Proposal for a COUNCIL DECISION authorizing the Kingdom of Denmark to apply a measure derogating from Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes
Date: 1997-02-05
Institutions: European Commission
Subjects: Denmark, VAT, approximation of laws, derogation from EU law, telecommunications, transmission network

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  05.02.1997 
COM(97) 42 final 

Proposals for 

COUNCIL DECISIONS 

authorizing the 15 Member States to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the  Commission) 

Proposal  for a 

COUNCIL DECISION 

authorizing the Kingdom of Belgium to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

-2-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  10  September  1996,  the 
government  of  the  Kingdom  of  Belgium  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Kingdom of Belgium. 

That  request  involves a change to the rules governing  the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed  establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Kingdom of Belgium wishes to be able to apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing that, the place where he has his permanent  address  or usually resides.  In 
this way, the aim of VAT, which is to  tax  all consumption  within  the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

i-

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure that  meets  the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive,  that  would  be presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of  Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  Would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessary to limit it to what is strictly needed  for  combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to use a tax  mechanism  that  is already well known and  that  is  therefore 
easy to apply. 

for  a  ;directive  amending 

the  proposal 

It  is  therefore  necessary,  first  of  all,  to  restrict  the  effects  of  the1 authorization  to  services 
provided  by a supplier  established  outside the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

! 

As regards the definition  of the place of taxation,  a mechanism must  be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved  by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for  payment of the tax is 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

j 

For  the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essehtial  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

i 

Even  though  a growing  number  of services,  such as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

H-

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  b 

-

Proposal for a 

COUNCIL DECISION 

Authorizing the Kingdom of Belgium to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 

j 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

Whereas, pursuant  to 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 registered  letter  to  the  Commission  dated  10 September  1996, the Kingdom  of 
Belgium  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

f 

Whereas the other Member States  were informed  on 20 December  1996 of the  request  made 
by the Kingdom of Belgium; 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that  the derogation  should be granted  until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

: 

i 

HAS ADOPTED THIS DECISION: 

! 

-c  -

Article  1 

By way of derogation from Article 9(1) of Directive 77/388/EEC, tie  Kingdom  of Belgium is" 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by  suppliers  not  established  in  the  Community  tp  customers  established  in 
the  Community.  In  the case  of a Member  State  making  use  of thi^ facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these services. 

Telecommunications  services  shall  be  deemed  to  be  services  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception'. 

The authorisation  specified  in this decision shall expire on 31 Decern 

ber 1998. 

Article 2 

This Decision is addressed to the Kingdom of Belgium. 

Article 3 

Done at Brussels, 

For the Council 

The President 

1- -

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  ihe  place  of  taxation  of 
telecommunications  services  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

I 

However, it is impossible to quantity this increase in own resources. 

s-

Proposal  for a 

COUNCIL DECISION 

authorizing the Kingdom of Denmark to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented by the Commission) 

- ^-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  Kingdom  of  Denmark  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Kingdom of Denmark. 

That  request  involves a change to  the rules governing the  place  of taxation  of the  supply  of 
telecommunications seryices. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order^o 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Kingdom of Denmark wishes to be able to apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing that, the place where he has his permanent  address or usually resides.  In 
this way,  the aim of VAT, which  is to  tax  all consumption  within  the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145.  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996. p. 89). 

-  \o 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  6f  taxation  and  that  same 
derogation  is required  by all  the Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in' accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal'for  a directive amending the Sixth Directive, that  would  hi  presented  to the  Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the adoption  of  Community  legislation  and  its transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessary to limit it to what is strictly needed for  combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive, to use a tax mechanism  that  is already well known  and  that  is  therefore 
easy to apply. 

'directive  amending 

the  proposal 

for  a 

, 
i 

It  is  therefore  necessary,  first  of  all,  to  restrict  the  effects  of  the! authorization  to  services 
provided  by a supplier  established  outside the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the place of taxation,  a mechanism  must  be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
e for  payment  of the tax is 
in Article 9(2)(e) of the Sixth Directive, under which the person liab 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  Mill  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

For the introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  .best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of services, such as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

l\ 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transinission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

- 

\1 

Proposal for a 

COUNCIL DECISION 

Authorizing the Kingdom of Denmark  to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization  of the lajws of the Member States 
relating to turnover taxes 

(presented by the Commission) 

THE COUNCIL OF THE EUROPEAN  UNION, 

j 

Having regard to the Treaty establishing the European Community, ! 

Having  regard  to  the  Sixth  Council  Directive  (77/388/EEC)  j 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, pursuant  to Article 27(1) of Directive 77/388/EEC, the Cpuncil, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorize  any  Member jState  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; 

j 

Whereas,  by  registered  letter  to  the  Commission  dated  6  December  1996,  the  Kingdom  of 
Denmark  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

Whereas the other Member States were informed  on 20 December 11996 of the  request  made 
by the Kingdom of Denmark; 

j 

Whereas the measure is necessary to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should be "ranted until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS DECISION: 

- 

\ 2 >' 

Article 1 

By way of derogation from  Article 9(1) of Directive 77/388/EEC, the Kingdom of Denmark is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by suppliers  not  established  in the  Community  to  customers  established  in 
the  Community.  In the  case  of a Member  State  making use of this facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these services. 

Telecommunications  services  shall  be  deemed  to  be  services  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 

The authorisation specified  in this decision shall expire on 31 December  1998. 

Article 2 

This Decision is addressed  to the Kingdom of Denmark. 

Article 3 

Done at Brussels, 

For the Council 

The President 

-  VH-

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  th|e  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  {he  place  of  taxation  of 
telecommunications  services  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

-  l^  -

Proposal  for a 

COUNCIL DECISION 

authorizing the Federal Republic of Germany  to apply a measure derogating from 
Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member  States relating to turnover  taxes 

(presented  by the Commission) 

-  [it> 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of the Federal Republic of Germany requested  authorization, under  Article 27 of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed  by letter  dated  20 December  1996 of the  request  made by the Federal  Republic  bf 
Germany. 

That  request  involves  a change  to  the  rules governing  the  place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  wherje 
telecommunications  services  are  supplied  is  deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
Its  application  means  that  telecommunications  services 
consumed  within  the  Community. 
provided by a supplier established  outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Ur.ion.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network  belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for  Member States" 
public finances and  is also  undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Federal Republic of Germany wishes to be able to  apply 
different  rules regarding the place of taxation  and  for  that  place to be regarded  as that  vvhere 
the customer  has established  his business or has a fixed establishment  for  which the service is 
provided  or, failing  that,  the place where he has his permanent  address or usually  resides.  In 
this way, the aim of VAT, which  is to  tax  all consumption  within  the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145.  13.6.1977.  p.  1.  Directive  as  last  amended  by  Directive  96/95/EC  (OJ No L 338, 
28.12.1996,  p. 89). 

- 0-

>f taxation  and  that  same 
Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  o 
required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
derogation  is  required  by  all  the  Member States,  the  Council's  autl 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  ailes  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure  that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive,  that  would  b ï presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the adoption  of  Community  legislation  and  its  transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in  this  regard,  which  would  limit  the  validity  of 
the derogation to 3 1  December  1998. 

