Proposal for a Council Directive amending Directive 77/388/CEE concerning the common system of value added tax, as regards conferment of implementing powers and the procedure for adopting derogations
Date: 2003-06-10
Institutions: European Commission
Subjects: EU Member State, VAT, committee (EU), derogation from EU law, drafting of EU law, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10.06.2003
COM(2003)335 finall

2003/0120 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 77/388/CEE concerning the common system of value added tax, as
regards conferment of implementing powers and the procedure for adopting
derogations

(presented by the Commission)

EXPLANATORY MEMORANDUM

INTRODUCTION

The Sixth Council Directive of 17 May 1977 on the harmonisation of the laws of the Member
States  relating  to  turnover  taxes  (Directive  77/388/EEC)  requires  Member  States  to  apply  a
common system of value added tax.

The Directive  establishes  a  general  framework  but  contains  no  machinery  providing  for  the
introduction of implementing rules.

However,  while  the  Directive  does  not  contain  a  procedure  for  laying  down  common
implementing  measures  it  does  make  specific  provision  for  the  adoption  of  measures
derogating from the common system of VAT.

Under Articles 27 and 30 of the Sixth Directive the Council can authorise a Member State to
introduce special measures to derogate from its provisions in order to simplify the procedure
for  charging  VAT,  to  prevent  certain  types  of  tax  evasion  or  avoidance,  or  as  part  of  an
agreement with a non-member country or an international organisation

The purpose of this proposal is to modernise the Article 27/30 procedure and specifically to
make  it  more  transparent,  and  also  to  provide  for  the  adoption  of  implementing  rules  at
Community level.

THE ARTICLE 27/30 PROCEDURE FOR THE ADOPTION OF DEROGATIONS

In its communication of 7 June 2000 to the Council and the European Parliament on a strategy
to  improve  the  operation  of  the  VAT  system  within  the  context  of  the  internal  market,  the
Commission undertook to rationalise the large number of derogations currently in force under
Article 27. It intends to get started on this process, in collaboration with the Member States, in
the next few months.

At the same time, however, it would like to review and modernise the Article 27/30 procedure
to bring it into line with Treaty principles.

The current Article 27/30 procedure

The existing Articles 27 and 30 provide for Council decisions in two circumstances.

Article 27(1) states: “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  this  Directive,  in  order  to  simplify  the  procedure  for  charging  the  tax  or  to
prevent  certain  types  of  tax  evasion  or  avoidance.  Measures  intended  to  simplify  the
procedure for charging the tax, except to a negligible extent, may not affect the amount of tax
due at the final consumption stage.”

The  first  paragraph  of  Article  30  contains  a  similar  provision:  “The  Council,  acting
unanimously  on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to
conclude  with  a  non-member  country  or  an  international  organisation  an  agreement  which
may contain derogations from this Directive.”

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These clauses provide for the Council to adopt a formal decision  acting on  a proposal from
the Commission but the procedure is simpler than that prescribed in Article 93 of the Treaty,
since the scope of these decisions is so narrow that it was not thought necessary to seek the
opinions of Parliament or the Economic and Social Committee.

Article 27(4) and the second paragraph of Article 30 contain a further clause, however: “The
Council's decision shall be deemed to have been adopted if, within two  months of the other
Member  States  being  informed  as  laid  down  in  the  previous  paragraph,  neither  the
Commission nor any Member State has requested that the matter be raised by the Council.”

In other words, the Council decision is tacitly adopted once two months have elapsed.

This entails the Council adopting a decision that has never formally been laid before it, since
prior to that stage the procedure has consisted of a Member State presenting a request to the
Commission and the Commission notifying the other Member States. Thus the tacit approval
procedure  does  not  require  the  Commission  to  formally  present  a  proposal  and  the  Council
incurs responsibility for a decision without any procedural involvement.

This  also  raises  the  issue  of  transparency  for  traders  since  if  the  Council  tacitly  adopts  a
decision  taxable  persons  will  have  to  comply  with  national  measures  taken  pursuant  to  that
decision without being aware either of the exact scope of the authorisation granted or of the
Council's grounds for it.

