Proposal for a Council Decision authorising the Italian Republic to apply a measure derogating from Articles 2 and 10 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes
Date: 1998-06-16
Institutions: European Commission
Subjects: Italy, VAT, derogation from EU law, tax exemption, waste

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.06.1998 
COM(1998) 375  final 

Proposal for a 

COUNCIL DECISION 

authorising the Italian Republic to apply 
a measure derogating from Articles 2 and 10 
of the Sixth Council Directive (77/388/EEC) 
of 17 May 1977 on the harmonisation of the laws 
of the Member States relating to 
turnover taxes 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

By  letter  registered  with  the  Secretariat-General  of  the  Commission  on  19 March 1998, 
the  Italian  Government  requested  authorisation -  under  Article 27  of  the  Sixth  Council 
Directive  (77/388/EEC)  of  17 May  1977  on  the  harmonisation  of  the  laws  of  the 
Member States  relating  to  turnover  taxes:  common  system  of  value  added  tax,  uniform 
basis  for  assessment1 -  to  apply  a  special  measure  as  regards  trade  in  used  and  waste 
materials. 

In  accordance  with  Article 27(3)  of  thé  Sixth  Directive,  the  other  Member States  were 
informed  of Italy's request by letter dated  17 April  1998. 

The special measure that Italy wishes to introduce contains the following  provisions: 

-  exemption,  without  the right to deduct  input  tax, of  supplies  of  scrap metal  and  other 

recyclable materials (waste paper, rags, etc.) made by firms which  either: 

(1) have a fixed establishment  and generated a turnover excluding tax of not more than 
ITL 2 billion during the previous year, or 

(2) do not have a fixed establishment; 

-  a  possibility  of  opting  for  the  normal  taxation  arrangements,  available  to  firms  in 
category (1) which  generated  a turnover  excluding  tax  of  more  than  ITL  150 million 
during the previous year, subject to the provision of an appropriate guarantee; 

-  mandatory  application  of  the  normal  taxation  arrangements  to  firms  in  category (1) 
which  generated  a  turnover  excluding  tax  of  more  than  ITL 2 billion  during  the 
previous year; 

-  suspension  of  payment  of  tax,  with  the  right  to  deduct  input  tax,  on  supplies  of 
non-ferrous  scrap (including scrap which has undergone rudimentary  initial processing 
reducing  it  to  the  primary  state  with  the  aid  of  minimal,  elementary  technical 
facilities), irrespective of the turnover of the firm concerned. 

Italy's  request  also  specifies  that  firms  dealing  in  both  non-ferrous  scrap  and  other 
recyclable materials would be covered by the arrangements for non-ferrous  metals. 

1  OJ L 145, 13.6.1977, p.  1, as last amended by Directive 96/95/EC (OJ L 338, 28.12.1996, p. 89). 

2 

According  to  the  Italian Government,  the  purpose  of  the  measure  is  to  combat  the  tax 
evasion or fraud which is becoming increasingly prevalent in this area. 

In  this  connection,  the  Italian Government  would  point  to  the  existence  of  fictitious 
companies  which  charge  VAT  but  do  not  make  it  over  to  the  Treasury,  while  the 
purchasers are thus able to deduct it as input tax. 

The  Commission  considers  that  exemption  of  supplies  by  small  firms  both  simplifies 
matters  and helps to combat  fraud  since a category  of taxable persons where checks and 
efforts  at collection  would be disproportionate  to the revenue generated  can  be  excluded 
from  the VAT system. 

Allowing firms which  have a fixed e£ ;blishment and generated  a turnover excluding tax 
of  between  ITL  150 million  and  ITL 2 billion  during  the  previous  year  to  opt  for  the 
normal  taxation  arrangements  is  also  likely  to  bring  into  the  normal  VAT  scheme 
operators who offer  guarantees that are deemed  sufficient. 

The  Commission  also  takes  the  view  that  VAT  suspension  arrangements  should  be 
applied  to  supplies  of  non-ferrous  scrap,  including  scrap  which  has  undergone  initial 
processing, in order to provide a secure basis for transactions  that present a higher risk of 
fraud as a result of the value of the goods involved. 

According  to the Commission's  information,  it is a feature  of the Italian  market  in used 
and waste materials that most traders deal in both non-ferrous  scrap and other  recyclable 
materials (ferrous metals, paper and textiles). 

In the interests of the simplicity of the special  VAT measure, the Commission  considers 
that  Italy  should  be  authorised  to apply the  suspension  arrangements  to all  the  activities 
of taxable persons who deal in both non-ferrous  scrap and other recyclable materials. 

This rule should not apply, however, where transactions involving non-ferrous  metals are 
incidental in relation to transactions involving other recyclable materials. 

The  Commission  considers  that  the  Italian  Republic  may  be  authorised  to  apply  the 
proposed derogation until 31 December 2000. 

On  10 July  1996  the  Commission  adopted  a  work  programme  for  the  introduction  of  a 
common  VAT  system2  that provides  for  step-by-step  progress  towards  the new  system. 
It  therefore  seems  appropriate  to  allow  implementation  of  the  proposed  measure  only 
until 31 December 2000, so that an assessment can then be made of its compatibility with 
the approach developed within the framework of the new common system of VAT. 