As this is a safeguard  measure, it is necessary to limit it to what is strictly needed  for combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to use a tax  mechanism  that  is already  well known and  that  is  therefore 
easy to apply. 

for  a  jdirective  amending 

the  proposal 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the; authorization  to  sei'vices 
provided  by a supplier  established  outside  the Community,  since only  those  services  currently 
escape taxation and lead to tax avoidance 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment  of the Sixth Directive.  These objectives can best be achieved by applying the rules 
e for payment of the tax is 
in Article 9(2)(e) of the Sixth Directive, under which the person liab 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  lull  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

For the  introduction  of a specific  rule governing  the  location  of telecommunications  sei'vices 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided  by the Melbourne Convention. 

Even though  a growing  number of services,  such  as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

is 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  H-

Proposal for a 

COUNCIL DECISION 

Authorizing the Federal Republic of Germany to apply a measure derogating from 
Article 9 of the Sixth  Directive (77/388/EEC) on the harmonization  of the laws of the 
Member  States relating to turnover taxes 

(presented by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorize  any  Member jState  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; 

| 
i 

Whereas, by registered  letter to the Commission dated 6 December  1996, the Federal Republic 
of  Germany  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

Whereas the other  Member States  were informed  on 20 December! 1996 of the  request  made 
by the Federal Republic of Germany; 

| 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of y AT; 

Whereas it is desirable that  the derogation  should  be granted  until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS  DECISION: 

- Jo 

Article  1 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC 
Germany  is  hereby  authorized 
include,  within  Article  9 
telecommunications  services  provided  by  suppliers  not  established 
customers  established  in  the  Community.  In  the  case  of a Member 
facility, the provisions of Article 9(3 )(b) of the Directive will also 
apply 

to 

the  Federal  Republic  of 
2)(e)  of  the  Directive, 
in  the  Community  to 
State  making  use  of this 

to these sei'vices. 

Telecommunications  sei'vices  shall  be  deemed  to  be  seivices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds of information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 

Article 2 

The authorisation specified  in this decision shall expire on 3 1  December  1998. 

This Decision is addressed  to the Federal  Republic of Germany. 

Article 3 

: 

Done at Brussels, 

For the Council 

The President 

~2\ 

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  services  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

21 

Proposal for a 

COUNCIL DECISION 

authorizing the Hellenic Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member Stales relating to turnover taxes 

(presented  by the Commission) 

-lb-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  2  September  1996,  the 
government  of  the  Hellenic  Republic  requested  authorization,  under  Article 27  of  the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Hellenic Republic. 

That  request  involves a change to  the rules governing  the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established  outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the  competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In  order  to  remedy  this  situation,  the Hellenic Republic  wishes  to  be  able to  apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing that, the place where he has his permanent  address  or usually resides.  In 
this way, the aim of VAT, which  is to  tax  all consumption  within  the Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by Directive  96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

2l\-

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have an 
effect  equivalent to an amendment of the Sixth Directive itself.  However, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  1*11 les  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee, 
Accordingly,  the  measure 
envisaged  can be authorized  only as an interim  measure that  meets 
the  legitimate interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal for  a directive amending the Sixth Directive, that  would  be presented  to the Council 
at the same time.  Similarly, the duration of the derogation must be limited to what is necessary 
for  the adoption  of  Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 3 1  December  1998. 

As this is a safeguard  measure, it is necessary to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to  use a tax  mechanism  that  is already well  kjiown  and  that  is  therefore 
easy to apply. 

directive  amending 

the  proposal 

for  a 

the 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the; authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only  those  services  currently 
escape taxation and lead to tax avoidance. 

! 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment  of the tax is 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  sei'vices  supplied  to 
non-taxable persons. 

For  the  introduction  of a specific  rule governing  the  location  of telecommunications  semces 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  sei'vices 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of services, such as advertising,  information,  recreational  and 
leisure  semces,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

is 

other  services  can  be  supplied  other  than  through  telecommunications 
development of tax rules which differ  according to the medium of 
distort  compétition. 
messages and their content. 

It  is  therefore  preferable  to  distinguish  betlween 

networks,  and  the 
transmission used might well 
the  transmission  of 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

i 

-  2t 

Proposal for a 

COUNCIL DECISION 

Authorizing the Hellenic Republic to apply a measure derog: 
Sixth Directive (77/388/EEC) on the harmonization of the law 

iting from Article 9 of the 
s of the Member States 

relating to turnover taxes 

(presented by the Commission) 

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)  jof  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 A(ticle 27 thereof, 

Having regard to the proposal from  the Commission, 

i 

Whereas, pursuant  to  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  registered  letter  to  the  Commission  dated  2  September  1996,  the  Hellenic 
Republic  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

r 

Whereas the other  Member States were informed  on 20 December 
by the Hellenic Republic; 

996 of the  request  made 

Whereas the measure is necessary to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that  the derogation  should  be granted  until 3 1  December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS DECISION: 

- &-

Article  1 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC,  the  Hellenic  Republic  is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by suppliers  not  established  in the  Community  to  customers  established  in 
the  Community.  In the  case of a Member  State  making use  of thi^ facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity, for such transmission, emission or reception. 

The authorisation specified  in this decision shall expire on 31 December  1998 

Article 2 

This Decision is addressed  to the Hellenic Republic. 

Article 3 

Done at Brussels, 

For the Council 

The President 

-  2& 

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European  Union. 

I 

However, it is impossible to quantify  this increase in own resources. ! 

i 

- 2°\ 

Proposal for a 

COUNCIL  DECISION 

authorizing  the Kingdom of Spain to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member States relating to turnover taxes 

(presented by the Commission) 

-  3 o-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of 
the  Kingdom  of  Spain  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by  the Kingdom of Spain. 

That  request  involves  a change to  the rules governing  the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established  his business or has a fixed establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to  use a network  belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to  remedy  this situation,  the Kingdom of Spain wishes to be able to  apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing  that, the place where he has his permanent  address  or usually  resides.  In 
this way,  the aim of  VAT, which  is to  tax  all consumption  within  the  Community,  would bfc 
fully achieved as regards telecommunications services. 

OJ  No  L  145.  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive  96/95/EC  (OJ No L 338, 
28.12.1996. p. 89). 

' 

^> ° l-

*, 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  if  taxation  and  that  same 
derogation  is required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an interim  measure that  meets! the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal  for a directive amending the Sixth Directive,  that  would be presented  to the Council 
at the same time.  Similarly, the duration of the derogation must be limited to what is necessary 
for  the adoption  of  Community  legislation  and  its  transposai  into  national  law.  A period  of 
approximately  two years would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

j 
i 
j 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for  combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to use a tax  mechanism  that  is already well  known  and  that  is  therefore 
easy to apply. 

for  a  directive  amending 

the  proposal 

It  is  therefore  necessary,  first  of  all,  to  restrict  the  effects  of  the  authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only those  sei'vices currently 
escape taxation and lead to tax avoidance. 

i 
i 
I 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for  payment of the tax is 
the taxable recipient of the seivice. 

