Proposal for a COUNCIL DECISION authorizing the Portuguese Republic to apply a measure derogating from Article 2(1) and Article 17 of the sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes
Date: 1993-09-29
Institutions: European Commission
Subjects: Portugal, VAT, application of EU law, approximation of laws, provision of services, tax exemption

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COMMISSION OF THE EUROPEAN  COMMUNITIES 

C0M(93> 450 final 

Brussels, 29 September  1993 

Proposal  for a 

COUNCIL DECISION 

authorising the Portuguese Republic to apply a measure derogating  fro» 
Article 2(1) and Article 17 of the sixth Directive  (77/388/EBC) 
on the harmonization of the laws of the Member states 
relating to turnover taxes 

(presented by  the Commission) 

EXPLANATORY MEMORANDUM 

The  present  proposal  for  a  Council  Decision  authorizes  the  Portuguese 
Republic to introduce a special measure in accordance with Article 27 of 
the  Sixth VAT Directive  77/388/EEC  of  17 May  1977 on the  common  system 
of value  added tax  , as last amended  by Council Directive  92/ill/EEC of 
14 December 1992 . 

With  the  completion  of  the  Single  Market,  the  arrangements  for  the 
taxation  of  services  supplied  within  the  European  Community  have  been 
modified. The exemptions related  to the exportation of goods and to the 
placing  of  certain  goods  under  a  customs  procedure  have  been 
discontinued,  as  have  the  arrangements  for  including  the  value  of 
services in the taxable amount in the case of imported goods. 

Under these circumstances, the territoriality  principle  as applied  to a 
number  of  services, with  these  services  being  taxed  in the  place  where 
they  are  physically  carried  out,  has  the  effect  of  obliging  taxable 
persons  who  are  not  established  within  the Member  State  of  performance 
of  the  services  to  pay  VAT  in  the  Member  State  where  the  services  are 
carried  out, and  subsequently  to  apply  for  refund  under  the  Eighth  or 
Thirteenth  Directives.  This  concerns  above  all  services  supplied  in 
respect of work on movable tangible property and the supply of transport 
services  which  are  of  a  purely  domestic  nature  but  which  are  directly 
linked to  intra-Community goods transport  services  (the national  leg of 
an intra-Community movement of goods). 

The  resulting  proliferation  of  cases  in which  a  refund  is  applied  for 
under  the  Eighth  and  Thirteenth  Directives  is hindering  the  freedom  to 
supply services within the Single Market. 

Moreover,  prior  systematic  vetting  of  applications,  coupled  with  an 
increase  in the  number  of  cases, could  well  cause  delay  of VAT  refunds 
under the Eighth and Thirteenth Directives. 

It  is, therefore,  most  important  in  this  context  to  consider  measures 
which  can  rapidly  simplify  matters  for  traders 
but  which  will  not 
undermine the principles of taxation associated with the Single Market. 

request  for 
To  that  end,  the  Portuguese  Republic  has  submitted  a 
authorization  on the basis of Article  27 of the Sixth VAT Directive, to 
introduce  special  measures  derogating  from  Article  2(1)  and  17.  The 
purpose of such measures would be to exempt the services rendered  in the 
third  and  forth  indents  of  Article  9(2)(c)  and  the  supply  of  domestic 
goods  transport  services  directly  linked  to  intra-Community  goods 
transport  services, provided that those services are supplied to taxable 
persons  not  established  within  the  Member  State  of  performance  of  the 

OJ No. L 145/1,  13.6.1977 
OJ No. L 384/47, 30.12.1992 
Council Directive 79/1072/EEC OJ No. L 331 of 27.12.1979, p. 11 
Council Directive 86/560/EEC OJ No. L 326 of 21.11.1986, p. 40 

1 

services  and  who  in  any  case qualify  for  a  refund  of  VAT  on those 
services  by  means  of  the  procedures  laid  down  in  the  Eighth  and 
Thirteenth Directives. Given this proviso, such a derogation would in no 
way affect the amount of tax payable at the final consumption stage. 

In order to qualify for the exemption, a person to whom these services 
are  supplied,  but  who  is  not  established  in  the  Member  State  of 
performance of  the services, would  have to establish  his  status as a 
taxable person  in the  manner  laid  down  in  the Eighth  and  Thirteenth 
Directives, and would, in addition, have to undertake to repay the VAT 
payable  on  any  supply  of  services  which  might  have  been  exempted  in 
error. It would also be necessary for the supplier who is liable to pay 
tax within the territory of the country to state the actual grounds for 
exemption  on  the  invoice  and  the  number  by  which  his  customer  is 
identified for VAT purposes within the Community. 

However, given that the possibility of using customs procedures remains 
for work carried out on movable tangible property temporarily imported 
into  the  Community  from  third  countries,  the  scope  of  the  present 
derogation  does  not  extend  to  cover  supplies  of  such  services  when 
supplied to persons not established within the Community. 

As a result of this derogation, the growth of intra-Community activity 
in  the  service  sectors  concerned  would  not  be  hindered  by  the  tax 
charges resulting  from difficulties  in applying refund procedures, and 
sufficient  time  would  be  given  to  consider  other  more  permanent 
solutions. 

The Commission notes that the special measure proposed  shall not alter 
the  fundamental  principles  of  the  Sixth VAT  Directive,  in particular 
concerning  the  place  of  supply,  but  simplifies  the  arrangements  for 
refunding the tax which would in any case be refundable under the Eighth 
and Thirteenth Directives. Consequently, the derogation in question does 
not  have  a  negative  effect  on  the  own  resources  of  the  European 
Communities accruing from VAT. 

