,  all  transactions  relating  to  gold 
carried out by taxable persons are in principle taxable  (except those 
referred to in Articles 14(1)(j) and  15(11)).  However, on the basis 
of Article 28(3) (b) and point 26 of Annex F, Member States may, for a 
transitional  period,  maintain  existing  exemptions  relating  to  gold 
other than for industrial use. 

In  its  initial  proposal  for  an  eighteenth  VAT  Directive,  the 
Commission  had envisaged  abolishing  the  said  derogation  with effect 
from 1 January 1986.  In the face of objections  from Parliament, the 
Commission  conceded  that,  in  view  of  the  specific  nature  of  this 
economic  sector,  the  question  of  VAT  on  gold  would  have  to  be 
examined in more detail and that an ad hoc proposal would have to be 
presented. 

The eighteenth Council Directive adopted on 18 July 1989 requires the 
Commission  to  present  proposals  on  the  abolition  of  the  remaining 
derogations  in  Annexes E  and  F  (including,  consequently,  the  one 
relating  to  gold  other  than  for  industrial  use),  in  view  of  the 
distortions of competition which exist or might arise as the internal 
market  is completed.  Most of these remaining  derogations  are dealt 
with in a proposal for a new Directive presented by the Commission to 
the  Council  on  22 July 1992.  In  the  case  of  gold,  however,  the 
Commiseion undertook, given the complexity of the subject, to propose 
an ad hoc 'Hr*>ctive. 

A  coherent  proposal  on  gold  is made  all  the  more  necessary  by  the 
existing differences between Member States which result not only from 
the  said  transitional  derogation  for  so-called  investment  gold  but 
also  from  the  wide  variety  of  tax  schemes  applicable  to  gold  in 
general, for example under the simplification measures referred to in 
Article 27. 

Significant  differences  can  be  noted  between  the  Member  States' 
respective  laws  and  special  features  of  taxation  in  some  Member 
States: 

-  Some Member States which tax gold are at a disadvantage vis-à-vis 
others which exempt it.  There is a tendency to stock gold in the 
latter, while  the  former  in  addition  find  themselves  unable  to 
track transactions in securities representing that gold. 

-  Significant  differences  in  the  levels  of  taxation  between 
Member States have given  rise to  situations  in which  letter-box 
companies are formed for the purposes of importing gold from low-
tax  or  tax-free  countries  and  then  reselling  it  with  VAT  and 
disappearing before paying  over the tax  to the Exchequer.  Some 
Member States have already been authorized,  under Article 27, to 
take measures aimed at limiting this fraud. 

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In order to, as far as possible, rule out distortions of competition 
and  fraud,  the  Commission  proposes  specific  rules  through  the 
insertion into the Sixth Directive of an Article 26a.  An Article 28o 
has  also  been  inserted- to  take  account  of  the  transitional 
arrangements established by Directive 91/680/EEC on the abolition of 
fiscal frontiers.  At the same time, point 26 of Annex F to the Sixth 
Directive is deleted. 

II. ARTICLE 1 

(INSERTION OF ARTICLE 26a) 

A. SCOPE 

The  scope  covers  only  supplies  and  the  provision  of  services. 
Importation  is not included as a chargeable event because the normal 
rules will apply in that case, including the provision  in the second 
subparagraph of Article 23 of the Sixth Directive allowing an option. 

Intermediaries 

The services of intermediaries, i.e. persons acting on behalf and for 
the  account  of  others,  should  be  made  subject  to  the  same 
arrangements  as  laid  down  for  the  supplies  of  goods  to  which  they 
relate. 
This  is  because,  given  the  special  scheme  set  up,  in 
particular  the exemption  of  investment  gold,  sales and the  services 
relating to those sales are to be placed on an equal footing so as to 
avoid affecting transactions in the gold itself. 

Book gold 

This  is  gold  represented  by  securities  (gold  certificates)  or 
deposited  in accounts  (gold accounts).  In both cases, the holder is 
entitled to a quantity of gold stocked at a financial institution. 

Certificates may confer a right of ownership or claim, be registered 
or made out to the bearer, and relate to identified or fungible gold. 

In the case of an ownership certificate, the issue and any transfers 
of the security amount strictly speaking to a supply of goods at the 
place where the gold is situated; by contrast,  in the absence of any 
other  provisions  (see  point  D.2. below),  physical  delivery  of  the 
gold  in  exchange  for  the  certificate  cannot  be  considered  to 
constitute  a  supply  of  goods  because  the  gold  has  already  been 
transferred when the certificate was itself transferred. 

In the case of a certificate of claim, the issue and  any  subsequent 
transfers constitute a supply of services  (quite distinct  from those 
of intermediaries). 

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Whatever  the  nature  of  these  certificates,  all  these  transactions 
fall within the scope of the Directive being proposed  as the supply 
of either goods or services. 

Gold accounts, on the other hand, are evidenced by a deposit contract 
(supply of a service).  This contract may be preceded by a supply of 
gold in cases where the depositor does not hand over the gold himself 
but buys  it at the bank which opens the account.  Transfers of that 
gold  or  a  part  of  it  to  other  gold  accounts  must  be  regarded  as 
supplies  of  goods. 
Withdrawal  of  the  gold  does  not  in  itself 
constitute a chargeable event since the gold has either already been 
supplied  by  the bank  or  has been  handed  over  by  the  holder  of  the 
account.  Supplies  of  gold  from  a gold  account  are  not  explicitly 
mentioned  because they are covered  by the  first  indent, which deals 
with supplies in general. 

The futures market and options 

Futures  contracts  embody  an  obligation  to  sell  or  buy  a  given 
(predetermined)  quantity  of  gold  at  a  specified  date  and  at  a 
variable  price.  An  option  is  the  right  to  buy  or  sell  a  given 
quantity of gold at a set price at a fixed date.  These obligations 
or  rights  constitute  the  supply  of  services  up  to  the  time  when 
delivery takes place. 

