Proposal for a COUNCIL DECISION AUTHORIZING THE FEDERAL REPUBLIC OF GERMANY AND THE REPUBLIC OF POLAND TO CONCLUDE AN AGREEMENT CONTAINING MEASURES DEROGATING FROM ARTICLES 2 AND 3 OF THE SIXTH COUNCIL DIRECTIVE (77/388/EEC) OF 17 MAY 1977 ON THE HARMONIZATION OF THE LAWS OF THE MEMBERS STATES RELATING TO TURNOVER TAXES
Date: 1995-04-12
Institutions: European Commission
Subjects: Germany, Poland, VAT, derogation from EU law, road building, tax convention

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  12.04.1995 
COM(95)  136  final 

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- S Ï ÏN 

Proposal for a 

COUNCIL  DECISION 

AUTHORIZING  THE  FEDERAL  REPUBLIC  OF GERMANY  AND 

THE REPUBLIC OF POLAND TO CONCLUDE AN AGREEMENT CONTAINING MEASURES 
DEROGATING  FROM ARTICLES 2  AND 3  OF 
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 

(presented by the Commission) 

^ 

EXPLANATORY  MEMORANDUM 

By letter  officially  received  by the  Secretariat-General  of the  Commission  on  20 January 
1995, the German  Government  requested  authorization,  on the basis of Article 30 of the 
Sixth Council Directive, to conclude an agreement with the Republic of Poland  containing 
derogations from  Articles 2 and  3 of that Directive (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 assessment1). 

This  agreement  concerns  the  link-up  of  the  German  B97  and  Polish  274  roads,  and  the 
construction  of  a  frontier  bridge  across  the  Neisse  in  the  Guben  and  Gubinek  area. 
However,  the  tax  provisions  derogating  from  the  Sixth  Directive  refer  only  to  the 
construction  of the frontier  bridge. 

In  accordance  with  Article  30,  the  other  Member  States  were  informed  of  Germany's 
request by letter dated 20 February  1995. 

The agreement  provides  that  Polish  law  relating  to  goods  and  services  tax  is to  apply  to 
supplies of goods  or  services effected  in connection  with  the  construction  of the  frontier 
bridge.  It also stipulates that, with the exception  of customs duties, no import tax is to be 
charged  on goods imported  from  the. sovereign  territory  of one Contracting  State into the 
sovereign territory  of the other  Contracting  State,  provided  that  those goods  are used in 
the  construction  of the  frontier  bridge.  This does  not  apply  to  imports  of goods  for  the 
public building authorities. 

Under the principle of territorial application laid down by the Sixth Directive,  construction 
work  carried  out  on  German  sovereign  territory  would  be  subject  to  VAT  in  Germany, 
but  construction  work  carried  out  on  Polish  sovereign  territory  would  lie  outside  the 
scope  of the  Sixth  Directive.  If these  provisions  were  applied,  it  would  be  necessary  to 
break  down  transactions  on the basis of the territory  on which  they were carried  out.  In 
addition, each importation  into Germany from  Poland  of goods used  for  the  construction 
of the bridge would be subject  to VAT in Germany. 

The Contracting States are of the opinion that the application of these rules would  involve 
substantial  tax  complications  for  the  contractors  responsible  for  the  construction  work. 
They therefore  take the view that the tax provisions of the draft  agreement  are justified  in 
order to simplify the contractors' tax obligations. 

OJ No L  145,  13.6.1977, p.  1, as last amended by Directive 94/76/EC (OJ No L 365, 31.12.1994, 
p.53). 

J? 

It  is  clear  that  the  tax  provisions  in  the  agreement  adversely  affect  the  total  amount  of 
VAT to be collected  on transactions  relating  to  construction  work  on  the frontier  bridge. 
However,  the  German  Government  would  point  out  that  earlier  agreements  between 
Germany  and  Poland  concerning,  first,  the  motorway  link-up  and  the  construction  of 
frontier  clearance  facilities  for  the new frontier  crossing  in the Gôrlitz and Zgorzelec  area 
and,  second,  the  motorway  link-up  between  Frankfurt/Oder  and  Schwetig  stipulated  that 
all  supplies  of goods  or  services  effected  in  connection  with  the  construction  of  bridges 
were  subject  to  VAT  in  Germany,  including  those  effected  on  Polish  territory.  The 
Council  authorized  Germany  to  conclude  agreements  by  two  decisions  deemed  to  have 
been  adopted  in  accordance  with  the  second  paragraph  of  Article  30  of  the  Sixth 
Directive. 

However,  in  the  course  of  the  negotiations  on  these  agreements,  a  guarantee  of 
reciprocity  was given.  Thus,  the  Federal  Republic  of Germany  had  agreed  that,  in  future 
cross-border  construction  projects  of a similar  nature,  Polish  tax  law  could  be applied  to 
transactions carried  out  on German  territory  if this facilitated  construction.  It is  therefore 
in accordance  with  what  was  agreed  during  earlier  negotiations  that  the  draft  agreement 
provides  that  Polish  law  relating  to  tax  on  goods  and  services  is  to  apply  to  all  the 
construction work on the bridge. 

Under Article 30 of the Sixth  Directive, any Member State may be authorized  to  conclude 
with  a  non-member  country  or  an  international  organization  an  agreement  which  may 
contain derogations from  the said Directive. 