! 
I 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the final consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

( 

For the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

I 

i 

Even though  a growing  number of services, such as advertising,  information,  recreational and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications sei'vices.  These 

»• •  • 

I 
L 

-2,2 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  33 ~ 

Proposal for a 

COUNCIL DECISION 

Authorizing  the Kingdom of Spain to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 

(presented by the Commission) 

THE COUNCIL OF THE EUROPEAN  UNION, 

Having regard to the Treaty establishing the European Community, i 

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, pursuant  to 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  registered  letter  to  the  Commission  dated  6 December  1996,  the  Kingdom  of 
Spain  requested  authorization 
to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

] 

Whereas the other  Member States were  informed  on 20 December 
by  the Kingdom of Spain; 

996  of the  request  made 

Whereas the measure is necessary to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should be granted  until 3 1  December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

| 

i 

HAS ADOPTED THIS DECISION: 

-&r 

Article  1 

By way  of derogation from Article 9(1) of Directive 77/388/EEC, 
the Kingdom  of  Spain is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by suppliers  not  established  in the  Community  to  customers  established  in 
the Community.  In  the  case of a Member  State  making use of this facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer  or assignment of 
the right to use capacity for such transmission, emission or reception!. 

The authorisation specified  in this decision shall expire on 31 December  1998 

Article 2 

This Decision is addressed to  the Kingdom of Spain. 

Article 

Done at Brussels, 

For the Council 

The President 

2 » ^" 

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

- 3 6' 

Proposal for a 

COUNCIL DECISION 

authorizing the French Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

- 

2 > 1-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  French  Republic  requested  authorization,  under  Article 27  of  the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the French Republic. 

That  request  involves  a change to  the  rules governing  the place of taxation  of the  supply  of 
* 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is  deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications service^ 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network  belonging to him or another form  of fixed establishment  in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the French Republic wishes to be able to apply different  rules 
regarding the place of taxation  and for  that  place to  be regarded  as that  where the  customer 
has established  his business or has a fixed establishment  for  which the  service is provided  or, 
failing  that, the place where he has his permanent  address or usually resides.  In this way,  the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 

OJ  No L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive  96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

3 s-

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  Hov/ever, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an interim  measure  that  meets the  legitimate  interests of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive, that  would  bp presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessary to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive,  to use a tax  mechanism  that  is already well known and  that  is  therefore 
easy to apply. 

for  a  directive  amending 

the  proposal 

It  is  therefore  necessary,  first  of  all,  to  restrict  the  effects  of  thej  authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

! 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient  of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  jnsurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

For  the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 

,  . 

i 

. 

international level. Such a definition  is provided by the Melbourne Convention. 
Even though  a growing  number  of services, such as advertising,  information,  recreational and 
leisure  sei'vices,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

3iï-

other  services  can  be  supplied  other  than  through  telecommunications 
development of tax rules which differ  according to the medium of transmi 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between 
messages and their content. 

networks,  and  the 
ission used might well 
the  transmission  of 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 

14.0 

Proposal for a 

COUNCIL DECISION 

Authorizing the French Republic to apply a measure derogating 
Sixth Directive (77/388/EEC) on the harmonization  of the lawjs 

from Article 9 of the 
of the Member States 

relating to turnover taxes 

(presented  by the Commission) 

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)  j 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, 

i 
! 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on  a proposal  from  the  Commission,  may  authorize  any  Member iState  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 registered  letter to the Commission dated  6 December 
requested 
Directive 77/388/EEC; 

introduce  a  measure  derogatin 

authorization 

to 

996, the French  Republic 
from  Article 9  of 

Whereas the other  Member States were  informed  on 20 December 
by the French Republic; 

1996 of the  request  made 

Whereas the measure is necessary to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that  the derogation  should be granted  until 3 j December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  bjased  on  the  Commission 
proposal, 

! 

FIAS ADOPTED THIS DECISION: 

j 

- 4-1 

Article 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive 
services  provided  by suppliers  not  established  in  the  Community  to 
the Community.  In the case of a Member  State  making  use of thi$ 
Article 9(3 )(b) of the Directive will also apply to these sei'vices. 

the  French  Republic  is 
telecommunications 
customers  established  in 
facility,  the  provisions of 

Telecommunications  sei'vices  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception^ 

The authorisation specified  in this decision shall expire on 3 1  December  1998. 

Article 2 

j 

This Decision is addressed  to the French Republic. 

Article 3 

Done at Baissels, 

For the Council 

The President 

cv2-

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  he  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European  Union. 

However, it is impossible to quantify  this increase in own resources. 

M-3 

Proposal  for a 

COUNCIL DECISION 

authorizing Ireland to apply a measure derogating 
of the Sixth VAT Directive (77/388/EEC) on the han 

from Article 9 
«ionization of the 

laws of the Member States relating to tin 

nover taxes 

(presented by the Commission) 

LV^ 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government of Ireland requested authorization, under Article 27 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,1 to apply 
a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by Ireland. 

That  request  involves a change to  the  rules governing the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or  fixed  establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development is leading to tax revenue losses for Member States' 
public finances and  is also undermining the  competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, Ireland wishes to be able to apply different  rules regarding the 
place of taxation and for that place to be regarded  as that where the customer has established 
his business or has a fixed establishment  for  which the service is provided  or,  failing  that,  the 
place where he has his permanent  address  or usually  resides.  In this way,  the  aim  of VAT, 
which  is to  tax  all  consumption  within  the  Community,  would  be  fully  achieved  as  regards 
telecommunications services. 

OJ No L  145,  13.6.1977, p.  1.  Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 

4-^ 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive, that  would  b i presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of  Community  legislation  and  its  transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for  combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive,  to use a tax  mechanism  that  is already well known  and  that  is  therefore 
easy to apply. 

for  a  idirective  amending 

the  proposal 

j 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  thé  authorization  to  services 
provided  by a supplier  established  outside the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  sei'vices  supplied  to 
non-taxable persons. 

: 

For the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of services, such as advertising,  information,  recreational and 
leisure  sei'vices,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

-  Mr<o 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-^ 

Proposal for a 

COUNCIL DECISION 

Authorizing Ireland to apply a measure derogating from Article 9 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  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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on  a proposal  from  the  Commission,  may  authorize  any  Member jState  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  registered  letter  to  the  Commission  dated  6  December  1996,  Ireland  requested 
authorization to introduce a measure derogating from  Article 9 of Directive 77/388/EEC; 

Whereas the other Member States  were informed  on 20 December 11996 of the  request  made 
by Ireland; 

1 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should be granted  until 3  December  1998, in order 
to  allow  the  Council  to  adopt  a  geneial  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS DECISION: 

H:%  ' 

Article 1 

By way of derogation from Article 9(1) of Directive 77/388/EEC, Ireland is hereby authorized 
to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications  services  provided  by 
suppliers not established  in the Community to customers established in the Community. In the 
case  of a Member  State  making  use  of  this  facility,  the  provisions  of  Article  9(3)(b)  of  the 
Directive will also apply to these sei'vices. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, raclio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception^ 

The authorisation specified  in this decision shall expire on 31 December  1998. 