It  has  therefore  been  the  Commission's  longstanding  practice  to  ensure  that  the  two  month
deadline  set  in  Articles  27  and  30  does  not  elapse  without  some  initiative  on  its  part,  and
within  that  period  it  will  either  present  a  proposal  for  a  decision  or  ask  that  the  matter  be
raised before the Council.

The proposed amendments

Eliminating tacit approvals

In the interests of all concerned - the Commission, the Council, national administrations and
traders - special measures under Article 27 or Article 30 should be enacted in accordance with
a  simple,  transparent  procedure  so  that  there  can  be  no  doubt  as  to  their  compliance  either
with the Treaty or with general principles of Community law.

The procedure laid down in Article 27(1)  and the first paragraph of  Article 30 (the Council
unanimously adopts a decision acting on a  proposal from the Commission) does  meet  these
criteria.

If the tacit approval clauses were removed, therefore, this would be the rule for all decisions
under  Article  27/30,  which  would  require  a  proposal  from  the  Commission  and  a  formal
decision by the Council.

Other amendments to the procedure

The main change to Articles 27 and 30 is the removal of the tacit approval option but other
aspects of the procedure need to be reviewed as well.

The  procedure  is  initiated  by  a  Member  State  presenting  a  request  to  the  Commission,
supported by all relevant information.

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In practice the Commission often needs to ask the requesting Member State exactly what the
measures it envisages would entail, so it writes to the competent authorities asking for further
particulars.

This means there is a period in which the requesting Member State does not know whether the
Commission is satisfied with the information it already has or would like further facts.

This  defect  could  be  remedied  by  inserting  a  clause  requiring  the  Commission  to  keep  the
requesting Member  State  up  to  date  with  the  proceedings  by  notifying  it  once  it  has  all  the
relevant information.

As pointed out already, the Commission does its best to prevent adoption of decisions by the
tacit  approval  procedure,  by  laying  the  matter  before  the  Council  in  the  form  of  either  a
proposal  for  a  decision  or  a  communication  setting  out  grounds  for  opposing  a  particular
measure.

Nothing in Articles 27 and 30 require the Commission to put forward a communication where
it objects to a measure; this is simply a practice that has become customary over the years.

However,  it  is  a  practice  that  suits  the  Member  States,  so  it  would  be  a  good  idea  to
incorporate it explicitly in the two Articles.

This  means  that  for  every  request  lodged  by  a  Member  State  the  Commission  will  present
either  a  proposal  or  a  communication  to  the  Council  setting  out  all  the  information  the
Council needs to consider the request.

In  the  Commission's  view,  that  would  make  the  current  requirement  that  it  circulate  the
request for information to all the other Member States superfluous. The rationale for this rule
was  the  possibility  of  tacit  approval,  since  if  there  is  no  Commission  proposal  the  only
information on which a Member State can judge whether it would like the case discussed by
the Council is the request itself.

The new procedure

The procedure is triggered when a Member State lodges a request.

If the Commission feels it needs further information it notifies the requesting Member State in
writing.

Once  it  has  all  the  particulars  it  needs  to  appraise  the  request  it  notifies  the  requesting
Member State.

It  then  has  three  months  from  the  time  it  sends  that  notification  to  the  requesting  Member
State  to  present  to  the  Council  either  a  proposal  for  a  decision  or,  where  it  objects  to  a
particular measure, a communication.

IMPLEMENTING MEASURES

One  of  the  main  objectives  of  the  strategy  launched  by  the  Commission  to  improve  the
operation  of  the  VAT  system  within  the  context  of  the  internal  market  is  to  ensure  more
uniform application of existing rules.

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This is only possible if the existing provisions of the Sixth Directive are implemented in the
same way throughout the Community.

