COMMISSION REPORT TO THE COUNCIL presented in accordance with Article 3 of Council Decision 93/110/EEC of 15 February 1993 (application of a measure derogating from Article 2 and 10 of the Sixth Council Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes)
Date: 1997-04-22
Institutions: European Commission
Subjects: France, VAT, application of the law, industrial waste, waste recycling

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  22.04.1997 
COM(97)  166 final 

COMMISSION REPORT TO THE COUNCIL 

presented in accordance with Article 3 of 
Council Decision  93/110/EEC of  15 February  1993 
(application of a measure derogating from Article 2 and 10 
of the Sixth Council Directive (77/388/EEC)  on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 

Proposal for a 

COUNCIL  DECISION 

authorizing the French Republic to extend 
the application  of a measure derogating from Articles 2 and 10 
of the Sixth Council  Directive (77/388/EEC)  of  17 May  1977 
on the harmonization  of the laws of the Member  States 
relating to turnover taxes 

(presented  by  the  Commission) 

COMMISSION REPORT TO THE COUNCIL 

presented in accordance with Article 3 of 
Council Decision 93/110/EEC of 15 February 1993 
(application of a measure derogating from Article 2 and 10 
of the Sixth Council Directive (77/388/EEC) on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 

Z 

I.  INTRODUCTION 

By  Decision  89/683/EEC  of  21 December  1989,1  the  Council  authorized  France,  on  the 
basis  of  Article 27  of  the  Sixth Directive,  to  take  special  measures  derogating  from 
Articles 2  and  10(2)  of 
The  authorization  was  valid  until 
31 December  1992. 

that  Directive. 

The  authorization  enabled  France  to  set  up  special  VAT  arrangements  for  taxable 
transactions concerning fresh  industrial waste and récupérable material. 

On  the  basis  of  a  Commission  report  on  the  application  of  this  derogation,  the 
authorization  was  extended  until  31 December  1996 by Council  Decision 93/110/EEC of 
15 February  1993.2  Under the terms of the authorization, any proposal to extend it has to 
be accompanied by a report on its application. 

The  purpose  of this report  is to  give  an  account  of this  derogation  from  the  time  of  its 
extension to the present date and to examine the application for  an extension  submitted by 
France by letter  registered  by the  Secretariat-General  on  19 November  1996.  However, 
since  the  Commission  issued  a  report  at  the  end  of  19923 which  described  in  detail  the 
background,  objectives  and  operation  of the derogation,  the present  report  simply  recalls 
the  key  elements  of  the  special  arrangements  and  highlights  a  number  of  developments 
which have occurred  since the previous report. 

II.  APPLICATION  OF THE DEROGATION 

Structure of the special arraneements set up bv France 

These special arrangements combine the following three provisions: 

1. 

Automatic taxation  of fresh  industrial  waste and  récupérable material  supplied by 
companies which simultaneously meet the following two conditions: 

- they have a permanent  establishment; 

and 

1  OJNoL398,  30.12.1989, p. 31. 
2  OJNoL43, 20.2.1993, p. 44. 
•*  COM(92) 582. 22.12.1992. 

-^ 

-  turnover  excluding  tax  in  respect  of  the  fresh  industrial  waste  or  récupérable 
material that they processed  during the previous calendar year was equal to,  or in 
excess of,  FF 6 000 000. 

2. 

A  "limited"  exemption,  applicable  in  this  instance  only  to  supplies  of  fresh 
industrial waste and récupérable material supplied by companies which: 

- either do not have a permanent  establishment; 

-  or  which,  although  they  have  a  permanent  establishment,  achieved  a  turnover 
excluding tax of less than FF 6 000 000 in respect of the fresh  industrial  waste and 
récupérable material that they processed  during the previous calendar year. 

This exemption  is linked  to an option  for  taxation  on  authorization  available only 
to companies with a total  annual turnover  in excess of FF 500 000 inclusive of all 
taxes.  In  other  words,  exemption  is compulsory  only  for  companies  with  a total 
annual turnover of less than the threshold  of FF 500 000 inclusive of all taxes. 