Article 2 

Article 3 

This Decision is addressed  to Ireland. 

Done at Brussels, 

For the Council 

The President 

-  4 - 1-

FINANCIAL STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  ihe  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

SO 

-

Proposal for a 

COUNCIL DECISION 

! 
I 

authorizing the Italian Republic to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

- Si 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  Italian  Republic  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Italian Republic. 

That  request  involves  a change to  the rules governing  the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Italian Republic wishes to be able to apply different  rules 
regarding the place of taxation  and for  that  place to be regarded  as that  where the  customer 
has established  his business  or has a fixed establishment  for  which the service is provided  or, 
failing that, the place where he has his permanent address or usually resides.  In this way, the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

-  SZ' 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment  of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  ailes  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only  as an interim  measure that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive, that  would  hi  presented  to the Council 
at the same time.  Similarly, the duration of the derogation must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 3 1  December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive,  to use a tax  mechanism  that  is already well known  and  that  is  therefore 
easy to apply. 

.directive  amending 

the  proposal 

for  a 

j 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the! authorization  to  services 
provided  by a supplier  established  outside the Community,  since only those  sei'vices currently 
escape taxation and lead to tax avoidance. 

! 

As regards the definition  of the place of taxation,  a mechanism  must  be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a lax  solution  purely  for  services supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  sei'vices  supplied  to 
non-taxable persons. 

! 

i 

For  the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of services, such  as advertising,  information,  recreational  and 
leisure  sei'vices,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications sei'vices.  These 

53 

other  services  can  be  supplied  other  than  tlnough  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  betjween  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

s*-

Proposal for a 

COUNCIL DECISION 

Authorizing the Italian Republic to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 

(presented  by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

i 

i 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC, the Cbuncil, 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; 

i 

| 

Whereas, by registered  letter to the Commission  dated  6 December 
requested 
Directive 77/388/EEC; 

introduce  a  measure 

authorization 

to 

derogating 

996,  the Italian  Republic 
from  Article 9  of 

Whereas the other Member States were informed  on 20 December; 1996 of the  request  made 
by the Italian Republic; 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purbhase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should  be granted  until 3 1  December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS DECISION: 

-  5S-

Article 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive 
services  provided  by  suppliers  not  established  in  the  Community  to 
the  Community.  In  the case  of a Member  State  making  use of this 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

the  Italian  Republic  is 
telecommunications 
customers  established  in 
facility,  the  provisions  of 

Telecommunications  services  shall  be  deemed  to  be  services  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception[ 

The authorisation specified  in this decision shall expire on 3 1  Decern 

ber  1998. 

Article 2 

This Decision is addressed to the Italian Republic. 

Article 

Done at Brussels, 

For the Council 

The President 

SL' 

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  he  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European  Union. 

However, it is impossible to quantify  this increase in own resources. 

SV 

Proposa! for a 

COUNCIL DECISION 

authorizing the Grand  Duchy of Luxemburg to apply a measure derogating from 
Article 9  of the Sixth  VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member Stales relating to turnover taxes 

(presented  by the Commission) 

ss 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of the  Grand  Duchy of Luxemburg  requested  authorization,  under  Article 27  of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed  by  letter  dated  20  December  1996  of  the  request  made  by  the  Grand  Duchy  of 
Luxemburg. 

That  request  involves  a change to  the rules governing the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
Its  application  means  that  telecommunications  services 
consumed  within  the  Community. 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Grand  Duchy of Luxemburg wishes to  be able to  apply 
different  rules regarding the place of taxation  and for  that  place to be regarded  as that  where 
the customer has established  his business or has a fixed establishment  for  which the service is 
provided  or, failing  that, the place where he has his permanent  address  or usually resides.  In 
this way, the aim of VAT, which  is to  tax  all consumption  within  the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

^ 5^ 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  if  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure  that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal for  a directive amending the Sixth Directive,  that  would  be presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what  is necessary 
for  the  adoption  of Community  legislation  and  its transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive, to use a tax  mechanism  that  is already well  known  and  that  is  therefore 
easy to apply. 

for  a  -directive  amending 

the  proposal 

. 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  ihe  effects  of  the! authorization  to  sei'vices 
provided  by a supplier  established  outside  the Community,  since onjy  those  services currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the  place of taxation,  a mechanism  mu$t be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for  payment of the tax is 
the taxable recipient of the service. 

! 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

For the  introduction  of a  specific  rule governing  the  location  of te ecommunications  sei'vices 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  sei'vices 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided  by the Melbourne Convention. 

Even though  a growing  number of services,  such  as advertising,  information,  recreational  and 
leisure  sei'vices,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

-  Go  -

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development  of tax rules which differ according to the medium of transmission used might well 
distort  competition. 
\t  is  therefore  preterable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council  decision  is identical  to the proposals presented 
to the Council  on the same date in respect of the fourteen other Member 

States. 

by the  Commission 

- 

<L\-

Proposal for a 

COUNCIL DECISION 

Authorizing the Grand Duchy of Luxemburg to apply a me; sure derogating from 
Article 9 of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the 
Member States relating to turnover taxes 

(presented by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

; 

Whereas, pursuant  to Article 27(1) of Directive 77/38S/EEC, the Cbuncil, 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; 

' 

Wliereas, by registered  letter to the Commission dated 6 December 11996, the Grand Duchy of 
Luxemburg  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

Whereas the other  Member States were informed  on 20 December  1996 of the request  made 
by the Grand Duchy of Luxemburg; 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  pur:hase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should  be granted  until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  général  Community  solution  based  on  the  Commission 
proposal, 

| 

HAS ADOPTED THIS DECISION: 

I 

-  CZ' 

Article  1 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC,  the  Grand  Duchy  of 
Luxemburg  is  hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive, 
telecommunications  services  provided  by  suppliers  not  established  in  the  Community  to 
customers  established  in the  Community.  In the  case  of  a Member  State  making  use  of  this 
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer  or assignment of 
the right to use capacity for such transmission, emission or reception. 

Article 2 

The authorisation  specified  in this decision shall expire on 3 1  December  1998. 

This Decision is addressed  to the Grand  Duchy of Luxemburg. 

Article 3 

Done at Brussels, 

For the Council 

The President 

- 43 

FINANCIAL  STATEMENT 

Once  adopted,  tliis  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  ihe  place  of  taxation  of 
telecommunications  services  should  provide  better  coverage  of  consumption  of  tliis  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources, j 

(&<+ 

Proposal for a 

COUNCIL DECISION 

authorizing the Kingdom of the Netherlands to apply a measure derogating from Article 
9 of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member States relating to turnover taxes 

(presented by the Commission) 

fcS-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  30  September  1996,  the 
government  of the Kingdom  of the Netherlands  requested  authorization,  under  Article 27  of 
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed  by  letter  dated  20  December  1996  of  the  request  made  by  the  Kingdom  of  the 
Netherlands. 