B. DEFINITIONS 

These definitions  are  intended  to delimit  the  scope  of  the  two tax 
schemes  described  in  sections  C  and  D.  The  notions  of  gold  for 
industrial use or other than for industrial use contained  in Annex F 
to the Sixth Directive, have been  abandoned.  This is because  it is 
considered  that the VAT  arrangements  should  not be based  on the use 
made  of  the  metal  (and  hence  on  the  buyer's  intention).  The  new 
concept of investment gold  (which serves as a basis for exemption) is 
intended  to  take  in  transactions  which,  being  in  nature  financial 
investments,  do  not  give  rise  to  actual  consumption  of  the  metal 
either  at  the  final  stage  or  at  the  stage  of  industrial  use. 
Moreover, the notion of monetary gold, which, like that of industrial 
gold,  is  also used  in  some  national  laws, remains  confined  to gold 
sold  to the Central  Banks,  in  respect  of which  the  Sixth  Directive 
already provides  for exemption  with deduction  (Articles 14(1)(j) and 
15(11)).  The  latter  exemption,  which  concerns  both  supplies  within 
the territory  of the  country  and  imports,  is  justified  by  the  fact 
that,  in accordance  with  Directive 88/361/EEC  on  capital movements, 
monetary gold is regarded as forming part of central banks' financial 
capital.  All the other types of gold, defined in this proposal for a 
Directive as investment gold and gold other than investment gold, are 
to be regarded as goods. 

(a) Gold in general 

Gold  is  defined  by  reference  to  its  purity  so  as  to  limit  the 
scope of the proposal. 

- 4 -

Furthermore, the  proposal  explicitly  excludes  certain  pieces of 
gold and objects  in general.  This is because the value of non-
quoted  pieces  or  pieces  which  do  not  contain  a  sufficient 
quantity of gold, like-that of other objects, is determined more 
by factors other than the intrinsic value of the metal  (artistic, 
numismatic  value,  etc.).  All  these objects  are  subject  to  the 
normal arrangements or to the special scheme of Article 32. 

- In the  case  of  pieces which  do  fall within  the  scope  of  the 
proposal, the requirement that they be quoted  shows that goods 
are  involved  whose  value  changes  almost  in  parallel  with  the 
price of gold. 

- Other  objects may  be defined  by the Member States themselves. 
This  does  not  seem  to  give  rise  to  any  serious  problems  in 
relations  between  Member States. 
Differences  in  rates  are 
admissible,  within  certain  limits, even  for  one  and  the  same 
good,  and  are  not  always  due  to  differences  between 
Member States in how the good is classified. 

(b) Investment gold 

Starting  from the definition  of gold  in general,  as given under 
(a), the definition of investment gold calls for the simultaneous 
fulfilment  of  two  conditions: the  absence  of  physical  delivery 
ensures  that  the  scheme  is  confined  to  transactions  which  have 
and 
the  unquestionably  character  of  a  financial  investment 
investment  gold  is characterized by the fact that the seller has 
the status of a licensed professional.  This is necessary  for the 
purposes of control given the proposed exemption for this type of 
gold.  It goes without saying that the scheme for investment gold 
will  not  apply  where  the  sale  is  by  a  non-licensed  taxable 
person, even where there is no physical delivery. 

Over  and  above  these  objective  criteria,  Member States  may 
determine  certain  characteristics  which  investment  gold  must 
have, e.g. its form  (ingots, bars, etc.) and the requirement that 
it be stamped. 

The notion  of physical delivery may be defined  by Member States 
themselves.  However,  care  must  be  taken  to  ensure  that  the 
deposit  of  gold with  a third  party or  indeed  the  seller  is not 
used  as  a  pretext  for  claiming  that  no  physical  delivery  has 
taken  place.  This  risk  should  be  avoided  especially  where  the 
gold  remains  deposited  with  the  seller.  If  this  is  the  case, 
physical  delivery  will  occur  when  the  buyer  is  free  to  take 
possession  of  the  gold  at  any  time  without  making  the 
sel1er/depository  responsible  for  the  delivery  itself  (this  is 
the case, for example, where gold is deposited by a buyer using a 
safe belonging to the seller without the seller having a right to 
inspect its contents). 

- 5 -

(c) Gold other than investment gold 

Where one or other of the conditions and  characteristics  is not 
met,  gold  is  no  longer  investment  gold,  although,  provided  it 
satisfies the definition given at  (a), it does remain within the 
scope  of  the  proposal.  However,  it  comes  under  a  different 
scheme from that applicable to investment gold. 

C. SCHEME APPLICABLE TO INVESTMENT GOLD 

Investment  gold  is to be exempted  with a right to deduct  input tax. 
Generalized taxation of gold does not seem appropriate where gold is 
dealt in for purely financial reasons.  This is particularly true for 
transactions which do not give rise to physical delivery: if VAT were 
charged  on top of  the  selling  price, even  if  it  is deductible,  the 
gold  market  would  be  likely  to  be  disturbed.  Among  such  purely 
financial  transactions,  those  carried  out  using  securities  are 
playing  (or are destined  to play) an  increasingly  large role on the 
European  gold  market.  Given  the  speed  at  which  these  securities 
circulate, it would be extremely difficult, if not impossible, to tax 
the  underlying  gold,  particularly  when  it  is  situated  in  a 
Member State other than the one in which the successive transfers of 
the security take place.  It is true that a similar problem may arise 
for other goods; however, the small number of transactions makes all 
the difference in the latter case. 

Finally,  it  should  be  noted  that  exempting  purely  financial 
transactions reduces the risk of gold escaping to third countries and 
makes it easier to keep gold in the legal circuit. 

D. SCHEME APPLICABLE TO GOLD OTHER THAN INVESTMENT GOLD 

1.  The normal scheme 

As  soon  as  the  metal  fails  to  satisfy  one  or  other  of  the 
conditions or no longer  has one or other  of the  characteristics 
required  for  it  to  be  classified  as  investment  gold,  it 
automatically  falls  within  the  category  of  gold  other  than 
investment gold.  Since no exemption  is provided for in that case 
(apart  from  those  of  Articles 14(1)(j)  and  15(11)),  the  normal 
scheme applies.  However, this scheme is accompanied  by a number 
of special provisions, as described below. 

