Proposal for a Council Decision authorising Germany to apply a measure derogating from Article 17 of the Sixth Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes
Date: 2003-03-14
Institutions: European Commission
Subjects: Germany, VAT rate, derogation from EU law, goods and services, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 14.3.2003
COM(2003) 116 final

Proposal for a

COUNCIL DECISION

authorising Germany to apply a measure derogating from Article 17 of the Sixth
Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating
to turnover taxes

(presented by the Commission)

EXPLANATORY MEMORANDUM

By  letter  registered  at  the  Commission’s  Secretariat-General  on  17  December  2002,  the
German  authorities  requested  authorisation,  under  Article  27  of  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  of  assessment1
(hereafter referred to as the Sixth Directive), to continue to apply a special measure, which the
Council  had  initially  authorised  by  Article  1  of  its  Decision  2000/186/EC  of  28  February
2000.2

As  required  under  Article  27  of  Directive  77/388/EEC,  the  Commission,  in  a  letter  dated
17 January 2003, informed the other Member States of Germany’s request.

Decision 2000/186/EC contains two special measures.

The first measure, provided for in Article 1, consists in completely excluding expenditure on
goods  and  services  from  the  right  to  deduct  VAT  when  less  than  10%  of  those  goods  and
services are used for business purposes.

The second measure, provided for in  Article  2, aims to limit to 50%  the  right  to  deduct the
VAT  charged  on  all  expenditure  relating  to  vehicles  (purchase,  hire,  running  expenses).
However,  it  is  not  intended  to  include  vehicles  used  by  taxable  persons  solely  for  business
purposes, particularly vehicles which taxable persons put at the  disposal  of  employees  for  a
consideration as part of an employment contract. The German authorities have indicated that
the flat-rate ceiling on the right to deduct VAT will replace the VAT charged on the use of a
vehicle for non-business (mainly private) purposes.

Article 3 of the Decision provides that the authorisation will expire on 31 December 2002 at
the latest. That Article also provides for retroactive application of the Decision.

The  Bundesfinanzhof  has  asked  for  a  preliminary  ruling  (case  C-17/01)  on  the  validity  of
Articles  2  and  3  of  Decision  2000/186/EC.  The  question  concerning  Article  3  concerns  the
retroactive effect of the Decision. The Court has not yet given its ruling.

Germany is now requesting authorisation to continue to apply only the measure provided for
in Article 1 of the Decision.

The Commission considers that the legal proceedings before the Court do not directly affect
the current request to extend the measure in question, on which the Commission and then the
Council  must  rule.  The  question  as  to  the  validity  of  the  retroactive  effect  provided  for  in
Article 3 of the Decision should not influence a decision concerning extension of the measure
provided for in Article 1.

The  Commission  already  stated  in  its  proposal3  prior  to  Decision  2000/186/EEC  that  it
considers  the  measure  in  question  to  be  compatible  with  Article  27  of  the  Sixth  VAT
Directive.

1

2 
3 

OJ  L  145,  13.6.1977,  p.  1.  Directive  last  amended  by  Directive  2002/92/EC  (OJ  L  331,  7.12.2002,
p. 27).
OJ L 59, 4.3.2000, p. 12.
COM(1999)690 final.

2

                                                
However,  the  Court’s  ruling  in  Case  C-17/01  may  affect  the  Commission’s  present
interpretation of Article 27 of the Sixth Directive.

The validity of the authorisation should therefore be limited to 31 December 2003. This will
allow  time  to  evaluate  the  derogation  in  the  light  of  the  ruling  on  Case  C-17/01,  which  the
Court will probably deliver in the course of 2003.

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Proposal for a

COUNCIL DECISION

authorising Germany to apply a measure derogating from Article 17 of the Sixth
Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating
to turnover taxes

(only the German text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Sixth  Council  Directive  77/388/CEE  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 of assessment,4 and in particular Article 27(1) thereof,

Having regard to the proposal by the Commission,5

Whereas:

(1) 

(2) 

(3) 

(4) 

(5) 

In a letter registered by the Commission’s Secretariat-General on 17 December 2002
the  German  authorities  requested  authorisation  to  continue  to  apply  a  derogation
which had been granted to it by Article 1 of Council Decision 2000/186/EC.6

The other Member States were informed of the request on 17 January 2003.

The  derogating  measure  is  intended  to  exclude  expenditure  on  goods  and  services
completely  from  the right to deduct VAT when  over  90%  of  the  goods  and  services
are used for the private purposes of the taxable person, or of his employees, or for non-
business  purposes  in  general.  This  measure  is  a  derogation  from  Article  17  and  is
justified by the need to simplify the procedure for charging VAT.

The authorisation expires on 31 December 2002,  although the legal situation and the
facts  which  justified  application  of  the  simplification  measure  in  question  have  not
changed.

The  duration  of  the  authorisation  should  therefore  be  limited  to  31 December  2003.
This  maximum  period  will  allow  the  derogation  to  be  evaluated  in  the  light  of  the
ruling on Case C-17/01, which the Court will probably deliver in the course of 2003.

(6) 

The derogation will not adversely affect the Communities’ own resources from VAT,

4 

5
6 

OJ  L  145,  13.6.1977,  p.  1.  Directive  last  amended  by  Directive  2002/92/EC  (OJ  L  331,  7.12.2002,
p. 27).
OJ C , , p. .
OJ L 59, 4.3.2000, p. 12.

4

                                                
HAS ADOPTED THIS DECISION:

Article 1

By way of derogation from Article 17(2) of Directive 77/388/EEC, as amended by Article 28f
of that Directive, the Federal Republic of Germany is authorised up to 31 December 2003 to
exclude expenditure on goods and services from the right to deduct VAT when over 90% of
the  goods  and  services  are  used  for  the  private  purposes  of  a  taxable  person  or  of  his
employees, or, more generally, for non-business purposes.

Article 2

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels,

For the Council
The President

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