That  request  involves  a change to  the  rules governing  the place  of taxation  of the  supply  of 
telecommunications services 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
Its  application  means  that  telecommunications  services 
consumed  within  the  Community. 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network  belonging to him or another form  of fixed establishment  ifi 
his customer's country.  This development  is leading to tax revenue losses for  Member States' 
public finances and  is also undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to  remedy  this situation,  the Kingdom  of the Netherlands wishes to be able to  apply 
different  rules regarding the place of taxation  and  for  that  place to be regarded  as that  where 
the customer  has established  his business or has a fixed establishment  for  which the service is 
provided  or,  failing  that,  the place where  he has his permanent  address  or usually  resides.  In 
this way, the aim  of VAT, which  is to  tax  all  consumption  within  the Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive  96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

-  GG -

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
Accordingly,  the  measure 
European Parliament  and  the  Economic  and  Social  Committee 
the  legitimate interests  of 
envisaged  can be authorized  only as an interim  measure that  meets 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal  for  a directive amending the  Sixth Directive, that  would  be presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for  combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive,  to  use a tax  mechanism  that  is already well  kiown  and  that  is  therefore 
easy to apply. 

for  a  directive  amending 

the  proposal 

It  is  therefore  necessary,  first  of  all;  to  restrict  the  effects  of  thej  authorization  to  services 
provided  by a supplier  established  outside the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the place of taxation,  a mechanism  must  be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 

\ 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  flill  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

I 

For  the  introduction  of a specific  rule governing  the  location  of  telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of services, such  as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications sei'vices.  These 

i 

-  CT-

other  services  can  be  supplied  other  than  through  telecommunications 
development of tax rules which differ  according to the medium of transmission 
distort  competition. 
messages and their content. 

It  is  therefore  preferable  to  distinguish  between 

networks,  and  the 
used might well 
the  transmission  of 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  £& 

Proposal for a 

COUNCIL DECISION 

Authorizing the Kingdom of the Netherlands to apply a measure derogating from 
Article 9 of the Sixth Directive (77/388/EEC) on the harmonization  of the laws of the 
Member States relating to turnover taxes 

(presented by the Commission) 

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)  jof  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, pursuant  to  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; 

j 
I 

Whereas,  by  registered  letter  to  the  Commission  dated  30  September  1996, the Kingdom  of 
the Netherlands  requested  authorization  to  introduce  a measure  derogating  from  Article 9 of 
Directive 77/388/EEC; 

; 

Whereas the other  Member States were informed  on 20 December 
by the Kingdom of the Netherlands; 

996 of the  request  made 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of y AT; 

i 

Whereas it is desirable that  the derogation  should  be granted  until 3 I December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS  DECISION: 

I 

-  G^ 

Article 1 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC,  the  Kingdom  of  the 
Netherlands  is  hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive, 
telecommunications  sei'vices  provided  by  suppliers  not  established  in  the  Community  to 
customers  established  in the  Community.  In the  case  of a Member  State  making  use  of this 
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services. 

Telecommunications  sei'vices  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception. 

Article 2 

The authorisation specified  in this decision shall expire on 31 December  1998. 

This Decision is addressed to the Kingdom of the Netherlands. 

Article 3 

Done at Brussels, 

For the Council 

The President 

-  3o-

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

-  =H~ 

Proposal for a 

COUNCIL DECISION 

authorizing the Republic of Austria to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

=12-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  September  1996,  the 
government  of  the  Republic  of  Austria  requested  authorization,  under  Article 27  of  the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Republic of Austria. 

That  request  involves  a change to  the rules governing  the  place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

t 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community.  Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  tfye 
supplier needing to use a network  belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also  undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to  remedy this situation, the Republic of Austria wishes to be able to  apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing  that, the place where he has his permanent  address or usually  resides.  In 
this way, the aim of VAT, which  is to  tax  all consumption  within  the  Community,  would be, 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  hist  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996. p. 89). 

-  7 3-

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  Hoyever,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only  as an  interim  measure that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal  for  a directive amending the  Sixth Directive, that  would  be presented  to the Council 
af the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of  Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed  for  combating 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to use a tax  mechanism  that  is already well  known  and  that  is  therefore 
easy to apply. 

directive  amending 

the  proposal 

for  a 

the 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the! authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

| 

As regards the definition  of the place of taxation,  a mechanism  must  be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liah 
e for payment of the tax is 
the taxable recipient  of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  sei'vices  supplied  to 
non-taxable persons. 

j 

For  the  introduction  of a  specific  rule  governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international  level. Such a definition  is provided  by the Melbourne Convention. 

Even though  a growing  number of services, such  as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

! 

* v-

other  services  can  be  supplied  other  than  through  telecommunications 
development of tax rules which differ  according to the medium of 
distort  competition. 
messages and their content. 

It  is  therefore  preferable  to  distinguish  between 

networks,  and  the 
transmission used might well 
the  transmission  of 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  ^fs-

Proposal for a 

COUNCIL DECISION 

Authorizing the Republic of Austria  to apply a measure deroga 
Sixth Directive (77/388/EEC) on the harmonization  of the h ilWS 

ing from Article 9 of the 
of the Member States 

relating to turnover  taxes 

(presented by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

i 
I 

i 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC, the Cbuncil, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorize  any  Member iState  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  registered  letter  to  the  Commission  dated  6  September  1996,  the  Republic  of 
Austria  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

] 

Whereas the other  Member States were informed  on 20 December 11996 of the  request  made 
by the Republic of Austria; 

Whereas the measure is necessaiy to counter the tax avoidance effects  that  have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should  be granted  until 3 
to  allow  the  Council  to  adopt  a  général  Community  solution 
proposal, 

December  1998, in order 
biased  on  the  Commission 

HAS ADOPTED THIS DECISION: 

TG>-

Article  1 

By way  of derogatiomfrom  Article 9(1)  of Directive 77/388/EEC,  the Republic  of Austria is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by  suppliers  not  established  in  the  Community  to  customers  established  in 
the  Community.  In  the  case of  a Member  State  making  use of thi^ facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these services. 

Telecommunications  sei'vices  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or 
information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the 
transfer or assignment of 
the right to use capacity for such transmission, emission or reception 

The authorisation  specified  in this decision shall expire on 31 December  1998 

Article 2 

This Decision is addressed  to the Republic of Austria. 

Article 3 

Done at Brussels, 

For the Council 

The President 

TÏ 

FINANCIAL  STATEMENT 

Once  adopted,  tliis  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  semces  should  provide  better  coverage  of  consumption  of  tliis  type  of 
service within the European Union. 

However, it is impossible to quantity this increase in own resources. 

3 8-

Proposal for a 

COUNCIL DECISION 

authorizing the Portuguese Republic to apply a measure der 

of the Sixth VAT Directive (77/388/EEC) on the harmpniz 

ogating from Article 9 
ation of the 

laws of the Member Stales relating to turnover 

taxes 

(presented by the Commission) 

^ 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  Portuguese  Republic  requested  authorization,  under  Article 27  of  the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Portuguese Republic. 