3. 

Mandatory suspension  of payment  of VAT on supplies to taxable persons of fresh 
industrial  waste  and  récupérable  material  consisting  of  non-ferrous  metals  and 
their  alloys  where  such  supplies  are  subject  to  tax  either  automatically  or  by 
authorization, i.e. where they cannot be exempted. 

Companies in the  sector which  effect  supplies  under  suspension  arrangements  are 
not  entitled  to  invoice  VAT, but  they  do  retain  their  right  to  deduct  it,  either by 
imputation if they are subject  to tax in another  sector or by way of refund  if that is 
not the case. 

All imports of fresh  industrial waste and récupérable material are exempt from VAT. 

In  addition,  commission  transactions  concerning  fresh  industrial  waste  or  récupérable 
material are treated as supplies of goods, unlike brokerage transactions, which, as a result, 
are not covered by the derogation. 

Viewpoint of the French authorities on the application of the special  arrangements 

France has indicated  that  the  sector  in question  is set  to  expand  because waste  recycling 
and upgrading are becoming increasingly systematic as a result of growing concern for the 
environment. 

The  French  authorities  maintain  that  the  derogation  for  transactions  in  fresh  industrial 
waste  and  récupérable  material  presents  undisputed  advantages  for  traders  and  for  the 
authorities. 

In  the  case  of  small  groups  of  various  types  (charities,  migrant  populations,  etc.),  the 
exemption  for  fresh  industrial  waste  and  récupérable  material  which  they  supply  clearly 

V 

reflects  a desire to simplify  procedures and combat fraud. 

In  addition,  VAT  suspension  arrangements  for  fresh  industrial  waste  and  récupérable 
material  consisting  of non-ferrous  metals provide  a useful  addition to  the  system  in  so  far 
as the high value of these metals increases the risk of fraud. 

The scope of the arrangements has also become more restrictive over time.  Although they 
cover  all  waste  from  non-ferrous  metals  including  precious  metals,  certain  goods  which 
came  under  the  suspension  arrangements  prior  to  1991  (unprocessed  products  such  as 
lumps,  bars,  blocks,  plate,  dust  or  chippings  of  certain  non-ferrous  metals)  are 
automatically  subject  to  VAT  at  the  moment.  The  scope  of the  suspension  arrangements 
has thus been reduced. 

The  French  authorities  take  the  view  that  suspension  arrangements  specifically  for  waste 
consisting  of  non-ferrous  metals  are justified  on  the  grounds  that  the  risks  of  fraud  are 
greater  in this sector given  the  price  per tonne  of the  raw  materials  (FF  10 000  per tonne 
for  copper  as  against  FF 500  per  tonne  for  metal  scrap)  and  the  scale  of  international 
trading in such waste. 

Furthermore,  companies  welcome  these  arrangements.  Traders  have  indicated  that  they 
want  them  to  remain  in place  as  a means  of  protecting  them,  among  other things,  against 
the  risks  that  could  result  from  fraudulent  actions  by  certain  companies  for  which  they 
might be held responsible by the authorities. 

III.  OPINION  OF THE  COMMISSION  DEPARTMENTS 

Article 27  of the  Sixth  Directive  permits  special  measures derogating  from  that  Directive 
to  be introduced  either  in order to  simplify  the procedure  for charging  the  tax  or in order 
to prevent certain types of tax evasion or avoidance. 

The  Commission  departments  take  the  view  that  the  exemption  for  supplies  by  small 
enterprises is both  a simplification  measure and an anti-fraud  measure because  it enables a 
category  of taxable persons  for which  checks  and tax  recovery  would  be  disproportionate 
in relation to revenue to be excluded  from the VAT system. 

