Proposal for a Council Decision authorising the French Republic to apply a measure derogating from Article 11 of the Sixth Directive (77/388/EEC) on the harmonisation of the laws of Member States relating to turnover taxes
Date: 2000-07-18
Institutions: European Commission
Subjects: France, VAT, gold, tax exemption, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 18.07.2000
COM(2000) 450 final

Proposal for a

COUNCIL DECISION

authorising the French Republic to apply a measure derogating from Article 11 of the
Sixth Directive (77/388/EEC) on the harmonisation of the laws of Member States
relating to turnover taxes

(presented by the Commission)

EXPLANATORY MEMORANDUM

INTRODUCTION

In a letter registered by the Commission’s Secretariat General on 17 May 2000, the French
Government requested authorisation on the basis of Article 27 of the Sixth Council Directive
(77/388/EEC) of 17 May 1977 on the harmonisation of the laws of Member States relating to
turnover taxes - common system of value added tax: uniform basis of assessment1 to apply a
measure derogating from Article 11(A)(1)(a) of the Directive.

In accordance with Article 27, the other Member States were informed of France's request by
letter dated 14 June 2000.

LEGITIMACY OF THE REQUEST

This request was made in line with the first statement entered in the minutes of the Council
meeting of 12 October 1998, when Directive 98/80/EC (special scheme for investment gold)2
was adopted. This statement says that “the Council and the Commission agree that they will
examine with an open mind any request for a derogation under paragraphs 1 to 4 of Article
27 of Directive 77/388/EEC".

This examination should be based on the following principle:

"In cases where a taxable person makes a supply of services comprising work on
non-taxed investment gold belonging to another person and that work results in the gold
ceasing to be investment gold, the taxable amount on the supply of those services shall not be
limited to the amount charged by the taxable person for those services but shall also include
the value of the gold contained in the finished product."

AIM OF THE MEASURE

The aim of the measure envisaged by France is to avoid the non-payment of VAT on untaxed
investment gold used as a raw material for making consumer goods (for example, jewellery).
The derogation also aims to avoid distortions of competition that could otherwise affect direct
deliveries of gold products.

DESCRIPTION OF THE MEASURE

The measure would mean that in cases where a taxable person supplied goods or a service
comprising work on exempt investment gold belonging to another person and that work
resulted in the gold ceasing to be investment gold, the taxable amount (the consideration
received by the vendor of the goods or provider of the service) would be increased by the
value of the gold contained in the finished product based on the current market value of
investment gold.

1

2

OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2000/17/EC (OJ L 84, 5.4.2000, p. 24).
OJ L 281, 17.10.1998, p. 31.

2

OPINION OF THE COMMISSION

Directive 98/80/EC of 12 October 1998 established a special system of VAT on investment
gold, to be implemented throughout the European Union on 1 January 2000, which consists of
exempting investment gold transactions from tax.

As stated in the Directive’s second and third recitals, the aim of the special arrangements is to
facilitate the use of gold as a financial
investment and to enhance the international
competitiveness of the Community gold market.

The Directive also says, in the seventh recital, that Member States are to take effective control
measures to counter new opportunities for tax fraud and tax evasion that the dual use of gold
may entail.

Article 27 of the Sixth Directive provides for the possibility of derogations in order to avoid
certain forms of tax fraud and evasion.

The measure envisaged by the French Republic falls within this category, in that it aims to
prevent abuse of the exemption for investment gold when the gold is in fact being used as a
raw material for consumer goods.

Applying to the finished product a taxable amount that includes the value of the investment
gold used as well as the cost of the work cancels out retroactively the exemption granted on
the investment gold and puts such sales on an equal footing with direct sales of gold
jewellery, for example, where VAT is charged on total value.

In the Commission’s view, this measure will deter people from purchasing investment gold
for other purposes in order to avoid paying VAT.

The measure will take the form of a derogation from Article 11(A)(1)(a) of the Sixth
Directive, factoring into the taxable amount the value of the investment gold used as a raw
material for making consumer goods.

The Commission considers that the derogation should extend to 31 December 2004 only, so
that an assessment can then be made as to whether it is appropriate in the light of changes in
the practical application of
investment gold established by
Directive 98/80/EC.

the special system for

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Proposal for a

COUNCIL DECISION

authorising the French Republic to apply a measure derogating from Article 11 of the
Sixth Directive (77/388/EEC) on the harmonisation of the laws of 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
harmonisation of the laws of Member States relating to turnover taxes - common system of
value added tax: uniform basis of assessment,3 hereinafter "the Sixth VAT Directive", and in
particular Article 27 thereof,

Having regard to the proposal from the Commission,

Whereas:

(1)

(2)

(3)

(4)

(5)

In a letter registered by the Commission’s Secretariat General on 17 May 2000, the
Government of the French Republic requested authorisation on the basis of Article 27
of the Sixth VAT Directive to apply a measure derogating from Article 11(A)(1)(a) of
the Directive.

Under Article 27(1) of the Sixth VAT Directive, the Council, acting unanimously on a
proposal from the Commission, may authorise any Member State to introduce special
measures for derogation from the provisions of the Directive, in order to simplify the
procedure for charging the tax or to prevent certain types of tax evasion or avoidance.

In accordance with Article 27, the other Member States were informed of the request
from the French Republic by letter dated 14 June 2000.

Article 11(A)(1)(a) of the Sixth VAT Directive states that, in principle, the taxable
amount
in respect of supplies of goods and services shall be everything which
constitutes the consideration which has been or is to be obtained by the supplier for
such supplies from the purchaser, the customer or a third party.

The French Republic, by way of derogation from these provisions, has requested
authorisation to include in the taxable amount for a transaction involving the working
of investment gold the value of the raw material provided by the purchaser of the
service and used to make the finished product.

3

OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2000/17/EC (OJ L 84, 5.4.2000, p. 24).

4

(6)

(7)

(8)

(9)

The aim of the derogation is to avoid abuse of the exemption for investment gold and
thus to prevent certain types of tax evasion or avoidance. It therefore meets the
conditions set out in Article 27 of the Sixth VAT Directive.

The forms of tax evasion or avoidance in question consist mainly of the purchase of
VAT-exempt investment gold which is then worked to make jewellery or other goods,
without VAT being charged on the value of investment gold included in the
transaction concerned.

The derogation is granted until 31 December 2004, so that an assessment can then be
made as to whether it is appropriate in the light of changes in the practical application
of the special system for investment gold established by Directive 98/80/EC.4

The derogation will have no negative impact on the European Communities’ own
resources derived from value added tax,

HAS ADOPTED THIS DECISION:

Article 1

The French Republic is authorised, by derogation from Article 11(A)(1)(a) of Directive
77/388/EEC, to include in the taxable amount in respect of the supply of goods or services
comprising the working of tax-exempt investment gold the value of the gold contained in the
finished product based on the current market value of the investment gold.

The authorisation granted under Article 1 shall expire on 31 December 2004.

Article 2

Article 3

This Decision is addressed to the French Republic.

Done at Brussels,

For the Council
The President

4

OJ L 281, 17.10.1998, p. 31.

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