The  requirement  that  the  taxable  purchaser  holds  an  invoice 
showing  his  identification  number  is  justified  by  the  need  to 
avoid that the taxable purchaser deducts the VAT on his purchase 
of  gold  and  then  fraudulently  requests  a  refund  under  the 
arrangements described in section 4 below. 

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Application  of  the  scheme  requiring taxation  obviously  means  that 
gold  situated  in a Member  State must be taxed  even  if the  parties 
to the  contract  are not  situated  there.  This  is a problem  common 
to  all  goods,  and  Article 21  of  the  Sixth  Directive  lays  down 
specific measures to cover the  situation. 

2.  Physical delivery  classed  as a supply of goods 

It  is  vital  that  the  physical  delivery  following  a  supply 
exempted  under  the  rules  for  investment  gold  be  treated  as  a 
supply of goods.  This  is in order to prevent  the gold  from being 
used  for  industrial  or  private  consumption  without  payment  of 
VAT. 

Since  there  is  no  ou id  pro  guo  at  the  actual  time  when  physical 
delivery  takes  place,  it  is  proposed  that  reference  be  made  to 
the  current  market  price.  This  enables  all  buyers  of  gold  other 
than  investment  gold  to  be  placed  on  ' the  same  footing, 
irrespective of when the supply takes place. 

3.  The deductible  proportion 

Treating  physical  delivery  as  a  supply  of  goods  artificially 
increases  the  turnover  in  respect  of  which  input  tax  is 
deductible.  The new chargeable event  has been  created  solely  for 
reasons  to  do  with  the  taxation  technique.  It  cannot  therefore 
be dissociated  from the previous  supply which, because  it did  not 
give  rise  to  physical  delivery,  was  exempted  with  the  right  to 
deduct  input  tax.  In  order  to  prevent  the  right  of  deduction 
from  being  abused,  it  is  proposed  that  when  physical  delivery 
takes  place  the  turnover  to  be  given  in  the  numerator  and 
denominator  of  the  deductible  proportion  for  such  delivery  be 
made  up  solely  of  the  difference  between  the  value  of  the 
exempted  supply  of  goods  and  the  (current) value  of  the  physical 
delivery  (positive or negative  difference). 

4  to  8.  Supplies  of  gold  which  have  been  taxed  without  a  right  of 

deduction 

One problem  that  has  been  raised  is that  there  would  be  residual 
tax  and  double  taxation  when  gold  on  which  a  non-deductible  tax 
was charged  is reintroduced  into the economic  circuit. 

This  drawback  is  clearly  not  specific  to  gold  since  it  generally 
occurs  irrespective  of the nature of the goods.  This  is the very 
justification  of  the  special  scheme  proposed  by  the  Commission 
for  second-hand  goods,  works  of  art,  antiques  and  collector's 
items. 

On  a  theoretical  level,  several  solutions  might  be  considered. 
It  would  seem  useful  to  compare  them  and  assess  their 
limitations. 

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The system of generalized refund 

The basic idea behind this system is that a scheme which sets out 
to  tax  the margin,  while  being  likely  to  solve  the  problem  of 
double taxation in most cases, does not seem very appropriate in 
the case of gold.  A closer look at economic reality shows that, 
apart  from  a  few  rare  cases,  the  number  of  transactions  in 
second-hand  goods  other  than  gold  covered  by  the  margin  scheme 
when they are introduced into the economic circuit for the second 
time is very limited. 

By contrast, gold, as an object of investment, can be the subject 
of  an unlimited  number  of  transactions.  It must  be  recognized 
that  any  system  of  taxing  the  margin  minimizes  but  does  not 
completely  eliminate  the  effects  of  residual  tax:  it  will 
continue to grow the longer the economic cycle simply because tax 
on  the  margin  is  incorporated  into  the  price  and  cannot  be 
deducted by the subsequent buyer.  The particularly high value of 
gold and the large number of successive transactions to which it 
may be subject would amplify this phenomenon. 

Moreover, without  special measures the margin  system  would  tend 
to perpetuate itself.  This is because once gold has been sold by 
a person who does not have the right of deduction, all successive 
sales  of  that  gold  by  taxable  persons  would  systematically  be 
subject to the margin scheme. 

Some have also pointed to the risk of arriving at a situation in 
which the remunerative price of the seller would exceed the price 
on the  stock exchange  (inclusive of tax) and would  therefore  be 
impracticable. 

Fears  have  also  been  expressed  that  there  might  be  scope  for 
fraud  since  the  taxable  reseller  would  have  an  interest  in 
artificially  increasing the price for his purchases  from private 
individuals in order to reduce the taxable margin. 

Thus, the suggestion  has been made by  some that  residual  tax be 
eliminated  quite  generally  by  refunding  it  when  the  gold  is 
resold  to  any  seller  who  did  not  have  the  right  of  deduction 
(because  he  is  either  a  non-taxable  or  an  exempted  taxable 
person). 

The idea of a refund, which might be made either by the State or 
by the taxable buyer, is very attractive at first glance because 
of  its neutrality.  It would  leave no residual tax whatever  the 
length  of  the  economic  cycle  or  the  status  of  the  persons 
(taxable or non-taxable) in the chain. 

-  8 -

However, the system of generalized  refund  has several  drawbacks. 

(1) Assuming  the  refund  is made by the  State,  if,  for  example,  a 
private  individual-having bought  the gold with payment  of  VAT 
sells  it  to  another  private  individual,  the  latter  will 
receive  it without  VAT. 

