Commission report to the Council presented in accordance with Article 2 of Council Decision 92/544/EEC of 23 November 1992 (application of measures derogating from Article 17 and Article 22(3), (4) and (5) of the sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes)
Date: 1997-05-14
Institutions: European Commission
Subjects: France, VAT, basis of tax assessment, copyright, derogation from EU law

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  14.05.1997 
COM(97) 215 final 

COMMISSION REPORT TO THE COUNCIL 

presented in accordance with Article 2 of 
Council Decision 92/544/EEC of 23 November 1992 
(application of measures derogating from Article 17 and Article 22(3), (4) and (5) 
of the Sixth 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 measures derogating from Article 17 and Article 22(3), (4) and (5) 
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 2 of 
Council  Decision 92/544/EEC of 23 November  1992 
(application of measures derogating from Article  17 and Article 22(3), (4), (5) 
of the Sixth Directive 77/388/EEC on the harmonization 
of the laws of the Member States 
relating to turnover taxes) 

I.  INTRODUCTION 

By  Decision  92/544/EEC  of  23 November  1992,1  the  Council  authorized  France,  on  the 
basis  of  Article 27  of  the  Sixth Directive,  to  take  special  measures  derogating  from 
Article  17 and  Article  22(3),  (4)  and  (5)  of that  Directive.  The  authorization  was  valid 
until 31 December  1996. 

This  derogation  allowed  a  special  scheme  to  be  applied  the  purpose  of  which  was  to 
reduce  the  obligations  of  authors  who  receive  royalties  paid  by  publishers,  royalty 
collection  and distribution companies or producers. 

The  special  scheme  involves  withholding  at  source  the  tax  payable  by  authors  and  the 
calculation of  deductible input tax on a flat-rate basis. 

Article  2  of  the  said  Decision  lays  down  that  the  Commission  should  present  to  the 
Council  a report  on  its application  accompanied,  where  appropriate,  by  a proposal  for  a 
Decision extending its validity. 

The purpose  of this report  is to give an account  of the application  of this derogation  and 
to  examine  the  request  for  an  extension  submitted  by  France  by  letter  registered  by  the 
Commission's Secretariat-General  on  14 February  1997. 

II.  APPLICATION  OF THE  DEROGATION 

1. 

Historical  background  to the derogation 

Up to  I October  1991,  France made use of the option  provided  for  in Article 28(3)(b)  of 
the  Sixth  Directive  to  continue  exempting  the  services  of authors,  artists  and  performers 
from  VAT (Annex F, point 2 of the said Directive). 

Out  of  a concern  to  bring  its  legislation  into  line  with  the  general  rules  of  the  common 
system of VAT, France made the services of authors and performers  subject  to  VAT with 
effect  from  1  October 1991. 

However,  application  of  the  Community  rules  governing  the  collection  of  tax  proved 
difficult,  in particular as far as authors were concerned. 

This was because the persons concerned  made it known  that  application  of the tax in their 
respect  did  not  procure  any  revenue  to  the  Treasury  because  the  tax  was  always 
deductible  by  publishers,  producers,  etc.,  and  that  the  only  purpose  of  the  new 
administrative  obligations  imposed  on  them  would,  in the absence  of any  revenue,  be the 
formal  one of bringing the rules into line with Community  legislation. 

OJ No L 351. 2.12.1992. p. 32. 

J3 

In  order  to  make  tax  liability  more  acceptable  to  authors,  France  introduced  the  special 
scheme  in  question. 

2. 

Essential  characteristics  of the  scheme 

Under  the  scheme,  the  tax  payable  by  authors  is  charged  by  being  withheld  at  source 
where  royalties  are  paid  by  publishers,  royalty  collection  and  distribution  companies  or 
producers.  In other  words,  it  does  not  apply  unless the  payer  is a taxable  person  identified 
by the  tax  authorities. 

Authors'  deductible  input  tax  is calculated  by  applying  a  0.80%  flat  rate  to  their  royalties. 
The  amount  determined  in this  way  is exclusive  of any other  deduction. 

An  enterprise  paying  royalties  to  an  author  must  pay  to  the  Treasury  the  VAT  due  on 
royalties  minus  the  VAT  deductible  from  that  amount  calculated  on  the  basis  of  this  flat 
rate. 

For  transactions  carried  out  under  this  scheme,  authors  are  exempted  from  the  obligation 
to  issue an  invoice,  submit  a return  and  pay the  tax. 

Finally,  any  author  may  waive  his  inclusion  in  the  scheme  by  opting  for  application  of 
VAT  in accordance  with  the general  rules. 

3. 

Opinion  of  the  French  administration  on  the  application  of the  scheme 

The  French  authorities  consider  that  the  scheme  offers  the  best  guarantees  for  the  proper 
charging  of  VAT  owed  by  persons  who  can  be  expected  to  know  little  about  the 
formalities  relating  to  turnover  taxes  (musicians,  writers,  composers,  etc.). 

In  addition,  the  scheme  has  the  massive  support  of  authors  since  only  5%  of  them  have 
expressed  a wish  to  be excluded  from  it  by  exercising  the  option  referred  to  above. 