• 

* 

That  request  involves a change to  the  rules governing  the  place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed  establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications service^ 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to  use a network  belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Portuguese Republic wishes to be able to apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing  that,  the place where he has his permanent  address or usually  resides.  In 
this way, the aim of VAT, which  is to  tax  all consumption  within  the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996.  p. 89). 

- So  ' 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safegiarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only  as an interim  measure that  meets the  legitimate  interests of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  aid  pending  approval  of  a 
proposal for  a directive amending the  Sixth Directive,  that  would  b^ presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive, to use a tax  mechanism  that  is already well kpown and  that  is  therefore 
easy to apply. 

'directive  amending 

the  proposal 

for  a 

! 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the  authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only those  sei'vices currently 
escape taxation and lead to tax avoidance. 

i 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number, of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be aclueved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient  of the service. 

I 
i 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  services  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  télécommunications  services  supplied  to 
non-taxable persons. 

For  the  introduction  of  a specific  rule governing  the  location  of telecommunications  sei'vices 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  sei'vices 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of sei'vices, such as advertising,  information,  recreational  and 
leisure  sei'vices,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

€1-

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules which differ  according to the medium of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

- 82 

Proposal foi- a 

COUNCIL DECISION 

Authorizing the Portuguese Republic to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States 
relating to turnover taxes 

(presented by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

! 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorize  any  Member iState  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  registered  letter  to  the  Commission  dated  6  December  1996,  the  Portuguese 
Republic  requested  authorization  to  introduce  a  measure  derogating  from  Aiticle 9  of 
Directive 77/388/EEC; 

j 

Whereas the other  Member States were  informed  on 20 December: 1996 of the  request  made 
by the Portuguese Republic; 

j 

Whereas the measure is necessaiy to counter the tax avoidance effects  that  have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  pur:hase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should  be granted  until 3  December  1998, in order 
to  allow  the  Council  to  adopt  a  geneial  Community  solution  based  on  the  Commission 
proposal, 

| 
i 
j 
I 

HAS ADOPTED THIS DECISION: 

-  S3 

Article  1 

By way of derogation  from  Article 9(1) of Directive 77/388/EEC, the Portuguese  Republic is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by  suppliers  not  established  in  the  Community  to  customers  established  in 
the  Community.  In  the  case  of a Member  State  making  use  of  this facility,  the  provisions of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer  or assignment of 
the right to use capacity for such transmission, emission or reception. 

The authorisation specified  in this decision shall expire on 31 December  1998. 

Article 2 

j 

Tliis Decision is addressed  to the Portuguese Republic. 

Article 3 

Done at Brussels, 

; 

! 
i 
i 

i 

i 

For the Council 

The President 

-  *Si\. 

FINANCIAL  STATEMENT 

Once  adopted,  tliis  proposal  for  a  Council  decision  will  have  the 
Community's  VAT  own  resources  base  since  the  change  in 
telecommunications  services  should  provide  better  coverage  of consum 
service within the European Union. 

effect  of  increasing  the 
:he  place  of  taxation  of 
ption  of  this  type  of 

However, it is impossible to quantity this increase in own  resources. 

-  gs-

Proposal for a 

COUNCIL DECISION 

authorizing the Republic of Finland to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

-  s& -

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  Republic  of  Finland  requested  authorization,  under  Article 27  of  the 
Sbcth 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 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Republic of Finland. 

That  request  involves  a change to  the rules governing the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied  or, in 
the  absence  of  such  a  place  of  business  or fixed establishment,  the  place  where  he  has hi^ 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  seivices 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation  of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to  use a network  belonging to him or another  form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances and  is also undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Republic of Finland  wishes to be able to  apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a fixed establishment  for  which  the  service  is 
provided  or, failing  that, the place where he has his permanent  address  or usually  resides.  la 
this way, the aim  of VAT, which  is to  tax all consumption  within the Community,  would  be 
fully achieved as regards telecommunications services. 

OJ  No  L  145.  13.6.1977.  p.  1.  Directive  as  last  amended  by  Directive 96/95/EC  (OJ No L 338, 
28.12.1996. p. 89). 

-  8Ï 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However,  such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  rules  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an interim  measure that  meets the  legitimate  interests of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal  for  a directive amending the  Sixth Directive, that  would be presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its  transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

j 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for  combating 
the 
tax  avoidance  and,  notwithstanding 
Sixth VAT Directive,  to use a tax  mechanism  that  is already well kpown and  that  is  therefore 
easy to apply. 

for  a  directive  amending 

the  proposal 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the  authorization  to  services 
provided  by a supplier  established  outside  the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

j 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 

j 

i 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the  final  consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunicatipns  services  supplied  to 
non-taxable persons. 

j 

For  the  introduction  of a  specific  rule  governing  the  location  of telecommunications  services 
provided  by  suppliers  established  outside  the Community,  it  is essential to  define  the  sei'vices 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of sei'vices, such  as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications sei'vices.  These 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules wliich differ  according to the mediLim of transmission used might well 
distort  competition. 
It  is  therefore  preferable  to  distinguish  betjween  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

- 

<§°[-

Proposal for a 

COUNCIL DECISION 

Authorizing the Republic of Finland to apply a measure derogating from Article 9 of the 
Sixth Directive (77/388/EEC) on the harmonization  of the laws of the Member  States 
relating to turnover  taxes 

(presented by the Commission) 

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, and in particular Article 27 thereof, 

Having regard to the proposal from  the Commission, 

I 

Whereas, pursuant  to Article 27(1) of Directive 77/388/EEC,  the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorize  any  Member iState  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; 

j 

Whereas,  by  registered  letter  to  the  Commission  dated  6  December  1996,  the  Republic  of 
Finland  requested  authorization  to  introduce  a  measure  derogating  from  Article 9  of 
Directive 77/388/EEC; 

Whereas the other  Member States were informed  on 20  December 
by the Republic of Finland; 

996  of the  request  made 

Whereas the measure is necessaiy  to counter the tax avoidance effects  that  have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should be granted  until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

| 
i 

HAS ADOPTED THIS DECISION: 

-  ^O 

-

Article 1 

By way  of derogation  from  Article 9(1)  of Directive 77/388/EEC,  the  Republic  of Finland  is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services provided  by suppliers  not  established  in the  Community  to  customers  established  in 
the  Community.  In  the  case  of a Member  State  making  use of tliis facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

Telecommunications  services  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception!. 

The authorisation specified  in this decision shall expire on 31 December  1998 

Article 2 

This Decision is addressed  to the Republic of Finland. 

Article 3 

Done at Brussels, 

For the Council 

The President 

- 

^ \-

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  ihe  place  of  taxation  of 
telecommunications  sei'vices  should  provide  better  coverage  of  consumption  of  tliis  type  of 
service within the European  Union. 

j 

However, it is impossible to quantify  this increase in own resources. 