(2) Assuming  the  refund  is  made  by  the  buyer,  a  private 
individual  selling  gold  to  another  private  individual  would 
be able to recover the VAT  he has paid only  by  increasing  his 
selling price  accordingly.  This would  start  another  cycle of 
residual  tax.  To  avoid  this,  the  first  private  individual 
would  have  to  transfer  his  right  to  a  refund  to  the  buyer 
(who  is  also  a  private  individual).  If  we  imagine  a  whole 
chain  of  transactions  between  private  individuals,  it  is 
apparent  how  difficult  it  would  be  to  track  this  right  to  a 
refund over time.  It  is easy to  see the risks of  fraud which 
would  arise  if a private  individual were to  claim a refund  on 
the  basis  of  an  invoice,  even  a  relatively  recent  one,  and 
the  State  were  unable  to  carry  out  any  checks  on  such  an 
invoice because,  for example,  the prescribed  time-limit  would 
have expired. 

Moreover, a refund  is possible only  if the private  individual 
has  received  and  kept  an  invoice  issued  in  accordance  with 
certain  conditions:  this  might  leave  gold  already  in 
circulation  outside the  system. 

The system of  limited  refund 

To  avoid  the  drawbacks  linked  to  the  transfer  of  invoices,  one 
solution  would  be  to  grant  a  refund  to  a  private  seller  only 
where  he  sells  the  gold  to  a  taxed  taxable  person  and  where  he 
has  bought  that  gold  from  another  taxed  taxable  person  (taxable 
person -> private  individual  -> taxable  person). 

This  system,  which  would  eliminate  successive  transfers  of 
invoices,  still  presents  the  other  disadvantages  of  the 
generalized  refund  system,  in  particular  the  difficulty  of 
monitoring  the  right  to  a  refund  over  time  (problem  of  carrying 
out  checks),  and  the  risk  that  gold  already  in  circulation  will 
be  left outside the  system. 

As  for  the  method  of  refund  (by  the  State  or  by  the  taxable 
buyer), the consequences  of each procedure  have to be examined  in 
both of the following  situations. 

-  9 -

(a) Under the definitive  scheme : 

(aa) If the  choice  between  the  two methods  (State  or  buyer)  is 
left  to  Member"States,  the  person  entitled  to  a  refund 
might  find that  he  is not  in fact  refunded.  This would  be 
the  case,  for  example,  where  a  private  individual  buys 
gold  in  a  State  which  has  opted  for  refund  by  the  buyer 
and  resells  it  in  a  State  which  has  opted  for  refund  by 
the public  authorities. 

(ab) A  scheme  which  requires  that  the  refund  be  made  by  the 
State  privileges  purchases  from  non-taxable  persons  over 
those  from  taxable  persons.  This  is  because,  since  the 
non-taxable  person  is  refunded  by  the  State,  the  buyer 
does  not  have to prefinance  the VAT  as  he would  if  he  was 
buying  from a taxable  person. 

(ac) If,  in  order  to  avoid  the  problem  referred  to  in  the 
previous  indent,  a  compulsory  system  of  refund  by  the 
taxable  buyer  is  introduced,  other  complications  arise. 
For  example,  if  a  private  individual  sells  to  a  taxable 
person,  that  person  would  be  required  to  produce  the 
purchase  invoice  of  the  private  individual  because 
otherwise  the  State  would  have  no  means  of  deciding 
whether  a  refund  was  justified  (given  that  the  private 
individual  is  not  in  principle  subject  to  checks). 
In 
this  context,  there  is the  additional  problem  that  if  the 
private  individual  produces  a  foreign  invoice  issued  when 
gold  was  purchased  in  a  Member  State  other  than  his  own, 
the taxable buyer must  convert  the  amount  in question  into 
the currency  of the  transaction. 

(b) Under the transitional  scheme 

(ba) If  Member  States  are  left  to  choose  between  the  two 
methods  (State or buyer),  the consequences  are the  same  as 
referred  to at point  (aa) above; 

(bb) If  a  compulsory  system  of  refund  by  the  State  is 
introduced,  the  disadvantage  described  at  point  (ab)  does 
not  occur.  In  the  case  of  sales  between  taxable  persons, 
the buyer  does not  have to prefinance  the VAT either  under 
the  intra-Community  system  or  (according  to  the  approach 
indicated  in the  section  on Article  2 - Article  28o) under 
the  domestic  system;  the  same  goes  for  purchases  from  a 
private  individual  (who  is  refunded  by  the  State). 
However, there  are problems with  checks.  In order to make 
sure that  the  refund  is  justified,  the  State  must  be  able 
to  impose  certain  obligations,  such  as  a  declaration  of 
purchase  by  a  taxable  buyer.  It  must  be  recognized  that 
the  State  granting  the  refund  might  find  it  difficult  in 
some  cases  to  verify  the  validity  of  such  a  declaration, 
particularly  where  it  is  made  by  a  buyer  from  another 
Member  State. 
taxable  person  (or  a  taxable  person  with  no  right  of 
deduction)  is  cancelled,  the  sum  refunded  by  the  State  to 
the  seller  should  logically  be  recovered,  provided  of 

Moreover,  where  a  sale  made  by  a  non 

3) 

- 10 -

course  that  the  State  is aware  of  the  cancellation.  It 
must  be  left to Member States to  find  solutions  to these 
problems, relying on mutual assistance. 

On the other hand, the Member State of the buyer will need 
to  monitor  the  purchases  of  the  latter  so  that  it  can 
check subsequent  supplies.  In any case, it is impossible 
from  the  outset  to  avoid  all  risk  of  undue  refund.  It 
should  be  remembered  that  this  risk  already  exists  in 
other  areas,  such  as  that  governed  by  the  Eighth 
Directive. 

(be) The objections outlined at point  (bb) would mean that all 
obligations,  including  that  of  making  the  refund,  would 
have to be transferred to the taxable buyer; this would be 
unacceptable  because  purchases  from  private  individuals 
would be placed  on a less favourable  footing  (because of 
the  need  to  prefinance  VAT)  than  purchases  from  taxable 
persons  (where this need  does not  arise owing  to the so-
called reverse-charge mechanism described below in section 
III-l). 

