Proposal for a Council Decision amending Council Decisions 92/546/EEC of 23 November 1992, 95/252/EC of 29 June 1995 and 97/375/EC of 9 June 1997 authorizing the United Kingdom to apply measures derogating from Articles 28e (1), 6 and 17 of the Sixth Council Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes
Date: 2003-11-26
Institutions: European Commission
Subjects: United Kingdom, VAT, approximation of laws, derogation from EU law, provision of services, tax exemption, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 26.11.2003
COM(2003) 724 final

Proposal for a

COUNCIL DECISION

amending Council Decisions 92/546/EEC of 23 November 1992, 95/252/EC of 29 June
1995 and 97/375/EC of 9 June 1997 authorizing the United Kingdom to apply measures
derogating from Articles 28e (1), 6 and 17 of the Sixth Council Directive (77/388/EEC)
on the harmonization of the laws of the Member States relating to turnover taxes

(presented by the Commission)

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EXPLANATORY MEMORANDUM

Under  Article  27  of  the  Sixth  Council  Directive  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,1  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.

As a rule, such authorisations are given on a temporary basis, so that an assessment
can be made after a few years as to whether the special measures are appropriate and
effective.

The Decisions 92/546/EEC of 23 November 19922, 95/252/EC of 29 June 19953 and
97/375/EC  of  9  June  19974  taken  by  the  Council  under  Article  27  of  the  Sixth
Directive authorised the United Kingdom to apply measures derogating from Articles
28e (1), 6 and 17 of  the Directive.

The measures authorised under Decision 92/546/EEC allow the United Kingdom to
combat tax evasion and tax fraud for intra-Community acquisitions between related
parties.  Council  Decision 
to
31 December 2003, when it will expire.

2000/435/EC5 

derogation 

extended 

this 

The  measures authorised under Decision  95/252/EC  enable  the  United  Kingdom  to
restrict to 50% the right of the hirer or lessee to deduct input tax on charges for hire
or lease of  a business passenger  car  where  the car  is  used  for  private  purposes  and
not to treat as supplies of services for consideration the private use of a business car
hired or leased by a taxable person. The derogation removes the need for the hirer/
lessee to keep records of private mileage travelled in business cars and to account for
tax  on  the  actual  mileage  of  each  car  and  is  therefore  a  simplification.    Council
Decision 2000/747/EC6 extended this derogation to 31 December 2003, when it will
expire.

The  measures  authorised  under  Decision  97/375/EC  allow  the  United  Kingdom  to
operate  a special optional scheme in which  tax is accounted for on the basis  of the
cash  paid  and  received  (cash  accounting);  the  scheme  is  a  simplification  for  small
and medium enterprises. Council Decision 2000/435/EC7 extended this derogation to
31 December 2003,  when  it  will  expire  and  increased  the  turnover  limit  for  the
simplified cash accounting from 400.000 GBP to 600.000 GBP.

OJ L 145, 13.6.1977, p.1. Directive last amended by Directive 2003/92/EC (OJ L 260, 11.10.2003, p.8).
OJ L 351, 2.12.1992, p. 34
OJ L 159, 11.7.1995, p. 19
OJ L 158, 17.6.1997, p. 43.
OJ L 172, 12.7.2000, p.24.
OJ L 302, 1.12.2000, p.63.
OJ L 172, 12.7.2000, p.24.

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By  letter  received  by  the  Secretariat-General  on  22  October  2003,  the  United
Kingdom requested authorisation to extend application of these measures by further
three  years  and  to  increase  the  turnover  limit  for  the  simplified  cash  accounting
authorised by Decision 97/375/EC from 600.000 GBP to 660.000 GBP.

In  accordance  with  Article  27(3)  of  the  Sixth  Directive,  the  Commission  informed
the  other  Member  States  by  letter  of  30  October  2003  of  the  request  made  by  the
United Kingdom.

In  the  Commission’s  view,  the  matters  of  law  and  of  fact  which  justified  the
application  of  the  special  measures  in  question  have  not  changed  and  still  pertain.
The requested increase of the turnover limit for the simplified cash accounting under
Decision 97/375/EC from 600.000 GBP to 660.000 GBP is in line with inflation and
therefore justified.

However,  the  measures  authorised  under  Decision  95/252/EC  allowing  the  United
Kingdom  to  restrict  to  50%  the  right  of  the  hirer  or  lessee  to  deduct  input  tax  on
charges for hire or lease of a business passenger car where the car is used for private
purposes  and  to  treat  as  supplies  of  services  for  consideration  the  private  use  of  a
business  car  hired  or  leased  by  a  taxable  person,  might  be  affected  by  a
Bundesfinanzhof  request  for  a  preliminary  ruling  (Case  C-17/01),  which  the  Court
has yet to deliver. Subject of this Court proceeding is the German practise to limit to
50%  the  right  to  deduct  the  VAT  charged  on  all  expenditure  relating  to  vehicles
(purchase,  hire,  running  costs).  The  outcome  of  this  preliminary  ruling  might
therefore  be  of  a  considerable  importance  for  the  question  whether  such  measures
could  be  authorised  in  future  under  Article  27.  For  these  reasons  the  extension
granted  to  Germany  for  a  comparable  scenario  by  Council  Decision  2003/354/EC8
was  prolonged  by  another  year  only.  Therefore  also  in  the  present  case  a
prolongation should only be granted for one year.

In view of the above, the Commission considers that the request for extension made
by  United  Kingdom  should  be  granted  and  that  the  Decisions  92/546/EEC  and
97/375/EC referred to above should therefore be extended to 31 December 2006. The
measures authorised under Decision 95/252/EC should be extended to 31 December
2004. The requested increase of the turnover limit from 600.000 GBP as stipulated in
Decision  97/375/EC  to  660.000  GBP  corresponds  to  inflation  and  should  therefore
be authorised.