Enabling  a  certain  category  of  taxpayer  to  charge  VAT  on  their  transactions,  which  in 
principle  are  exempt,  provided  that  they  are  authorized  to  do  so  by  the  authorities  and, 
where  appropriate,  lodge  a  surety,  permits  increased  monitoring  of  this  category  of 
taxpayer by the authorities. 

The  VAT  suspension  arrangements  applicable  to  supplies  of  non-ferrous  metal  waste 
make it possible to keep track of transactions that  present a higher risk  of fraud  as a result 
of the value of the goods  involved. 

Accordingly,  the  Commission  departments  consider  that  an  extension  of  the  special 
measures in question  is justified  on the basis of Article 27 of the Sixth Directive. 

r 

As regards the period of validity  of the authorization,  the Commission  departments  would 
point  out  that,  on  10 July  1996,  the  Commission  adopted  a  work  programme4  for  the 
introduction  of a common  VAT  system  which provides  for  step-by-step  progress  towards 
the new system. 

As  the  final  package  of  proposals  is  scheduled  for  presentation  in  mid-1999,  the 
Commission  departments  take  the  view  that  no  derogation  should  be  extended  beyond 
31  December  1999. 

It  would  seem  appropriate  to  assess  whether  the  derogation  was  consistent  with  the 
approach adopted under the new common  system of VAT at that point  in time. 

COM(96)328 final, 22.7.1996. 

Proposal for a 

COUNCIL DECISION 

authorizing the French Republic to extend 
the application of a measure derogating from Articles 2 and 10 
of the Sixth Council Directive (77/388/EEC) of 17 May 1977 
on the harmonization of the laws of the Member States 
relating to turnover taxes 

3-

EXPLANATORY  MEMORANDUM 

By letter  registered  by the  Commission's  Secretariat-General  on  19 November  1996,  the 
French Government  submitted  a  request  for  an  extension  of  the  derogation  initially 
authorized 
of 
to 
21 December  19891 
by  Council 
Decision 93/110/EEC of 15 February  1993.2 

31 December  1992  by  Council  Decision 89/683/EEC 
and 

31 December  1996 

extended 

until 

up 

Article 3 of the Decision  93/110/EEC states that,  in the light  of a Commission  report  on 
France's  application  of  the  Decision,  the  Council  may,  on  the  basis  of  a  Commission 
proposal, authorize extension of its period of validity. 

The Commission report, which covers the period  1993-96, concludes that it is appropriate 
for the application of that Decision to be extended until 31 December  1999. 

On  10 July  1996  the  Commission  adopted  a  work  programme  for  the  introduction  of a 
common VAT system3 which provides for step-by-step  progress towards the new system. 
As  the  final  package  of  proposals  is  scheduled  for  presentation  in  mid-1999,  it  would 
seem appropriate not to extend the period  of validity beyond  31 December  1999, so as to 
enable  an  assessment  to  be  made  at  that  time  of  the  derogation's  consistency  with  the 
overall approach adopted under the new common system of VAT. 

In  accordance  with  Article 27(3)  of  the  Sixth Directive,  the  other  Member States  have 
been informed  by letter of 18 December  1996 of the French request. 

1  OJNoL398, 30.12.1989, p. 31. 
2  OJ No L 43, 20.2.1993. p. 44. 
3  COM(96)328 final, 22.7.1996. 

% 

PROPOSAL  FOR A COUNCIL  DECISION 

AUTHORIZING THE FRENCH REPUBLIC TO EXTEND THE APPLICATION OF A 
MEASURE DEROGATING FROM ARTICLES 2 AND  10 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 

THE COUNCIL OF THE EUROPEAN  UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  the  Sixth  Council  Directive  (77/388/EEC)  of  17 May  1977  on  the 
harmonization  of  the  laws  of  the  Member States  relating  to  turnover  taxes -  Common 
system  of  value  added  tax:  uniform  basis  of  assessment,1  and  in  particular  Article 27 
thereof, 