The mixed system  (limited refund plus margin) 

Most of the disadvantages of the limited refund system are due to 
the  difficulty  of  checking  the  right  to  a  refund  that  is  not 
limited  in time.  Hence the need to fix a  limit  beyond  which a 
refund will no longer be admitted.  Each Member State  should be 
able  to  fix  this  limit  by  reference  to  the  time-limit  it  has 
established for the purposes of checks, for example. 

Provided  such  a  measure  is  introduced,  the  system  of  limited 
refund  seems  to  be  an  appropriate  solution  to  the  problem  of 
residual  tax,  while  avoiding  most  of  the  above-mentioned 
problems. 

Limited refund would be granted: 

(a) Where  the  claimant  is  a  non-taxable  person  (or  a  taxable 
person having no right of deduction).  A refund would not be 
granted to a taxable person who had been entitled to partial 

- 11 -

Otherwise  many  complications  would  arise. 

deduction. 
Moreover,  it  is  precisely  in  order  to  avoid  complications 
that Article 13(B)(c) of the Sixth Directive does not exempt 
goods which have been the subject of even minimal deduction, 
thus accepting a degree of double taxation. 

(b) Where  a  non-taxable  person  (or  a  taxable  person  having  no 
right of deduction) resells  to a taxable person with a right 
of deduction  (even partial) gold he has bought from a taxable 
person  who  invoiced  VAT  to  him.  On  resale,  it  will  not 
matter  whether  the  buyer  has  a  right  of  total  or  partial 
deduction  since he will be able to deduct  the amount  of the 
refund corresponding to his deductible proportion. 

As for the method of refund, an assessment  of the pros  and cons 
suggests  that  preference  should  be  given,  under  the  definitive 
scheme, to refund by the taxable buyer and under the transitional 
scheme to refund by the State. 

It  would  seem  that  this  system  could  work  in  the  majority  of 
cases. However,  a  complementary  solution  should  be  sought  in a 
limited number of cases where this system cannot work. 

These are as follows: 

(a) cases in which a non-taxable reseller  (or a taxable reseller 
having  no  right  of  deduction)  has  bought  the  gold  from 
another  non-taxable  person  (or  a  taxable  person  having  no 
right  of  deduction);  a refund  is not  possible  in this  case 
since  the  person  concerned  cannot  present  an  invoice 
including VAT made out in his name; 

These complications  are due mainly to the difficulty of tracking 
changes  in the deductible  proportion.  If a refund  were  granted 
to a taxable person having carried out a partial deduction  (e.g. 
10%),  the refund would  initially relate to 90%.  If, at the end 
of the year, the final proportion turned  out  to be greater than 
10%, the taxable person would have to pay back the corresponding 
tax which the State would already have refunded under the present 
special  scheme.  This  correction  might  extend  throughout  the 
adjustment  period  allowed  for  capital  goods  (a  bank's  gold 
reserves might fall into that category). 

On the question of resale, it should be noted that  the  need  for 
legal certainty  suggested redefining the notion of  "supply"  (for 
the  purposes  of  applying  the  refund  scheme)  to  cover  cases  of 
supply  carried  out by  non-taxable persons.  This  is because the 
"traditional"  definition  of  supply  is  linked  to  the  taxable 
status of the seller. 

- 12 -

(b) cases in which a non-taxable reseller  (or a taxable reseller 
having  no  right  of  deduction)  does  not  present  an  invoice 
(e.g. because  the  invoice  has been  lost  or  the  gold  is  in 
circulation); 

(c) cases  in  which  the  period  of  validity  of  the  invoice,  as 
determined  by  the  Member State  for  refund  purposes,  has 
expired. 

In  all  cases  in which  refund  becomes  impossible,  it  is  obvious 
that  a non-taxable  reseller  will  transfer  his  input  tax  to  the 
buyer  by  incorporating  it  into  the  selling  price. 
In  this 
situation, the  latter would  inevitably  be  subject  to  the normal 
VAT  scheme  (if  he  is taxable) when  he  sells  the  gold  himself. 
This would start a new cycle of residual tax and double taxation. 

It  is consequently  proposed  that when  a taxable persons  resells 
gold  in  respect  of  which  his  non-taxable * seller  (or  taxable 
seller without any right of deduction) has not claimed  a refund, 
the  margin  scheme  will  apply  (with  a  right  of  option  for  the 
normal scheme when the gold is supplied to another taxable person 
in order  to  ensure  that  the  latter  is  able  to make  a  total  or 
partial deduction). 

These arrangements would not be difficult to apply because 

- under  the  definitive  scheme  (refund  by  the  buyer),  the  buyer 
can easily assess whether the conditions have been met because 
he can make a refund only on the basis of the purchase  invoice 
of the person selling him the gold; 

- under the transitional scheme  (refund by the State), the seller 
must  hold  a  declaration  by  the  buyer  in  order  to  receive  a 
refund. 

III.  ARTICLE 2 

(INSERTION OF TITLE ZVIb AND OF ARTICLE 28o) 

1.  The reverse-charge mechanism 

A mechanism under which the taxable buyer is designated as liable 
for the tax  (the reverse-charge mechanism) is frequently used as 
a means  of  combating  fraud  in certain  economic  sectors.  Given 
the  characteristics  of  the  gold  market,  particularly  as  far  as 
the risks of fraud are concerned, a case can be made for allowing 
such a mechanism to be introduced.  It would make it possible for 
the State to keep track of the gold's movements more  easily  and 
be reasonably  certain that the buyer declares his purchase since 
this would be a condition for deduction. 

- 13 -

Moreover,  it  must  be  remembered  that,  under  the  transitional 
scheme,  intra-Community  transactions  between  taxable  persons 
relating to gold other than investment gold are subject to tax in 
the  Member State  of  destination,  the  person  acquiring  the  gold 
being  liable  to  pay  it.  As  a  taxable  person,  the  latter  may 
immediately  deduct the tax without any need to pre finance it and 
within  the  limits  of  his  right  of  deduction. 
Under  these 
circumstances,  the  domestic  market  might  be  placed  in  a  less 
favourable position  to the extent that taxable persons would  do 
better to procure gold on the intra-Community  market  in order to 
avoid  having to prefinance the tax.  This  risk, which  obviously 
applies not only to gold,  seems unacceptable  in this area given 
the very  high value of the metal.  The reverse-charge mechanism 
would place domestic and intra-Community transactions on an equal 
footing,  provided  of  course  that  no  prefinancing  is  required. 
Member States are free to decide whether or not to introduce the 
mechanism  on their  territory  and,  if they  do  so, may  determine 
its scope. 