Any  extension  of this derogation  beyond  31 December 2000 could be  granted  only  after 
If  the  Italian  Republic  were  to  request  such  an 
an  assessment  of  its  application. 
extension, it would have to provide all the necessary information  for that assessment. 

2  COM(96) 328 final, 22.7.1996. 

Proposal for a 

COUNCIL DECISION 

authorising the Italian Republic to apply 
a measure derogating from Articles 2 and 10 
of the Sixth Council Directive (77/388/EEC) 
of 17 May 1977 on the harmonisation  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 
harmonisation  of  the  laws  of  the  Member States  relating  to  turnover  taxes:  common 
system  of  value  added  tax,  uniform  basis  for  assessment,3  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  authorise  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 and avoidance; 

Whereas, by  letter to the Commission  registered  on  19 March  1998, the Italian  Republic 
requested  authorisation  to  introduce  a  measure  derogating  from  Articles 2  and  10  of 
Directive 77/388/EEC; 

Whereas,  in  accordance  with  Article 27(3)  of  that  Directive,  the  other  Member States 
were informed  on  17 April  1998 of the request submitted by the Italian Republic; 

Whereas the first purpose of the special  measure  is to exempt,  without  granting  the right 
to deduct input tax, supplies of scrap metal and other recyclable materials made either by 
firms which  have  a  fixed  establishment  and  generated  a  turnover  excluding  tax  of  not 
more than  ITL 2 billion  during  the previous  year  or by firms which  do not  have  a fixed 
establishment; 

Whereas  the  second  purpose  of  the  measure  is  to  grant  firms  which  have  a  fixed 
establishment  and  generated  a  turnover  excluding  tax  of  between  ITL  150 million  and 
ITL 2 billion  during  the  previous  year  the  right  to  opt  for  the  normal  taxation 
arrangements; 

OJ L 145, 13.6.1977, p. 1, as last amended by Directive 96/95/EC (OJ L 338, 28.12.1996, p. 89). 
4 

Whereas the third purpose of the measure is to apply VAT suspension arrangements, with 
the right to deduct input tax, to supplies of non-ferrous scrap, irrespective of the turnover 
excluding tax of the firm making them; 

Whereas this measure is likely to prove an effective  means of combating the evasion or 
fraud  which is becoming increasingly prevalent in this area; 

Whereas,  consequently,  the  special  measure  satisfies  the  conditions  laid  down  in 
Article 27 of the Sixth Directive; 

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

Whereas authorisation  should be granted until 31 December 2000 so that an assessment 
can then be made of the compatibility of the measure with the overall approach adopted 
for the new common system of VAT; 

Whereas  this  derogation  will  have  no  impact  on  the  European  Communities'  own 
resources accruing from VAT, 

HAS ADOPTED THIS DECISION: 

CONK96) 328 final, 22.7.1996. 

Article I 

The  Italian  Republic  is  hereby  authorised  until  31 December 2000  to  apply  a  special 
measure  for  the taxation  of used  and waste materials  that contains  provisions  derogating 
from  the Sixth Council Directive (77/388/EEC) of 17 May  1977. 

The provisions in question are laid down in Articles 2 and 3 below. 

Article 2 

By way  of derogation  from  Article 2(1)  of the  Sixth Directive,  and  without  prejudice  to 
Article 3 of  this  Decision,  supplies  of  used  and  waste  materials  consisting  inter alia  of 
paper,  board,  rags  or  glass  shall  be  exempt  from  VAT  where  they  are  made  by  firms 
which either: 

-  have  a  fixed  establishment  and  generated  a  turnover  excluding  tax  of  less  than 

ITL 2 billion during the previous year, or 

-  do not have a fixed establishment. 

The firms referred  to in the first indent which generated  a turnover excluding tax of more 
than  ITL  150 million  during  the  previous  year  may  be  allowed  not  to  apply  the  special 
measure provided for in the preceding paragraph in respect of the supplies concerned. 

Article 3 

By way  of derogation  from  Article  10(2) of the  Sixth Directive,  supplies  of  non-ferrous 
scrap, including  scrap which has undergone rudimentary  initial processing  reducing  it to 
the primary  state with the aid of minimal, elementary technical  facilities,  shall be  subject 
to VAT suspension arrangements. 

These  suspension  arrangements  shall  also  apply  to  supplies  of used  and  waste  materials 
other  than  non-ferrous  metals  made  by  taxable  persons  who  deal  in  both  non-ferrous 
scrap and other recyclable materials, provided  that the transactions involving  non-ferrous 
metals are not of an incidental nature. 

This Decision is addressed to the Italian Republic. 

Article 4 

Done at Brussels, 

For the Council 

The President 

ISSN 0254-1475 

COM(98) 375 final 

DOCUMENTS 

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09  06  10 

Catalogue number  :  CB-CO-98-383-EN-C 

ISBN  92-78-37149-1 

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