The current situation

The VAT Committee

The  Sixth  Directive  constitutes  the  general  framework  of  the  common  VAT  system.  It  lays
down the fundamental VAT rules but does not provide a mechanism whereby measures may
be taken for the implementation of these rules.

The VAT Committee was set up to examine questions raised by the Commission or Member
States and agree guidelines on how the provisions of the Sixth Directive must be applied. It
only acts as a consultative body, however, and has not been given the legal powers permitting
it to assist the Commission to take binding decisions.

Measures  have  been  taken  to  improve  the  operation  of  the  VAT  Committee,  resulting  in
improvements to the organisation of meetings and the system by which agreement on minutes
and guidelines  is  reached and opening the  way  for  Member  States  to  publish  the  guidelines
agreed by the committee.

None  of  these  measures  allow  for  the  committee  to  reach  definitive  conclusions  as  to  the
application of the common VAT rules. The guidelines agreed still have no legal status and are
not  published  at  Community  level.  Member  States  are  therefore  not  legally  bound  by  these
guidelines nor  can they be relied upon before a  court,  be it a national  court  or  the  Court  of
Justice, leaving both traders and national administrations without any legal certainty.

To be able to ensure uniform application of existing VAT provisions, it is necessary to find a
way of giving the guidelines agreed by the VAT Committee legal status.

Reform of the VAT Committee

In  line  with  the  procedure  used  in  most  areas  of  Community  legislation,  the  Commission
proposed  in  1997  to  convert  the  VAT  Committee  into  a  regulatory  committee  assisting  the
Commission in implementing existing provisions1.

As far as VAT is concerned, several Member States believe that  all legislative powers must
remain with the Council. To confer implementing powers on the Commission is therefore not
acceptable to these Member States.

While the proposed reform of the VAT Committee still offers the most suitable solution, it is
not  likely  to  take  place  in  the  short  term.  It  continues,  however,  to  be  the  long–term
Commission goal.

In  its  communication  to  the  European  Convention  on  the  institutional  architecture2,  the
Commission argued that it should have sole responsibility for implementation of Community
law.  Qualified  majority  voting  should  become  the  rules  and  unanimity  should  no  longer  be
required for tax issues.

1

2

Proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  on  the  common  system  of  value
added tax (the Value Added Tax Committee) (COM(97) 325 final, 25.6.1997).
COM(2002) 728 final, 4.12.2002.

5

                                                
Changing the VAT Committee's status to make it a committee  governed  by  the Comitology
procedure  would  be  wholly  in  line  with  the  Commission's  aims  under  the  Convention,  but
those  aims  can  only  be  achieved  if  the  Treaty  is  amended.  That  takes  time;  the  European
Convention itself is only the first stage in the process.

Note  that  such  a  change  would  be  quite  compatible  with  the  proposal  to  amend  Council
Decision 1999/468/EC laying down the procedures for the exercise of implementing powers
conferred  on  the  Commission3  sent  to  the  Council  in  relation  to  matters  coming  under  the
co-decision procedure.

Proposed amendment

The  Commission  regrets  that  the  proposal  for  a  directive  changing  the  status  of  the  VAT
Committee has made so little headway in the Council; indeed, it has not been discussed at all
for years. Only a Treaty amendment, as mentioned above, is likely to revive this dossier.

To improve the unsatisfactory state of affairs in the short term, the Commission would like to
introduce a temporary procedure allowing the Council to adopt VAT implementing measures.
It has no intention of withdrawing its 1997 proposal, however.

Indeed, Article 202 of the EC Treaty envisages the Council as the legislative body conferring
implementing  powers  on  the  Commission  acting  as  the  executive  body.  The  Council  may,
however, in specific and substantiated cases, reserve the right to exercise directly the power to
implement the rules it lays down.

The Commission believes that, in the case of VAT, there is a rationale for some powers to be
reserved  for  the  Council,  for  the  time  being  at  least.  Raising  taxes  is  part  of  the  basic
economic and budgetary strategy of Member States. Since value added tax constitutes a major
source of revenue for Member States, the potential budgetary implications of measures taken
in this area are of major concern.