The Commission agrees that the uniform  taxation of construction  work  and the waiving of 
collection  of  VAT  on  the  importation  of  goods  intended  for  use  in  such  work  is  a 
simplification  for  the  contractors  compared  with  the  application  of  the  normal  rules  of 
taxation. 

It  also  considers  that  the  provisions  of  the  proposed  agreement  resulting  in  the 
non-taxation  of  transactions  relating  to  construction  work  that  is  subject  to  VAT  in 
Germany  are  fair,  given  the  tax  provisions  of  the  two  above-mentioned  agreements 
providing  for  VAT  to  be  charged  in  Germany  on  certain  transactions  which  were,  in 
theory, outside the scope of the Sixth Directive. 

In  addition,  given  the  compensating  effect  of the  tax  provisions  of the  three  agreements, 
the  application  of  the  tax  provisions  of  the  present  draft  agreement  will  have  only  a 
negligible effect  on the own resources of the European  Communities accruing from  value 
added tax. 

Accordingly, the Commission takes the view that the Federal Republic of Germany should 
be authorized  to conclude the proposed  agreement. 

M 

Proposal for a 

COUNCIL  DECISION 

AUTHORIZING THE FEDERAL REPUBLIC OF GERMANY AND 

THE REPUBLIC OF POLAND TO CONCLUDE AN AGREEMENT CONTAINING MEASURES 
DEROGATING  FROM ARTICLES 2  AND 3  OF 
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 

•• *  3 I 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European  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,1  and  in  particular  Article  30 
thereof, 

Having regard to the proposal from  the Commission, 

Whereas,  under  Article  30  of the  Sixth  VAT  Directive,  the  Council,  acting  unanimously 
on a proposal  from  the Commission,  may authorize any Member  State to conclude with a 
non-member  country  or  an  international  organization  an  agreement  which  may  contain 
derogations from  the said Directive; 

Whereas, by letter officially  received  by the Secretariat-General  of the Commission  on 20 
January  1995, the German Government  requested  authorization  to conclude an agreement 
with Poland  concerning the link-up of the German road  B97 and the Polish  road  274, and 
the  construction  of  a  frontier  bridge  across  the  Neisse  in  the  Guben  and  Gubinek  area, 
which  contains  derogations  from  Articles  2  and  3  of  the  Sixth  Directive  as  regards  the 
construction  of the frontier  bridge; 

Whereas  the  other  Member  States  were  informed  on  20 February  1995  of  the  German 
request; 

1  OJ No L 145, 13.6.1977, p.l, as last amended by Directive 94/76/EC (OJ No L 365, 31.12.1994, 

p.53). 

X 

Whereas,  in  the  absence  of  derogations,  the  construction  work  carried  out  on  German 
territory  would  be  subject  to  VAT  in  Germany  while  that  carried  out  on  Polish  territory 
would  be  outside  the  scope  of  the  Sixth  Directive  and  whereas,  in  addition,  each 
importation  from  Poland  into  Germany  of goods  used  for  the  construction  of  the  frontier 
bridge would be subject  to VAT in Germany; 

Whereas  the  purpose  of  these  derogations  is  to  simplify  the  rules  of  taxation  for  the 
contractors carrying out  the construction  work  on the frontier bridge in question; 

Whereas  the  derogations  will  have  only  a  negligible  effect  on  the  own  resources  of  the 
European Communities accruing from  value added tax, 

HAS  ADOPTED  THIS  DECISION: 

s 

Article  1 

The  Federal  Republic  of  Germany  is  authorized  to  conclude  an  agreement  with  the 
Republic  of  Poland  relating  to  the  link-up  of  the  German  road  B97  and  the  Polish  road 
274  and  to  the  construction  of  a  frontier  bridge  across  the  Neisse  in  the  Guben  and 
Gubinek  area  and  containing  measures  derogating  from  the  Sixth  Council  Directive 
(77/388/EEC) of  17 May  1977.  These derogations  are defined  in Articles 2 and 3. 

Article  2 

By way of derogation from  Article 3 of the Sixth Directive,  that part of the territory of the 
Federal Republic of Germany in the region of Guben in which work to  construct  a frontier 
bridge across the Neisse  linking  German  road  B97  and  Polish  national  road  274  is carried 
out  is  deemed  to  be  part  of  the  territory  of  the  Republic  of  Poland  for  the  purposes  of 
supplies of goods  and services intended  for use in the construction  of that bridge. 

Article  3 

By  way  of  derogation  from  point  2  of  Article  2  of  the  Sixth  Directive,  the  importation  of 
goods into Germany  from  Poland  shall  not  be subject  to value added tax  in so  far as those 
goods  are  used  for  the  construction  of  a  frontier  bridge  across  the  Neisse  in  the  Guben 
and  Gubinek  area  linking  German  road  B97  and  Polish  road  274.  However,  this 
derogation  shall not apply to importations of goods effected  by a public authority. 

This Decision  is addressed  to the Federal  Republic of Germany. 

Article  4 

Done at Brussels 

...1995 

For the Council 
The President 

ISSN 0254-1475 

COM(95) 136  final 

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ISBN 92-77-87747-2 

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