Having regard to the previous Council Decisions 89/683/EEC of 21 December  19892 and 
93/110/EEC of 15 February  1993,3 

Having  regard  to  the  Commission  report  on  the  application  of  the  above-mentioned 
Decision over the period  1993-96, 

Having regard to the Commission proposal which followed, 

Whereas, under Article 27(1) of the Sixth Directive, the Council, acting unanimously on a 
proposal from the Commission,  may authorize  any Member State to  introduce  or  extend 
special measures for  derogation  from  that Directive in order to simplify  the procedure  for 
charging the tax or to prevent certain types of tax evasion or avoidance; 

Whereas,  by  letter  registered  by  the  Secretariat-General  of  the  Commission  on 
19 November  1996,  the  French  Government  requested  authorization  to  extend  the 
application  of  the  derogation  previously  granted 
limited  periods  by 
Council Decisions 89/683/EEC and 93/110/EEC; 

it  for 

to 

Whereas  the  other  Member States  were  informed  on  18 December  1996  of  the 
French Government's request; 

1  OJ  No  L  145,  13.6.1977,  p.  1;  Directive  as  last  amended  by  Directive 96/95/EC  (OJNoL338, 

28.12.1996, p. 89). 

2  OJ No L 398, 30.12.1989, p. 31. 
3  OJ No L 43, 20.2.1993, p. 44. 

Whereas  the  Commission  report  on  the  application  of  the  said  derogation  over  the 
period  1993-96  has  demonstrated 
in  the 
waste-recovery sector, which is particularly vulnerable to fraud; 

the  latter's  usefulness  and  effectiveness 

Whereas the Commission adopted on  10 July  1996 a work programme4 and a timetable of 
proposals  providing  for  gradual,  step-by-step  progress  towards  a  common  VAT  system 
for the single market; 

Whereas, as the final  package is scheduled  for presentation  in mid-1999, the authorization 
is to be granted  until 31 December  1999 so as to enable an assessment  to be made at  that 
time of the derogation's consistency with the overall approach of the new common system 
of VAT; 

Whereas  this  derogation  will  not  have  a  negative  effect  on  the  European  Communities' 
own resources accruing from VAT, 

HAS ADOPTED THIS DECISION: 

COM(96) 328 final, 22.7.1996. 

•1o 

Article  1 

By  way  of  derogation  from  Article 2  of  the  Sixth Directive (77/388/EEC),  the  French 
Republic  is  hereby  authorized,  until  31 December  1999  and  in  respect  of  fresh  industrial 
waste and récupérable material, to  exempt from value added tax, hereinafter  referred to  as 
"VAT": 

- on the one hand, supplies made by: 

• 

companies whose annual turnover is less than FF 500 000; 

• 
companies  which  do  not  have  a permanent  establishment  or which,  although  they 
have  a  permanent  establishment,  have  achieved  in the  previous  year  a turnover  figure  in 
respect  of  such  products  of  less  than FF 6 000 000,  unless they  are authorized  to  subject 
such transactions to VAT; 

- on the other hand, imports and intra-Community  acquisitions. 

Article  2 

By way of derogation from Article  10(2)  of the  Sixth Directive (77/388/EEC),  the French 
Republic is hereby authorized,  until 31 December  1999, to introduce  in respect  of supplies 
to  taxable  persons  of  fresh  industrial  waste  and  récupérable  material  in  the  form  of 
non-ferrous  metals and their alloys, where these supplies are not exempt  from  VAT on the 
basis  of  Article  1,  arrangements  suspending  payment  of  the  tax  relating  to  those 
transactions. 

The  taxable  persons  receiving  these  supplies  shall  pay  the  tax  on  them  where  these 
products  are intended  neither  for the  export  as  such  nor for  the  manufacture  or  resale  as 
such of products liable to VAT. 

This Decision  is addressed to the French Republic. 

Article  3 

Done at Brussels, 

For the Council 

The President 

A  s\ 

ISSN 0254-1475 

COM(97) 166 final 

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