Proposal for a Council Decision authorising the Kingdom of Spain to apply a measure derogating from Article 11 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
Date: 2001-05-02
Institutions: European Commission
Subjects: Spain, VAT, basis of tax assessment, delivery, derogation from EU law, gold, tax exemption

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 02.05.2001
COM(2001) 238 final

Proposal for a

COUNCIL DECISION

authorising the Kingdom of Spain to apply a measure derogating from Article 11 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

(presented by the Commission)

EXPLANATORY MEMORANDUM

INTRODUCTION

the
In a letter registered by the Commission’s Secretariat General on 7 March 2001,
Government of the Kingdom of Spain 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 assessment,1 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 Spain’s request by
letter on 15 March 2001.

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
the gold contained in the finished
services but shall also include the value of
product."

AIM OF THE MEASURE

The aim of the measure envisaged by Spain is to avoid the non-payment of VAT on non-taxed
investment gold used as a raw material for making consumer goods (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
consisting of work on 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 the 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 2001/41/EC (OJ L 22, 24.1.2001, p. 17).
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 for
investment gold is to facilitate its use 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 Spain comes into 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
in addition to the
consideration paid in return for transformation work, the value of the investment gold used
cancels out retroactively the exemption for the consignment of investment gold and ensures
treatment equal to that for direct sales of gold jewellery, where VAT is charged on total value.

includes,

that

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
investment gold established by
the practical application of
Directive 98/80/EC.

the special system for

3

Proposal for a

COUNCIL DECISION

authorising the Kingdom of Spain to apply a measure derogating from Article 11 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

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 taxes3 - common system of
value added tax: uniform basis of assessment, 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 7 March 2001, the
Spanish Government 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 Kingdom of Spain by letter of 15 March 2001.

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 Kingdom of Spain, by way of derogation from these provisions, has requested
authorisation to include in the taxable amount for a service of working 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 2001/41/EC (OJ L 22, 24.1.2001, p. 17).

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,
with no VAT being paid on the value of the investment gold involved in the
transaction.

The derogation will expire on 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 provided from value added tax,

HAS ADOPTED THIS DECISION:

Article 1

The Kingdom of Spain 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
involving the working of non-taxed 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 Kingdom of Spain.

Done at Brussels,

For the Council
The President

4

OJ L 281, 17.10.1998, p. 31.

5