The Commission is convinced that the measure in question is intended to 
simplify the procedures for charging the tax. The Commission, therefore, 
considers it appropriate for the Portuguese Republic to be authorized to 
apply the planned special measure, but that such an authorization should 
be limited in time, for a duration  lasting until 31 December 1995. 

Proposal for a 

COUNCIL DECISION 
authorizing the Portuguese Republic to apply a measure derogating  from 
Article 2(1) and Article  17 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 
turnover  taxes  -  Common  system  of  value  added  tax:  uniform  basis  of 
assessment,  and  in particular Article 27 thereof, 

Having regard to the proposal  from the Commission, 

Whereas,  under  Article 27(1)  of  Directive  77/388/EEC,  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, by  letter dated  28 July  1993  and  received  by the Commission  on 
2  September  1993,  the  Portuguese  Republic  requested  authorization  to 
introduce 
of 
Directive 77/388/EEC; 

Article  17 

derogation 

measure 

from 

for 

a 

Whereas  the  other  Member  States  were  informed  on  13  September  1993  of 
the request made by the Portuguese Republic; 

Whereas  implementation  of the transitional VAT arrangements  leads to VAT 
being  charged  on  certain  work  on  movable  tangible  property  and  certain 
6tam<:eij  relating 
services  are  supplied,  irrespective  of  the  place  where  the  taxable 
person  to  whom  these  services  are  supplied  is  able  to  exercise  his 
rights  of  deduction,  and  whereas  this  results  in  growing  use  of  the 
refund procedures provided  for by Directives  79/1072/EEC and  86/560/EEC; 

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Whereas  the  increasing  use  of  the  refund  procedures  provided  for  by 
Directives  79/1072/EEC  and  86/560/EEC  may  impede  the  development  of 
intra-Community  trade  in certain services; 

Whereas  the  measure  for  derogation  in  question  aims  to  introduce  a 
simplification  consisting  in the exemption  of  certain  services  supplied 
to taxable  persons  not  established  in  the  territory  of  the  country  but 
identified  in  the  Community,  for  which  these  taxable  persons  would  in 
any event be entitled  to a refund; 

t 

Whereas certain requirements  should be imposed  on taxable persons with a 
view to preventing tax evasion or avoidance; 

Whereas  it  is  desirable  for  this  derogation  to  be  limited  to  the  time 
necessary  to  enable  the  Council,  acting  on  a  proposal  from  the 
Commission,  to adopt a definitive  solution; 

Whereas  the  measure  for  derogation  in  question  has  no  effect  on  the 
European Communities' own resources accruing  from value added tax, 

HAS ADOPTED THIS DECISION: 

Article 1 

By  way  of  derogation  from  Article 2(1)  of  Directive  77/388/EEC,  the 
Portuguese  Republic  is  hereby  authorized  to  exempt  the  supply  of 
services referred to in Article 3(1) and  (2) rendered to taxable persons 
identified  in  a  Member  State  other  than  the  Portuguese  Republic  in 
accordance with Article 22(l)(c),(d) and  (e) of Directive  77/388/EEC who 
would 
with 
a 
Directive 79/1072/EEC  if these services had been taxed. 

accordance 

qualified 

refund 

have 

for 

in 

Article 2 

By  way  of  derogation  from  Article 2(1)  of  Directive  77/388/EEC,  the 
Portuguese  Republic  is  hereby  authorized  to  exempt  the  supply  of 
services  referred  to  in  Article 3(2)  and  rendered  to  taxable  persons 
identified  in  a  Member  State  other  than  the  Portuguese  Republic  in 
accordance  with  Article  22(1)(c),  (d)  and  (e)  of  Directive  77/388/EEC 
for  a  refund  in  accordance  with 
who  would  have  qualified 
Directive 86/560/EEC  if these services had been taxed. 

Article 3 

In  the  circumstances  provided  for  in  Articles  1  and  2,  the  Portuguese 
Republic  is authorized to exempt: 

1. the supply of services referred to in the third and  fourth indents of 

Article 9(2)(c) of Directive  77/388/EEC; 

2. the  transport  services  located  in  the  territory  of  the  country, 
directly  linked  to the  intra-Community  transport  of  goods  as defined 
in Article 28bC(l) of Directive  77/388/EEC. 

Article 4 

By  way  of  derogation  from  Article  17  of  Directive  77/388/EEC,  the 
services referred to in Article 3 and supplied  in the circumstances  laid 
down in Articles  1 and 2 shall be eligible  for deduction of input tax. 

Article 5 

In  order  to  be  eligible  for  exemption  from  tax  in  accordance  with 
Articles  1 and 2, a taxable person  shall  in particular: 

1. In the case of the supplies of services referred  to in Article 3(1): 

-  be  in possession  of  a certificate  establishing  that  the person  to 
whom  the  services  have  been  supplied  is  a  taxable  person  and 
issued  in  the  form  laid  down  by  Directives  79/1072/EEC  and 
86/560/EEC; 

be  in possession  of  a declaration  in which the person  to whom  the 
services  have  been  supplied  acknowledges  that  he  is  jointly  and 

severally liable for payment of the tax due on any operation which 
may have been exempted in error and undertakes to repay this tax 
to the supplier of the service; 

-  mention,  on  his  invoice,  the  grounds  for  exemption  and  the 
identification number of the person to whom the services have been 
supplied. 

2. In the case of the supplies of services referred to in Article 3(2): 

satisfy the requirements referred to in point 1; 

-  provide proof that the transport service is directly linked to an 
intra-Community transport within the meaning of Article 28bC(l) of 
Directive 77/388/EEC. 

Article 6 

The  Portuguese  Republic  is  hereby  authorized  to  apply  this 
simplification measure until 31 December 1995. 

This Decision is addressed to the Portuguese Republic. 

Article 7 

Done at Brussels 

For the Council 
The President 

f 

KSN 0254-1475 

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