COMMUNICATION FROM THE COMMISSION TO THE COUNCIL - REQUEST SUBMITTED BY THE GOVERNMENT OF THE UNITED KINGDOM FOR AUTHORIZATION TO MAINTAIN SPECIAL MEASURES PURSUANT TO ARTICLE 30 OF THE SIXTH COUNCIL DIRECTIVE (77/388/EEC) AND ARTICLE 23 (2) OF COUNCIL DIRECTIVE 92/12/EEC
Date: 1996-10-24
Institutions: European Commission
Subjects: Commonwealth, United Kingdom, VAT, derogation from EU law, tax exemption

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels, 24.10.1996 
COM(96) 521 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

REQUEST SUBMITTED BY THE GOVERNMENT OF 
THE UNITED KINGDOM FOR AUTHORIZATION TO MAINTAIN  SPECIAL 
MEASURES PURSUANT TO ARTICLE 30 OF THE SIXTH COUNCIL 
DIRECTIVE (77/388/EEC) AND ARTICLE 23 (2) OF COUNCIL  DIRECTIVE 
92/12/EEC 

Introduction 

By  letter  registered  at  the  Secretariat  General  of  the  Commission  on  29  July  1996, the 
British  Government,  acting  on  the  basis  of  Article  30  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  -  Common  system  of  value  added  tax:  uniform  basis  of 
assessment  and  Article 23 (2) of Council  Directive 92/12/EEC  of 25 February  1992 on the 
general  arrangements  for  products  subject  to  excise  duty  and  on  the  holding,  movement 
and  monitoring  of  such  products,  requested  authorization  to  maintain  special  measures 
derogating from  the said  Directives. 

In accordance  with Article 30 of the Sixth Council  Directive and  Article 23 (2) of Council 
Directive  92/12/EEC,  the  other  Member  States  were  informed  of  the  British  request  by 
letter of 29 August  1996.  Under  the said  Articles, the Commission  or  the  Member  States 
may request  that  the matter be raised  before  the Council. 

Description of the  measure 

The United  Kingdom  would  like to continue affording  relief from  VAT and  excise duty to 
visiting  non-NATO  Commonwealth  forces  and  their  personnel  similar  to  the  one  granted 
to  NATO  forces.  Since  the  late  1940s,  such  relief  has  been  granted  on  the  basis  of 
bilateral  agreements  concluded  between 
the  United  Kingdom  and  many  of  the 
Commonwealth  countries. 

Currently,  6  non-NATO  Commonwealth  forces  with  personnel  serve  in  the  United 
Kingdom  claiming  reliefs.  These  forces  are  Australia,  Bangladesh,  India,  Maylasia,  New 
Zealand  and  Pakistan.  In  total,  approximately  400  personnel  are  presently  serving  in the 
United  Kingdom. 

The British  request  covers: 

a) 

import  of goods by Commonwealth  forces and their personnel. 

Presently,  Commonwealth  forces  enjoy  relief  from  customs  duties  along  the  same 
lines  as  NATO  forces.  Personnel  of  visiting  Commonwealth  forces  may  import  their 
household  effects  for  use  while  in  the  United  Kingdom  without  payment  of  customs 
duties.  The  personnel  are  furthermore,  under  existing  warehouse  arrangements, 
granted  a ration of duty and  VAT free  alcohol and tobacco  products each month; 

b)  domestic  purchases  of  goods  and  services'  by  Commonwealth  forces  and  their 

personnel. 

For goods  and  services  purchased  for  official  use,  visiting  Commonwealth  forces  are 
at the  moment  enjoying  relief from  VAT  and excise  duty  without  any  fixed  limitation. 
The  personnel  of  such  forces  only  enjoy  relief  from  tax(es)  when  purchasing 
consumer  durables  with  a  minimum  value  of  10  £.  As  consumer  durables  are 
considered  goods  capable of at least  one year of sustained  used  and  of  being  exported 
at  the  end  of  a  tour  of  duty.  The  personnel  also  enjoy  relief  from  taxes  on  fuel 
purchased  for use on official  duty journeys. 

Relief  is  given  by  means  of  a  refund  of  tax(es).  All  claims  for  refund  of  tax(es)  on 
purchases  are  forwarded  by  the  visiting  forces  to  the  customs  authorities.  When 
purchase is made by personnel  of visiting forces,  the claim  for  refund  has to  be routed 
through  the force  auhorizing it prior to forwarding  to  the authorities; 

c) 

intra-Community  purchases of goods  and  services by Commonwealth  forces  and their 
personnel. 