Finally,  the  French  authorities  note  that  the  tax  authorities  have  observed  no  anomaly  in 
the  scheme's  application. 

HI.  OPINION  OF  THE  COMMISSION 

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

The  Commission  takes  the  view  that  the  scheme  in  question  allows  administrative 
obligations  to  be  reduced  in  a  very  specific  sector  and  that,  consequently,  it  meets  the 
criterion  of simplification  of the  procedure  for  charging  the tax  laid  down  by  Article 27. 

M 

Moreover,  the  possibility  which  authors  have  of opting  for  taxation  in  accordance  with  the 
general  rules  allows  them  to  exercise  fully  their  right  to  deduction  where  they  consider 
that  the  flat-rate  deduction  provided  for  under  the  special  scheme  is  not  appropriate  to 
their  specific  situation. 

The  Commission  therefore  considers  that  it  would  be justified  to  extend  application  of  the 
special  scheme  on  the basis of Article  27 of the  Sixth  Directive. 

As  regards  the  period  of  validity  of  the  authorization,  the  Commission's  would  point  out 
that,  on  10 July  1996,  it  adopted  a  work  programme2  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  takes  the  view  that  no  derogation  should  be  extended  beyond  31  December 
1999 

It  would  seem  appropriate  to  assess  then  whether  the  derogation  is  consistent  with  the 
approach  adopted  under  the  new  common  system  of  VAT. 

2 

C O M ( 9 6)  32X  Final.  22.07.1996. 

S 

Proposal for a 

COUNCIL  DECISION 

authorizing the French Republic to extend the 
application  of measures derogating from  Article  17 and  Article 22(3), (4) and (5) 
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 

EXPLANATORY  MEMORANDUM 

By letter  registered  with  the  Commission's  Secretariat-General  on  14 February  1997,  the 
French  Government  submitted  a request  for  an  extension  of the derogation  authorized  by 
Council Decision 92/544/EEC of 23 November  1992.1 

Article 2 of the above-mentioned  Decision  states that, in the light  of a Commission  report 
on France's application  of the derogation,  the Council  may, on the basis of a Commission 
proposal, authorize the extension of that  Decision. 

The  Commission's  report  on  the  application  of  the  Decision  concludes  that  it  is 
appropriate for the application of its provisions to be extended until 31 December  1999. 

On  10 July  1996  the  Commission  adopted  a  work  programme  for  the  introduction  of  a 
common VAT system2  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 VAT Directive,  the  other  Member  States 
have been informed  by letter of  13 March  1997 of the French request. 

1  O I N oL  35J, 2.12.1992, p. 32. 

2  COM(96) 328 final,  22.07.1996. 

3 

-•"•"Proposal  for a 

COUNCIL  DECISION 

authorizing  the  French  Republic  to  extend  the 
application  of  measures  derogating  from  Article  17 and  Article  22(3), (4)  and  (5) 
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  Decision  92/544/EEC  of 23  November  1992,2 

Having  regard  to  the  Commission  report  on  the  application  of  the  above-mentioned 
Decision, 

Having  regard  to  the  Commission  proposal  arising from  that  report, 

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

the  Sixth  VAT  Directive, 

letter 

Whereas,  by 
14 February  1997, 
application  of 
Council  Decision  92/544/EEC; 

registered  by 

the  Secretariat-General  of 

the  French  Government 

requested  authorization 

the  derogation  previously  granted 

to 

it  for  a 

the  Commission  on 
to  extend 
the 
limited  period  by 

Whereas  the  other  Member  States  were  informed  on  13 March  1997  of the  request  for  an 
extension  submitted  by the  French  Government; 

1  OJ  No  L  145.  13.06.1977.  p.  1;  Directive  last  amended  by  Directive 96/95/EC  (OJ No L 338, 

28.12.1996. p. 89). 

2  OJ  No  L  351. 2.12.1992.  p.  32 

8 

Whereas  the  Commission's  report  on  the  application  of  the  derogation  indicates  that  the 
special  measures  meet  the conditions  for  application  of  Article  27  of the  said  Directive; 

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

Whereas,  as  presentation  of  the  final  package  of  proposals  is  scheduled  for  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  any  effects  on  the  European  Communities'  own 
resources  accruing  from  VAT, 

HAS  ADOPTED  THIS  DECISION: 

COM(96)  328 final. 22.07.1996. 

Article I 

By  way  of  derogation  from  Article  17  and  Article  22(3),  (4)  and  (5)  of  Directive 
77/388/EEC, the French Republic is hereby authorized, until 31 December  1999, 

- 

to  apply  arrangements  for  withholding  at  source the tax  payable  by authors  where  the 
royalties  they  receive  are  paid  by  publishers,  royalty  collection  and  distribution 
companies or producers, 

- 

to  calculate  authors'  deductible  input  tax  by  applying  a  flat  rate  of  0,80  %  to  their 
royalties. The amount  determined  in this way shall be exclusive of any other deduction. 

This Decision  is addressed  to the French Republic. 

Article 2 

Done at Brussels, 

For the Council 

The President 

A<$ 

ISSN 0254-1475 

COM(97) 215  final 

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