-  9 2-

Proposal for a 

COUNCIL DECISION 

authorizing the Kingdom of Sweden to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization  of the 
laws of the Member States relating to turnover taxes 

(presented by the Commission) 

^3 

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  Kingdom  of  Sweden  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 
• 

In  accordance  with  Article 27(3)  of  the  Sbcth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the Kingdom of Sweden. 

That  request  involves a change to  the  rules governing the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established his business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or  fixed  establishment,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  thje 
supplier needing to use a network  belonging to him or another form  of fixed establishment in 
his customer's country.  This development  is leading to tax revenue losses for Member States' 
public finances  and  is also undermining  the competitiveness  of European  telecommunications 
companies.  The situation in this activity sector is simply one of tax avoidance. 

In order to remedy this situation, the Kingdom of Sweden wishes to be able to apply  different 
rules  regarding  the  place  of  taxation  and  for  that  place  to  be  regarded  as  that  where  the 
customer  has  established  his  business  or  has  a  fixed  establishment  for  which  the  service  is 
provided  or, failing  that, the  place where he has his permanent  address or usually resides.  In 
this way, the aim of VAT,  which  is to  tax  all consumption  within the  Community,  would  be 
fully achieved as regards telecommunications services. 

OJ No L  145,  13.6.1977, p.  1.  Directive as last amended by Directive 96/95/EC (OJ No L 338, 
28.12.1996, p. 89). 

*H 

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  of  taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect equivalent to an amendment of the Sixth Directive itself.  However, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  ailes  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an interim  measure that  meets! the  legitimate  interests of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  and  pending  approval  of  a 
proposal  for  a directive amending the Sixth Directive, that  would be presented  to the Council 
at the same time.  Similarly, the duration of the derogation must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its transposai  into  national  law.  A  period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

' ol 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive, to use a tax  mechanism  that  is already well known  and  that  is  therefore 
easy to apply. 

for  a  directive  amending 

the  proposal 

It  is  therefore  necessaiy,  first  of  ail,  to  restrict  the  effects  of  the  authorization  to  services 
provided  by a supplier established  outside the Community,  since only those  services  currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is 
the taxable recipient of the service. 

. 

j 
I 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices  supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the final consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  jnsurance  companies,  and 
would  not  cover  sei'vices  purchased  by  individuals.  In  order  to fill tliis  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsory  for  telecommunications  services  supplied  to 
non-taxable persons. 

For  the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside  the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international  level. Such a definition  is provided by the Melbourne Convention. 

Even though  a srowinsi number  of services, such  as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications sei'vices.  These 

^s 

other  services  can  be  supplied  other  than  through  telecommunidations 
development of tax rules which differ  according to the medium of transmission 
distort  competition. 
messages and their content. 

It  is  therefore  preferable  to  distinguish  between 

networks,  and  the 
used might well 
the  transmission  of 

This proposal for a Council decision is identical to the proposals presented by the Commission 
to the Council on the same date in respect of the fourteen other Member States. 

e\f0-

Proposal for a 

COUNCIL DECISION 

Authorizing the Kingdom of Sweden to apply a measure derogating from Article 9 of 
the Sixth Directive (77/388/EEC) on the harmonization of the lajws of the Member States 
relating to turnover taxes 

(presented by the Commission) 

THE COUNCIL OF THE EUROPEAN  UNION, 

j 

Having regard to the Treaty establishing the European Community, j 
| 

Having  regard  to  the  Sixth  Council  Directive  (77/388/EEC)  jof  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, 

i 
! 

Whereas, pursuant  to  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; 

j 
I 

Whereas,  by  registered  letter  to  the  Commission  dated  6  December  1996,  the  Kingdom  of 
Sweden  requested  authorization  to  introduce  a  measure  derogating  from  Ailicle 9  of 
Directive 77/388/EEC; 

! 

Whereas the other  Member States were informed  on 20 December1! 1996 of the  request  made 
by the Kingdom of Sweden; 

; 

Whereas the measure is necessaiy to counter the tax avoidance effects  that  have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation  should  be granted  until 3  December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

j 

HAS ADOPTED THIS DECISION. 

9r\~ 

Article 

By way of derogation from Ailicle 9(1) of Directive 77/388/EEC, the Kingdom of Sweden is 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive,  telecommunications 
services  provided  by  suppliers  not  established  in the  Community  to  customers  established  in 
the  Community.  In the case  of a Member  State  making  use  of tlii^ facility,  the  provisions  of 
Article 9(3)(b) of the Directive will also apply to these services. 

Telecommunications  sei'vices  shall  be  deemed  to  be  services  relhtin 
emission or reception of signs, signals, writing, images and sounds or 
by wire, radio, optical or other electromagnetic systems, including the 
the right to use capacity for such transmission, emission or reception. 

g  to  the  transmission, 
information  of any nature 
transfer or assignment of 

The authorisation specified  in this decision shall expire on 31 December  1998. 

Article 2 

This Decision is addressed to the Kingdom of Sweden. 

Article 3 

Done at Brussels, 

For the Council 

The President 

-  ^8-

FINANCIAL  STATEMENT 

Once  adopted,  this  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommujriications  sei'vices  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European  Union. 

I 

However, it is impossible to quantify  this increase in own resources. 

- ^n 

Proposal for a 

COUNCIL DECISION 

authorizing the  United Kingdom to apply a measure derogating from Article 9 
of the Sixth VAT Directive (77/388/EEC) on the harmonization of the 
laws of the Member States relating to turnover taxes 

(presented  by the Commission) 

- 

l OO 

-

EXPLANATORY  MEMORANDUM 

By  registered  letter  to  the  Commission's  Secretariat-General  dated  6  December  1996,  the 
government  of  the  United  Kingdom  requested  authorization,  under  Article 27  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,1 to apply a measure derogating from Article 9 of that Directive. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  were 
informed by letter dated 20 December  1996 of the request made by the United Kingdom. 

That  request  involves  a change to the rules governing the place of taxation  of the  supply  of 
telecommunications services. 

According  to  the  legislation  in  force  (Article 9(1)  of  the  Sixth Directive),  the  place  where 
telecommunications  services  are  supplied  is deemed  to  be  the  place  where  the  supplier  has 
established hi?; business or has a fixed establishment from which the services are supplied or, in 
the  absence  of  such  a  place  of  business  or fixed establisiunent,  the  place  where  he  has  his 
permanent address or usually resides. 

This  rule  poses  problems  regarding  the  effective  taxation  of  telecommunications  services 
consumed  within  the  Community. 
Its  application  means  that  telecommunications  services 
provided by a supplier established outside the European Union are outside the scope of the tax 
even  if those  services  are  actually  consumed  within  the  Union.  Community  consumers  are 
increasingly turning to suppliers of services established outside the European Union in order to 
avoid payment of VAT.  The problem of the effective  taxation of telecommunications  services 
arose  following  the  development  of  technical  means  of  providing  such  services  without  the 
supplier needing to use a network belonging to him or another form  of fixed establishment in 
his customer's country.  This development is leading to tax revenue losses for Member States' 
public finances and is also undermining the competitiveness  of European  telecommunications 
companies.  The situation in tliis activity sector is simply one of tax avoidance. 