2.  Application  of  the  mixed  system  fH-f+ed  refund  plus  margini 

during the transitional period 

~~ 

During the transitional  period,  the refund  system  envisaged  for 
gold which is supplied after having been taxed without  any right 
of deduction is that of refund by the State. The reasons for this 
have been explained above in the chapter entitled  "The system of 
limited refund", point (bb). 

The  reason  for  the  second  subparagraph  is  given  in  the  same 
chapter  (Member States  choose  the  appropriate  means  to  ensure 
that the refund is justified). 

The provision  of  the  third  subparagraph  is  intended  to  prevent 
the  person  acquiring  the  gold  from  having  to  verify  that  the 
refund is justified or to wait and see whether the refund to his 
seller  is duly  made  before  deciding  which  scheme  to  apply  (the 
normal or margin schemes) to his own sales.  He is thus relieved 
of responsibility  as soon as he has presented his declaration of 
purchase. 

M 

PROPOSAL FOR A 

COUNCIL DIRECTIVE 

SUPPLEMENTING THE COMMON SYSTEM OF VALUE ADDED TAX 

AND AMENDING DIRECTIVE 77/388/EEC 

- SPECIAL SCHEME FOR GOLD 

THE COUNCIL OF THE EUROPEAN COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Economic 

Community, and in particular Article 99 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 Committee, 

Whereas, under the Sixth Council Directive 77/388/EEC of  17 May 1977 

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

turnover taxes - Common  system of value added  tax: uniform  basis of 

1 

2 

assessment,  as  last  amended  by  Directive  91/680/EEC,  transactions 

concerning  gold  are  in principle  taxable  although,  on  the  basis of 

the  transitional  derogation  provided  for  in  Article 28(3)(b)  in 

conjunction  with  point  26  of  Annex F  to  the  said  Directive, 

Member States  may  continue  to  exempt  transactions  concerning  gold 

other than gold for industrial use; 

Whereas 

the 

Eighteenth 

Council 

Directive 

(89/465/EEC 

of 

18 July 1989),  while  abolishing  certain  other  derogations  allowed 

3 

1  OJ No L 145, 13.6.1977, p. 1. 

2  OJ No L 376, 31.12.1991, p. 1, 

3  OJ NO L 226, 3.8.1989, p. 21. 

- i r-

under the same Article 28, maintained the one relating to gold other 

than  gold  for  industrial  use;  whereas,  in  Article 3  of  the  said 

Directive, the Council undertook to review the situation with regard 

to  the  other  derogations  and,  acting  on  a  Commission  proposal,  to 

decide whether these derogations  should  be abolished,  having  regard 

to  any  distortions  of  competition  which  have  resulted  from  their 

having  been  applied  or which might  arise  from measures  to  complete 

the internal market; whereas the Commission, while providing  for the 

abolition  of most  of  the  remaining  derogations  in  its  new  proposal 

for a Directive of 22 July 1992, has preferred to draw up a specific 

proposal concerning gold. 

Whereas  application  by  some  Member States  of  the  transitional 

derogation  provided  for  in  the  case  of  gold  other  than  gold  for 

industrial  use  is  the  cause  of  certain  distortion  of  competition; 

whereas these distortions  also  arise with  regard  to  industrial gold 

given  the  diversity  of  tax  arrangements  applied  by  the  various 

Member States; 

Whereas a special scheme capable of reconciling the goal of taxation 

with the  need to  combat  fraud  and  avoid  parallel markets  should  be 

established  within  the  context  of  the  completion  of  the  internal 

market  from  1  January  1993,  whereas  transactions  of  a  financial 

nature should be afforded special treatment under this special scheme 

with a view to encouraging investment; 

Whereas, given the nature and high price of gold, a mechanism  should 

be introduced which minimizes the amount of tax included in the price 

where the  seller has not been  able to deduct  it,  in order  to avoid 

double taxation, 

HAS ADOPTED THIS DIRECTIVE: 

-\é-

Article 

1 

The following Article 26a shall be added to Directive  77/388/EEC. 

"Article  26a. 

Special  scheme  for cold 

A.  SCOPE 

Member  States  shall  apply  value  added  tax  to  the  following 

transactions,  in accordance with the provisions of this Article: 

- 

the  supply  of  gold  and  the  supply  of  related  services  by 

intermediaries; 

the  issue,  transfer  and  negotiation  of  securities  involving  a 

right of ownership or claim  in respect  of  gold; 

- 

transactions  concerning  gold  involving  futures  contracts  or  call 

or  put  options  contracts,  and  the  supply  of  related  services  by 

intermediaries. 

B.  DEFINITIONS 

The  following  definitions  shall  apply  for  the  purposes  of  this 

Article. 

(a) "Gold"  means  gold  of  a  purity  equal  to  or  greater  than  900 

thousandths  and  pieces  of  gold  of  a  purity  equal  to  or  greater 

than  900  thousandths  and  quoted  on  one  of  the  markets  of  the 

Community. 

Gold  objects  as  defined  by  the  Member  States  are 

excluded  from this  definition. 

(b) "Investment  gold"  means  gold  as  defined  at  point  (a), whether  or 

not  represented  by  securities,  provided  the  transaction  does  not 

give  rise  to  the  physical  delivery  of  the  goods  and  is  carried 

-If-

out by licensed professionals.  Member States shall determine the 

characteristics of the goods, in particular as regards their form 

and the certification of their degree of purity, the conditions 

for the licensing of professionals and the circumstances in which 

physical  delivery  is  deemed  to  have  taken  place. 