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OJ L 123, 17.5.2003 p. 47

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Proposal for a

COUNCIL DECISION

amending Council Decisions 92/546/EEC of 23 November 1992, 95/252/EC of 29 June
1995 and 97/375/EC of 9 June 1997 authorizing the United Kingdom to apply measures
derogating from Articles 28e (1), 6 and 17 of the Sixth Council Directive (77/388/EEC)
on the harmonization of the laws of the 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 the Member States relating to turnover taxes - Common system
of  value  added  tax:  uniform  basis  of  assessment,9  and  in  particular  Article 27  paragraph  1
thereof,

Having regard to the proposal from the Commission10,

Whereas:

(1) 

(2) 

(3) 

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By letter received by the Secretariat-General of the Commission on 22 October 2003
the  United  Kingdom  requested  the  extension  of  Decisions  92/546/EEC  of  23
November  199211,  95/252/EC  of  29  June  199512  and  97/375/EC  of  9  June  199713
authorising  it  to  apply  measures  derogating  from  Articles  28e  (1),  6  and  17  of  the
Sixth Directive. The United Kingdom also requested to increase the turnover limit for
the simplified cash accounting authorised by Decision 97/375/EC from 600.000 GBP
to 660.000 GBP.

Decision 92/546/EEC authorises  the United  Kingdom to combat tax evasion and tax
fraud  for  intra-Community  acquisitions  between  related  parties  until  31  December
2003.

Decision  95/252/EC  allows  the  United  Kingdom  to  restrict  to  50%  the  right  of  the
hirer or lessee to deduct input tax on charges for hire or lease of a business passenger
car where the car is used for private purposes and not to treat as supplies of services
for consideration the private use of a business car hired or leased by a taxable person.
The  derogation  removes  the  need  for  the  hirer/  lessee  to  keep  records  of  private

OJ L 145, 13.6.1977, p.1. Directive last amended by Directive 2003/92/EC (OJ L 260, 11.10.2003, p.8).
OJ C , , p. .
OJ L 351, 2.12.1992, p. 34  as last amended by Council Decision 2000/435/EC of 29.6.2000 ( OJ L 172,
12.7.2000, p.24.)
OJ L 159, 11.7.1995, p. 19 as last  amended  by  Council  Decision  2000/747/EC  of  27.11.2000  (  OJ  L
302, 1.12.2000, p.63.)
OJ L 158, 17.6.1997, p. 43 as last amended by Council Decision 2000/435/EC of 29.6.2000 ( OJ L 172,
12.7.2000, p.24.)

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(4) 

(5) 

mileage travelled in business cars and to account for tax on the actual mileage of each
car and  is therefore a simplification;  it  applies  until  31 December 2003,  when  it  will
expire.

Decision  97/375/EC  authorises  the  United  Kingdom  to  operate  a  special  optional
scheme in which tax is accounted for on the basis of the cash paid and received (cash
accounting) with a turnover limit set at 600.000 GBP; the scheme is a  simplification
for  small  and  medium  enterprises  and  applies  until  31 December 2003,  when  it  will
expire.

The matters of law and of fact which justified the application of the special measures
in  question  have  not  changed  and  still  pertain.  However,  the  measures  authorised
under Decision 95/252/EC allowing the United Kingdom to restrict to 50% the right of
the  hirer  or  lessee  to  deduct  input  tax  on  charges  for  hire  or  lease  of  a  business
passenger  car  where  the  car  is  used  for  private  purposes  and  to  treat  as  supplies  of
services for consideration the private use of a business car hired or leased by a taxable
person, might be affected by a preliminary ruling (Case C-17/01), which the Court has
yet to deliver. Subject of this Court proceeding is the practise to limit to 50% the right
to  deduct  the  VAT  charged  on  all  expenditure  relating  to  vehicles  (purchase,  hire,
running  costs).  The  outcome  of  this  preliminary  ruling  might  therefore  be  of  a
considerable importance for the question whether such measures could be authorised
in  future  under  Article  27.  The  requested  increase  of  the  turnover  limit  for  the
simplified  cash  accounting  in  Decision  97/375/EC  from  600.000  GBP  to  660.000
GBP, is in line with inflation.

(6) 

The  authorisation  granted  by  Decisions  92/546/EEC  of  23  November  1992  and
97/375/EC of 9 June1997 should therefore be extended until 31 December 2006. The
prolongation  of  the  authorisation  granted  by  95/252/EC  of  29  June  1995  should  be
extended until 31 December 2004. This maximum period will allow the derogation to
be evaluated in the light of the ruling on Case C-17/01. The requested increase of the
turnover  limit  to  660.000  GBP  corresponds  to  inflation  and  should  therefore  be
authorised.

(7) 

The  derogation  in  question  has  no  impact  on  the  European  Communities’  own
resources from valued added tax,

HAS ADOPTED THIS DECISION:

Article 1

In  Article  1  of  Decision  92/546/EEC  the  date  “31  December  2003”  is  replaced  by
31 December 2006.  In  Article  3  of  Decision  95/252/EC  the  date  31  December  2003  is
replaced by “31 December 2004”.

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Article 2

Article 1 of Decision 97/375/EC shall be replaced by the following:

"Article 1

By way of derogation from the provisions of Article 17(1) of Directive 77/388/EEC, the
United Kingdom is hereby authorised, until 31 December 2006, to provide, within an optional
scheme, that enterprises with an annual turnover not higher than GBP 660000 must postpone
the right of deduction of tax until it has been paid to the supplier."

Article 3

This Decision is addressed to the United Kingdom.

Done at Brussels,

For the Council
The President

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