Experience  from  proceedings  in  the  VAT  Committee  shows  that  many  discussions  centre
around  the  rules  governing  the  place  of  supply  of  goods  and  services.  If  these  rules  are
applied differently by Member States, this may lead to double taxation in cross–border trade.
Addressing  this  problem,  which  is  clearly  essential  if  the  internal  market  is  to  function
properly, will however inevitably affect the  right of individual Member States to tax certain
transactions.

It  is  therefore  proposed  that  the  measures  necessary  for  the  implementation  of  existing
provisions  shall  be  adopted  by  the  Council,  acting  unanimously  on  a  proposal  from  the
Commission. This procedure is comparable to the simplified procedure already provided for
under Articles 27 and 30 of the Sixth Directive.

How will the proposed new procedure operate?

The implementing measures to be adopted by the Council under the proposed new procedure
involve detailed technical questions of practical application. To facilitate the adoption of such
measures by the Council without further delay, we should take advantage of the fact that these
matters have already been examined by technical experts on the VAT Committee.

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COM(2002) 719 final, 11.12.2002.

6

                                                
Questions raised by Member States or the Commission in the VAT Committee will serve as a
tool for the Commission in identifying those areas where action is required. The unanimous
VAT  Committee  guidelines  should  be  examined  to  see  whether  they  can  be  converted  into
binding  legal  instruments.  This  examination  should  involve  the  VAT  Committee,  which
should in any event be consulted before the Commission submits any proposal to the Council.

Where  the  Committee  feels  that  the  outcome  of  its  proceedings  should  be  enshrined  in  a
binding  legal  text  to  ensure  harmonised  interpretation,  the  Commission  will  present  a
proposal for a decision to the Council.

Since these will all be measures implementing provisions of the Sixth Directive, the decision
could  be  adopted  along  the  lines  laid  down  by  Articles  27  and  30  for  derogations;  in  other
words, because of the limited scope of the measures there is no need to consult Parliament or
the European Economic and Social Committee.

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2003/0120 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 77/388/CEE concerning the common system of value added tax, as
regards conferment of implementing powers and the procedure for adopting
derogations

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 93 thereof,

Having regard to the proposal from the Commission,1

Having regard to the opinion of the European Parliament,2

Having regard to the opinion of the European Economic and Social Committee,3

Whereas:

(1)

(2)

(3)

(4)

1

2

3

4

Articles  27  and  30  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 assessment4 lay down procedures that may
result in the tacit approval of derogations by the Council.

In the interests of transparency and legal certainty, it is preferable to ensure that every
derogation  authorised  under  Article  27  or  Article  30  of  Directive  77/388/EEC  takes
the form of an explicit decision adopted by the Council acting on a proposal from the
Commission.

The possibility of tacit approval by the Council on the expiry of a given period should
therefore be removed.

In order to ensure that a Member State which has submitted a request for derogation is
not  left  in  doubt  as  to  what  action  the  Commission  plans  to  take  in  response,
time-limits  should  be  laid  down  within  which  the  Commission  must  present  to  the
Council  either  a  proposal  for  authorisation  or  a  communication  setting  out  its
objections.

OJ C
OJ C
OJ C
OJ L 145, 13.6.1977, p. 1. As last amended by Directive 2002/93/EC (OJ L 331, 7.12.2002, p. 27).

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(5)

(6)

(7)

(8)

(9)

The  procedure  provided  for  in  Articles  27  and  30  requires  further  amendment;  in
particular,  the  Commission  should  no  longer  be  obliged  to  notify  the  other  Member
States of requests, since that is only justifiable in the context of tacit approval.

In  order  to  enable  Member  States  to  follow  more  closely  the  processing  of  their
requests,  the  Commission  should  be  required,  once  it  has  all  the  information  it
considers  necessary  for  appraising  a  request,  to  notify  the  requesting  Member  State
accordingly.