Physical 

delivery  shall in any case be deemed to have occurred where the 

gold is deposited on behalf of the buyer or for his account with 

a third  party or with the  seller  in the event of the  latter no 

longer being considered responsible for the gold in question. 

(c) "Gold other than investment gold" means gold as defined at point 

(a)  which  does  not  meet  one  or  other  of  the  conditions  or 

characteristics referred to at point (b). 

C. SCHEME APPLICABLE TO INVESTMENT GOLD 

1.  Member States shall exempt the transactions  referred  to under A 

and concerning investment gold. 

2.  Member States shall grant every taxable person the  right to the 

deduction  or  refund  of  the  value  added  tax  referred  to  in 

Article 17(2) in  so  far  as the goods  and  services  are used  for 

the purposes of the transactions referred to in paragraph 1. 

D. SCHEME APPLICABLE TO GOLD OTHER THAN INVESTMENT GOLD 

1.  Subject to the following provisions, the scheme applicable to the 

transactions referred  to under A  and  concerning  gold  other than 

investment gold shall be the normal scheme. 

As far as supplies of gold referred to in the previous paragraph 

are concerned, the taxable purchaser must, in order to exercice 

his right of deduction, hold an invoice which shows, in addition 

to  the  information  required  under  Article  22(3)(b),  his  VAT 

identification number. 

2.  The  physical  delivery  of  gold  shall  be  treated  as  a  supply  of 

goods where  the  last  transaction  concerning  that  gold  has  been 

-If  -

exempted  in  accordance  with  the  provisions  under  C  above.  The 

taxable  amount  shall be the price  of  the  gold  resulting  from  the 

selling  rate  obtaining  on  the  most  representative  market  or 

markets  in  the  Member  State  concerned  at  the  time  when  the  tax 

falls  due,  or  from  a  rate  determined  by  reference  to  that  or 

those markets,  in accordance  with  the  procedure  laid  down  by  the 

Member  State  in  question.  Such  supply  shall  be  deemed  to  have 

been  carried  out  by  the  taxable  person  who  carries  out  the 

physical  delivery. 

3.  For  the  purposes  of  calculating  the  proportion  deductible  under 

Article  17,  the  amount  of  the  turnover  attributable  to  the 

delivery  referred  to  in  paragraph  2  shall  be  taken  into  account 

only  within  the  limits  of  the  difference  between  the  taxable 

amounts of the two transactions  referred  to  in the  first  sentence 

of that  same paragraph. 

4.  Member  States  shall  grant  to  any  non-taxable  person  or  to  any 

taxable person  not  having  had  any  right  of  deduction  a refund  of 

the  value  added  tax  charged  on  his  purchase  of  gold,  provided 

that the gold  is supplied by that  same person to a taxable  person 

having  a  right  of  deduction  and  established  in  the  Community, 

hereinafter referred to as the taxable  purchaser. 

For  the  purposes  of  the  previous  subparagraph,  supply  shall  be 

considered  to  constitute  the  transfer  for  consideration  of  the 

right to dispose of the gold  as owner. 

5.  The  refund  provided  for  in  paragraph  4  shall  be  made  by  the 

taxable purchaser  in accordance with the  following  conditions: 

(a) the taxable  purchaser  shall  draw  up,  on  behalf  of  the  person 

carrying out  the supply,  an invoice  or other  document  serving 

as  an  invoice  in  accordance  with  the  provisions  of 

Article  22(3); 

(b) the  taxable  purchaser  shall  procure  and  retain  the  original 

copy of the  invoice or other document  serving  as the  invoice, 

drawn  up  in  accordance  with  Article  22(3),  on  which  the  tax 

- %-

to  be  refunded  shall  be  indicated. 

Member States  shall 

determine  the  time-limit  beyond  which  the  refund  shall  no 

longer be permitted. 

6.  In  the  situation  provided  for  in  paragraph  5,  the  taxable 

purchaser  shall be authorized,  in accordance with the provisions 

of Article 17 and  in  line with  the procedures  laid  down  by the 

Member States,  to  deduct  the  amount  he  has  refunded  from  the 

value added tax for which he is liable. 

7.  Where  no  refund  is made, the  taxable  amount  for  the  subsequent 

supply  carried  out  by  the  taxable  purchaser  shall  be  the 

difference between the selling price exclusive of value added tax 

and the purchase price including tax. 

However,  Member States  may,  in  order  to  simplify  collection  of 

the  tax  and  subject  to  the  consultation  provided  for  in 

Article 29, adopt  as the taxable amount the difference over each 

tax period between the total amount of supplies exclusive of tax 

and the total amount of purchases including tax.  Application of 

this provisions may not lead to distortions of competition. 

The tax attributable to the supplies referred to in the previous 

subparagraphs may  not be  separately  indicated  on the  invoice or 

other document  serving as the invoice.  In any case, this tax may 

not be deducted at the subsequent stage. 

The taxable purchaser, as referred to in this paragraph, may, for 

each  of  his  supplies  to  taxable  persons  having  a  right  of 

deduction, opt for the normal value added tax scheme. 

8.  Where  the  normal  scheme  and  the  special  scheme  are  applied 

jointly, the taxable purchaser  shall keep his accounts  in such a 

way  as to  enter  separately  the  transactions  subject  to  each of 

these  schemes,  according  to  the  procedures  laid  down  by  each 

Member State." 

-  X P-

Article 

2 

The  following  Title  XVTJb  and  Article 280  shall  be  added  to 

Directive 77/388/EEC. 

"TITLE  XVlb 

Transitional scheme for gold 

Article 

280 

Without  prejudice  to  other  Community  provisions,  the  following 

provisions shall apply during the transitional period referred to in 

Article 281. 