In order to remedy this situation, the United Kingdom wishes to be able to apply different  rules 
regarding the place of taxation  and  for  that  place to  be regarded  as that  where the  customer 
has established  his business or has a fixed establishment  for  which the service is provided  or, 
failing that, the place where he has his permanent  address or usually resides.  In this way, the 
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as 
regards telecommunications services. 

OJ  No  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by Directive 96/95/EC  (OJ No L 338, 
28.12.1996, p. 89). 

\o[-

Since  the  aim  of  the  derogation  requested  is  to  alter  the  place  Of taxation  and  that  same 
derogation  is  required  by  all  the  Member States,  the  Council's  authorization  would  have  an 
effect  equivalent to an amendment of the Sixth Directive itself.  However, such an amendment 
can  be  made  only  in  accordance  with  the  Treaty  ailes  safeguarding  the  rights  of  the 
European Parliament  and  the  Economic  and  Social  Committee.  Accordingly,  the  measure 
envisaged  can be authorized  only as an  interim  measure that  meets the  legitimate  interests  of 
the  Member States,  namely  the  need  to  combat  tax  avoidance,  a id  pending  approval  of  a 
proposal for  a directive amending the Sixth Directive, that  would hi  presented  to the Council 
at the same time.  Similarly, the duration of the derogation  must be limited to what is necessary 
for  the  adoption  of Community  legislation  and  its  transposai  into  national  law.  A period  of 
approximately  two years  would  be  sufficient  in this  regard,  which  would  limit  the  validity  of 
the derogation to 31 December  1998. 

As this is a safeguard  measure, it is necessaiy to limit it to what is strictly needed for combating 
tax  avoidance  and,  notwithstanding 
the 
Sixth VAT Directive, to use a tax  mechanism  that  is already well known  and  that  is  therefore 
easy to apply. 

for  a  [directive  amending 

the  proposal 

! 
I 

It  is  therefore  necessaiy,  first  of  all,  to  restrict  the  effects  of  the  authorization  to  services 
provided  by a supplier established  outside  the Community,  since only those  sei'vices currently 
escape taxation and lead to tax avoidance. 

As regards the definition  of the place of taxation,  a mechanism  must be chosen  which  creates 
the  least  number  of  specific  tax  obligations  for  suppliers  established  outside  the  Community 
and  thus  does  not  prejudge  the  tax  arrangements  to  be  adopted  in  connection  with  the 
amendment of the Sixth Directive.  These objectives can best be achieved by applying the rules 
e for payment  of the tax is 
in Article 9(2)(e) of the Sixth Directive, under which the person liabi 
the taxable recipient of the service. 

However,  it  is not  sufficient  to  provide  a tax  solution  purely  for  sei'vices supplied  to  taxable 
persons.  Such  a  solution  would  cover  only  the final consumption  of  taxable  persons  not 
benefiting  from  a  full  deduction  entitlement,  notably  banks  and  insurance  companies,  and 
would  not  cover  services  purchased  by  individuals.  In  order  to fill this  gap,  application  of 
Article 9(3)(b)  must  be  made  compulsoiy  for  telecommunications  services  supplied  to 
non-taxable persons. 

j 

For the  introduction  of a specific  rule governing  the  location  of telecommunications  services 
provided  by suppliers  established  outside the Community,  it  is essential  to  define  the  services 
covered.  The  best  solution  is  to  use  a  definition  which  is  already  well  established  at 
international level. Such a definition  is provided by the Melbourne Convention. 

Even though  a growing  number of servicer, such as advertising,  information,  recreational  and 
leisure  services,  are  currently  supplied  through  telecommunications  networks,  it  is  not 
appropriate to include them in the definition  of telecommunications services.  These 

i 
i 

-  V ol 

other  services  can  be  supplied  other  than  through  telecommunications  networks,  and  the 
development of tax rules wliich differ  according to the medium of transmission used might well 
distort  competition. 
,It  is  therefore  preferable  to  distinguish  between  the  transmission  of 
messages and their content. 

This proposal for a Council decision is identical to the proposals presented  by the Commission 
to the Council on the same date in respect of the fourteen  other Member States. 

-  I03-

Proposal for a 

COUNCIL DECISION 

Authorizing the United Kingdom  to apply a measure derog; 
Sixth Directive (77/388/EEC) on the harmonization  of the h 

iitihg from  Article 9 of the 
iws of the Member  States 

relating to turnover  taxes 

(presented by the Commission) 

THE COUNCIL OF THE EUROPEAN  UNION, 

Having regard to the Treaty establishing the European Community, j 
i 

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, pursuant  to 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 registered  letter to the Commission dated 6 December  1996, the United Kingdom 
requested 
from  Article 9  of 
Directive 77/388/EEC; 

introduce  a  measure  derogating 

authorization 

to 

Whereas the other Member States  were  informed  on 20 December 
by the United Kingdom; 

996 of the  request  made 

Whereas the measure is necessaiy to counter the tax avoidance effects  that have led a growing 
number  of  Community  taxable  and  non-taxable  persons  to  purchase  telecommunications 
services outside the Community solely in order to avoid payment of VAT; 

Whereas it is desirable that the derogation should be granted  until 31 December  1998, in order 
to  allow  the  Council  to  adopt  a  general  Community  solution  based  on  the  Commission 
proposal, 

HAS ADOPTED THIS DECISION: 

-  VOi^ 

Article 

By  way  of  derogation  from  Article 9(1)  of  Directive 77/388/EEC! 
hereby  authorized  to  include,  within  Article  9(2)(e)  of  the  Directive 
services  provided  by suppliers  not  established  in the  Community  to 
the  Community.  In  the  case of  a Member  State  making use of thi$ 
Article 9(3)(b) of the Directive will also apply to these sei'vices. 

the  United  Kingdom  is 
telecommunications 
customers  established  in 
facility,  the  provisions  of 

Telecommunications  sei'vices  shall  be  deemed  to  be  sei'vices  relating  to  the  transmission, 
emission or reception of signs, signals, writing, images and sounds or information  of any nature 
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of 
the right to use capacity for such transmission, emission or reception 

Article 2 

; 

The authorisation specified  in this decision shall expire on 31 December 1998. 

This Decision is addressed to the United Kiimdom. 

Article 3 

! 

Done at Brussels, 

For the Council 

The President 

io^>  -

FINANCIAL  STATEMENT 

Once  adopted,  tliis  proposal  for  a  Council  decision  will  have  the  effect  of  increasing  the 
Community's  VAT  own  resources  base  since  the  change  in  the  place  of  taxation  of 
telecommunications  services  should  provide  better  coverage  of  consumption  of  this  type  of 
service within the European Union. 

However, it is impossible to quantify  this increase in own resources. 

-  VOCo 

ISSN 0254-1475 

COM(97) 42 final 

DOCUMENTS 

EN 

09  06  10 

Catalogue number  :  CB-CO-97-038-EN-C 

ISBN  92-78-15521-7 

Office  for  Official  Publications of the European  Communities 

L-2985  Luxembourg