In the absence of any mechanism for the adoption of binding measures to govern the
implementation  of  Directive  77/388/EEC,  the  application  of  rules  laid  down  in  that
Directive varies from one Member State to another.

In  order  to  improve  the  functioning  of  the  internal  market,  it  is  essential  to  ensure
more uniform application of the current VAT system. The introduction of a procedure
for  the  adoption  of  measures  to  ensure  the  correct  implementation  of  existing  rules
would represent a major step forward in that respect.

Those  measures  should,  in  particular,  address  the  problem  of  double  taxation  of
cross-border  transactions  which  can  occur  as  the  result  of  divergences  between
Member States in the application of the provisions of Directive 77/388/EEC governing
the place of supply.

(10) However, the scope of each implementing measure would remain limited since, albeit
designed  to  clarify  a  provision  laid  down  in  Directive  77/388/EEC,  it  could  never
derogate from such a provision.

(11) Although  the  scope  of  the  implementing  measures  would  be  limited,  it  cannot  be
excluded that in some cases there might be a significant budgetary impact for one or
more Member States.

(12)

The potentially significant impact of such measures on the budgets of Member States
justifies the Council reserving the right to exercise powers for the implementation of
Directive 77/388/EEC itself.

(13) Given  the  restricted  scope  of  the  measures  envisaged,  measures  implementing
Directive  77/388/EEC  should  be  adopted  by  the  Council  acting  unanimously  on  a
proposal  from  the  Commission  in  accordance  with  a  procedure  similar  to  that  laid
down by the same Directive in respect of derogations.

(14)

Since,  for  those  reasons,  the  objectives  of  this  Directive  cannot  be  sufficiently
achieved by the Member States acting alone and can therefore be better achieved by at
Community  level,  the  Community  may  adopt  measures  in  accordance  with  the
principle of subsidiarity as set  out in Article 5  of  the  Treaty.  In accordance  with  the
principle  of  proportionality,  as  set  out  in  that  Article,  this  Directive  does  not  go
beyond what is necessary in order to achieve those objectives.

(15) Directive 77/388/EEC should therefore be amended accordingly,

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HAS ADOPTED THIS DIRECTIVE:

Directive 77/388/EEC is amended as follows:

Article 1

(1)

In Article 27, paragraphs 3 and 4 are replaced by the following:

“3. Once  the  Commission  has  all  the  information  it  considers  necessary  for
appraisal of the request it shall notify the requesting Member State accordingly.

4. Within  three  months  of  giving  the  notification  referred  to  in  paragraph  3  the
Commission  shall  present  to  the  Council  either  an  appropriate  proposal  or,
should  it  object  to  the  derogation  requested,  a  communication  setting  out  its
objections.”

(2)

In Title XVII, the following Article 29a is inserted:

“Article 29a

Implementing measures

The  Council,  acting  unanimously  on  a  proposal  from  the  Commission,  shall  adopt
the measures necessary to implement this Directive.”

(3)

Article 30 is replaced by the following:

“Article 30

International agreements

1.

The  Council,  acting  unanimously  on  a  proposal  from  the  Commission,  may
authorise any Member State to conclude with a third country or an international
organisation an agreement which may contain derogations from this Directive.

A Member State wishing to conclude such an agreement shall bring the matter
to the notice of the Commission and provide all the information necessary for it
to be considered.

2.

Once  the  Commission  has  all  the  information  it  considers  necessary  for
appraisal of the request it shall notify the requesting Member State accordingly.

3. Within  three  months  of  giving  the  notification  referred  to  in  paragraph  2  the
Commission  shall  present  to  the  Council  either  an  appropriate  proposal  or,
should  it  object  to  the  derogation  requested,  a  communication  setting  out  its
objections.”

10

Article 2

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative  provisions
necessary  to  comply  with  this  Directive  by  […]  at  the  latest.  They  shall  forthwith  inform  the
Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication. Member
States shall determine how such reference is to be made.

This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Union.

Article 3

Article 4

This Directive is addressed to the Member States.

Done at Brussels, […]

For the Council
The President

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