Commonwealth  forces  are  not  currently  making  purchases  in  other  Member  States. 
However,  it is the intention to extend  the relief facilitated  to  Commonwealth  forces  to 
purchases from  other Member States 

Legal situation 

Community  legislation  does  not,  at  present,  allow  for  VAT  and  excise  duty  exemption  to 
be afforded  to Commonwealth  forces 

At  importation,  relief  from  VAT  is  only  granted  for  goods  falling  within  the  scope  of 
Article  14 (l)(d)  of  the  Sixth  VAT  Directive  as  set  out  in  Council  Directive  83/181/EEC 
of 28  March  1983.  Importations by Commonwealth  forces  do  not  qualify  for exemption in 
this respect. 

Domestic  supplies,  including  intra-Community  purchases,  are  exempted  from  VAT 
pursuant  to  Article  15 (10) of the Sixth  Directive  which  does,  however,  only  cover  NATO 
forces  which  take  part  in  the  common  defence  effort.  Supplies  to  Commonwealth  forces 
cannot  be exempted  under this provision 

Products which are subject  to excise  duty are exempted  from  payment  of tax  under  Article 
23  (1)  of Directive  92/12/EEC  where  these  products  are intended  for  certain  beneficiaries 
This exemption  does  not cover  supplies to Commonwealth  forces. 

Commission's opinion 

The  procedure  provided  for  in  Article  30  of  the  Sixth  Directive  and  Article  23  (2)  of 
Directive  92/12/EEC  permits  Member  Stales  to  conclude  with  non-member  countries  or 
organizations  an  agreement  containing  derogations  from  the  said  Directives.  Such 
derogations  are  however  only  justified  while  complying  with  the  basic  principles  of  the 
common  system  of value added  tax and of the general  arrangements  for excise  products. 

The  British  Government  has  requested  for  this  procedure  u> be  applied  in  relation  to  the 
relief  from  VAT  and  excise  duy  afforded  to  visiting  Commonwealth  forces  and  their 

personnel.  The  request  covers  both  import  iu\d  domestic  supplies  of  goods,  including 
intra-Community  supplies. 

In  the Commission's  opinion,  the  procedure  must  however  be  applied  with  constraint.  The 
British  request,  where  authorization  is  sought  to  allow  Commonwealth  forces  to  be 
treated  the same  way  as NATO  forces,  does  not  take  this  into  consideration. 

Giving  authorization  to  such  a  request  in  tact  means  that  Commonwealth  forces  would 
benefit  from  a  VAT  exemption  on  supplies  of goods  and  services  similar  to  the  one  under 
Article  15  (10)  of  the  Sixth  Directive.  It  has  to  be  mentioned  that  the  same  applies  to 
importations  of  goods  by  these  forces  which  are  not  covered  by  Article  14  (l)(d)  the 
scope  of  which  is  set  out  in  Directive  83/1 SI/EEC.  It  follows  that,  in  an  internal  market, 
such  an  exemption  would  not  be  restricted  to  one  Member  State  but  would  have  to  be 
applied  throughout  the  Community,  subject  to  the  limitations  laid  down  by  the  United 
Kingdom  as  host  Member  State.  Consequently,  an  authorization  to  apply  an  exemption  to 
Commonwealth  forces  would  result  in  a de  facto  extension  of  the  scope  of  the  exemption 
under  Article  14  (l)(d),  as  this  has  been  set  out  in  Directive  83/1 SI/EEC,  and  Article  15 
(10)  of  the  Sixth  Directive.  An  extension  oi'  that  son  would  require  a  change  of  the 
relevant  directives  which  would  have  effect  for  all  Member  States  In  this  respect,  the 
derogation  procedure  is not  seen  by  the  Commission  as an  appropriate  measure. 

On  these  ground,  the  Commission  considers  it  inappropriate  to  submit  a  proposal  for  a 
Council  Decision  authorizing  the  United  Kingdom  to  apply  measures  derogating  from  the 
comm(5h VAT  system. 

The  Commission  considers  it  essential  to  assure  coherence  between  VAT  and  excise  duty 
provisions  governed  by  Community 
fundamental 
objections  applying  a  derogative  measure  to  exempt  Commonwealth  forces  from  VAT, 
the Commission  urges  the  United  Kingdom  to  reconsider  its  request  for  such  a  measure  in 
the excise duty  field. 

legislation.  Since  it  gives  rise  to 

Conclusion 

Since  it  gives  rise  to  fundamental  objections  to  apply  the  derogation  procedure  to  the 
arrangements  in  question,  the  Commission  requests  that  the  matter  be  raised  before  the 
Council  in accordance  with  Article  30  of  the  Sixth  Council  Directive  and  Article  23  (2)  of 
Council  Directive  92/12/ECC 

ISSN 0254-1475 

COM(96) 521  final 

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Catalogue number  : CB-C0-96-526-EN-C 

ISBN 92-78-10400-0 

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