1.  By  way  of  derogation  from  Article 21(1) (a),  as  amended  by 

Article 28g, where  a  supply  is made  to  a taxable  person  having 

the  right  of  deduction,  Member States  may,  according  to  the 

procedures and conditions they lay down, designate the purchaser 

as  liable  for  the  value  added  tax.  Where  they  take  up  this 

option, Member States shall take the measures necessary to ensure 

that  the  person  designated  as  liable  meets  the  obligations  of 

submitting  a  return  and  paying  the  tax  in  accordance  with 

Article 22. 

2.  By way of derogation  from Article 26a(D)(5), the refund  referred 

toin the said paragraph shall be made by the public authorities. 

This refund and any decisions relating to it shall be carried out 

in  accordance  with  Article 7(4)  of  Directive  79/1072/EEC.  In 

order  to  qualify  for  the  refund,  a  non-taxable  person  or  a 

taxable  person  having  no  right  of  deduction  shall  submit  an 

application accompanied by: 

- the original  copy of the  invoice, made out  in accordance with 

Article 22(3), on which the tax to be refunded shall be stated; 

Member States  shall  determine  the time-limit  beyond  which  the 

refund shall no longer be permitted; 

-H-

- a declaration  issued  by the taxable purchaser  certifying  that 

the purchase has taken place. 

Member States  shall  take  the  measures  necessary  to  ensure  that 

tax  refunded  is recovered  where  it has been  unduly  refunded  or 

where a supply was cancelled. 

For the purposes of the scheme applicable to a subsequent  supply 

by the taxable purchaser, the refund shall be deemed to have been 

made as soon as the taxable purchaser has issued the declaration 

provided for in the second indent of the first subparagraph. " 

Article 

3 

Point 26 of Annex F to Directive 77/388/EEC shall be deleted. 

Article 

4 

1.  Member States  shall  adapt  their  present  value  added  tax 

arrangements to this Directive. 

They  shall  bring  into  force  such  laws,  regulations  and 

administrative provisions as are necessary for their arrangements 

thus adapted to enter into force on 1 January 1993. 

2.  Member States shall inform the Commission of the provisions which 

they adopt to apply this Directive. 

3.  Member States  shall  communicate  to the  Commission  the  texts  of 

the  provisions  of  national  law  which  they  adopt  in  the  field 

governed by this Directive. 

4.  When  Member States  adopt  such  measures  they  shall  include  a 

reference  to  this  Directive  or  shall  accompany  them  by  such  a 

reference  on  the  occasion  of  their  official  publication.  The 

manner in which such references shall be made shall be laid down 

by the Member States. 

-l%-

Article 

5 

This Directive is addressed to the Member States, 

Done at Brussels, 

For  the  Council 

The 

President 

li 

Financial  statement 

Under  the  present  proposal,  investment  gold  will  be  exempt  from  VAT 
with  deduction  of  input  tax.  At  the  moment,  some  Member  States  tax 
such  gold  while others exempt  it under  a derogation  from  the  sixth  VAT 
Directive  that  permits  exemption  on  a  transitional  basis  for  "gold 
other  than  gold  for  industrial  use".  Since  this  transitional 
derogation  results  in  financial  compensation  being  paid  to  the 
Communities  by  the  beneficiary  Member  States,  general  application  of 
the  exemption  will  give  rise  to  a  fall  in own  resources  owing  to  the 
fact  that  compensation  will  no  longer  be payable. 

As  regards  gold  not  classed  as  investment  gold,  the  present  proposal 
provides  for  generalized  taxation.  For  such  gold,  the  scope  of 
taxation  will  need  to  be  extended  (boosting  own  resources)  since 
certain  transactions  which  are  exempt  at  the  moment  in  some 
Member  States  as  investment  gold  would,  under  the  new  scheme,  have  to 
be  taxed  (e.g.  sales of  ingots  or  pure  gold  with  physical  delivery  of 
the metal). 

M 

Assessment  of  impact  on  SMEs and  employment 

The purpose of  the present  proposal  for  a Directive  is  twofold: 

-  to abolish  a transitional  provision  in Directive  77/388/EEC  allowing 
some  Member  States  to  continue  to  exempt  gold  other  than  gold  for 
industrial use-, 

-  to  lay down Community  rules  for  a special  VAT  scheme  applicable  both 

to  investment  gold  and  to gold other  than  investment  gold. 

I. Administrative obligations on businesses  arising  from  application of 

the present  Directive 

Obligation  to  submit  a  tax  declaration  also  in  cases  where  a 
Member  State  exercises  the  option  provided  for  in  Article  22(9)  of 
the  sixth  VAT  Directive,  namely,  exemption  from  all  obligations  for 
businesses  carrying  out  only  exempt  transactions. 

I I . 

Advantages  for  businesses 

Arrangements  for  investment  gold:  a  firm  selling  investment 
gold  does  not  invoice  VAT  and  can  deduct  VAT  paid  on  its 
purchases;  a  firm  buying  investment  gold  does  not  prefinance 
VAT; 

Arrangements  for  gold  other  than  Investment  gold:  taxation  of 
all  transactions  involving  such  gold  allows  businesses  to 
deduct  VAT  paid  on  their  purchases;  moreover,  for  a 
transitional  period,  businesses  buying  such  gold  can  be 
exempted  from  prefinancing  VAT  by  the Member  State  concerned. 

Residual  tax  will  be  abolished  by  virtue  of  taxation  and,  in 
the  case  of  gold  which  is  reintroduced  into  the  economic 
circuit  after  being  taxed  without  any  right  to  deduct  input 
tax, will  be significantly  reduced. 

III. 

Are  there  any  drawbacks  for  businesses  in  terms  of  additional 
costs? 

None 

IV. 

Impact  on  employment 

None 

V. The  two sides of  industry  have not  been  consulted. 

VI. 

The  present  proposal  is necessary  in order  to  combat  fraud  and 
to  avoid  the  distortions  of  competition  that  may  result  from 
divergences  between Member  States'  laws. 

z± 

ISSN 0254-1475 

COM (92) 441 final 

DOCUMENTS 

EN 

02 

Catalogue number : CB-CO-92-458-EN-C 

ISBN 92-77-48366-0 

Office for Official Publications of the European Communities 
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