Proposal for a Council Decision authorising Italy to apply a measure derogating from Article 21 of 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
Date: 2004-01-30
Institutions: European Commission
Subjects: Italy, VAT, approximation of laws, derogation from EU law, tax avoidance, tax harmonisation, turnover, waste

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.1.2004 
COM(2004) 53 final 

Proposal for a 

COUNCIL DECISION 

authorising Italy to apply a measure derogating from Article 21 of 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 

. 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
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EXPLANATORY MEMORANDUM 

On March 2001, the Council adopted Decision 2001/244/EC1 amending article 1 of 
Decision  1999/80/EC2  in  order  to  extend  its  validity  until  31st  December  2003. 
Decision 1999/80/EC  authorizes Italy to apply until that date a measure derogating 
from  Articles  2  and  10(2)  of  the  Sixth  Council  Directive  (77/388/EC)  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 for assessment1) in order to 
exempt the supply of certain waste materials but not of non-ferrous scrap, effected by 
taxable  persons  who  either  did  not  have  a  fixed  establishment  or  had  a  fix 
establishment with a turnover of less than ITL 2 billion. Taxable persons with a fix 
establishment  and  a  turnover  of  more  than  150  million  ITL  could  however  be 
allowed  not  to  apply  these  particular  arrangements.  Decision  1999/80/EC  also 
authorized Italy to apply suspension arrangements to supplies of non-ferrous scrap. 

In the last few years, the services of the Commission have been contacted repeatedly 
by both the traders active in this sector and the Italian Administration regarding the 
persistence of fraud. Both insist that only a solution which assures equal treatment to 
all operators active in the sector and avoids the risk of non-payment of VAT charged 
by these operators will be effective in the long run to prevent tax avoidance and the 
resulting distortion of competition affecting honest traders.  

By  letter  registered  with  the  Secretariat-General  of  the  Commission  on  31 
October 2003,  the  Italian  Government  requested  authorisation  -  under  Article 27  of 
the Sixth Directive - to apply special measures to certain supplies of goods relating to 
waste materials. 

In  accordance  with  Article  27(3)  of  the  Sixth  Directive,  the  other  Member  States 
were informed of the Italian request by letter dated 28 November 2003. 

The  Italian  Government  would  like  to  apply  a  "reverse  charge"  procedure  to  the 
following supplies of goods: 

– 

– 

the supply and associated operations of ferrous waste and scrap, as well as of 
glass, paper and board, rags, bone and leather, rubber and plastic, including the 
supplies of those materials after they have undergone certain processing such 
as cleaning, polishing, selection, cutting or casting into ingots; 

the supply and associated operations of ferrous and non-ferrous semi-processed 
products, such as pig iron,  refined copper and copper alloys and crude nickel 
and aluminium. 

In its request, the Italian government explains that the measure is aimed at countering 
tax evasion by small operators in the sector, who despite charging VAT, often do not 
pay  the  tax  to  the  authorities  and  hence  are  able  to  offer  lower  prices  displacing 
compliant  operators.  The  number  and  size  of  non-compliant  operators  creates 
particular difficulties for their effective control by the tax authorities.  

OJ L 88, 28.3.2001, p. 17. 
OJ L 27, 2.2.1999, p. 24. 
OJ  L 
13.6.1977, 
145, 
(OJ L 260, 11.10.2003, p. 8). 

p. 

1.  Directive 

last 

amended 

by  Directive 

2003/92/EC 

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7. 

8. 

9. 

10. 

11. 

12. 

13. 

The  requested  measure  would  enable  Italy  to  designate  the  recipient  of  the  goods 
(and  services  related  to  them)  as  the  person  liable  to  pay  tax.  In  accordance  with 
article 17.2.a) of Directive 77/388/EEC, the recipient of the supplies of waste will be 
able  to  deduct  the  tax  due  for  such  supplies.  The  scope  of  the  reverse  charge 
procedure would be determined by the nature of the goods that are being supplied. 

The requested measure is to be considered first and foremost as a measure to prevent 
certain types of tax evasion in the waste recycling sector, such as the non-payment of 
invoiced VAT by traders engaged in the collection, sorting and basic transformation 
of waste material, who subsequently become untraceable. The measure also has the 
effect  of  simplifying  the  work  of  the  tax  authorities,  which  very  frequently  have 
major problems collecting the VAT due by traders in that sector.  

The  measure  is  proportionate  to  the  objectives  pursued,  since  it  is  not  intended  to 
apply to all taxable operations in the sector concerned but only to specific operations 
which pose considerable problems of tax evasion. 

This  measure  does  not  adversely  effect  the  VAT  Communities'  own  resources,  nor 
does it have any effect on the amount of tax due at the final stage of consumption. 

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,4  the  Commission  undertook  to  rationalise  the  large  number  of 
derogations  currently  in  force.  In  some  cases,  however,  this  rationalisation  could 
involve extending certain particularly effective derogations to all Member States. 

The  Commission's  recent  contacts  with  certain  national  administrations  and 
representatives  of  the  sector  suggest  that  special  rules  specifically  adapted  to  the 
sector might be necessary to ensure fairer taxation of the traders concerned across the 
Community.  The  Commission  intends  to  prepare  a  proposal  for  a  special  scheme 
applying to the waste recycling sector. 

The  Commission  accepts  that,  pending  more  permanent  changes,  this  derogation 
significantly counters abuse of the VAT system. It therefore considers it appropriate 
to grant the derogation until the date of entry into force of a special scheme for the 
application  of  VAT  to  the  recycled  waste  sector,  but  not  later  than  31  December 
2005. 

4 

COM(2000) 348 final. 

3 

 
 
  
 
                                                 
Proposal for a 

COUNCIL DECISION 

authorising Italy to apply a measure derogating from Article 21 of 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 

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,5 and in particular Article 27 thereof, 

Having regard to the proposal from the Commission,6 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Pursuant to 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 or 
extend  special  measures  for  derogation  from  that  Directive  in  order  to  simplify  the 
procedure for charging the tax or to prevent certain types of tax evasion or avoidance. 

letter 

registered  with 

By 
the  Commission  on 
31 October 2003, the Italian Government requested authorisation to apply special tax 
measures to the waste sector. 

the  Secretariat-General  of 

The other Member States were informed of Italy's request on 28 November 2003. 

The  derogation  in  question  is  intended  to  allow  Italy  to  designate  the  recipient  of 
specific  types  of  supplies  in  the  waste  sector,  as  the  person  liable  to  pay  the  tax.  In 
accordance with Article 17.2.a) of Directive 77/388/EEC, the recipient of the supplies 
of waste will be able to deduct the tax due for such supplies. This should minimise the 
problems faced by tax authorities in collecting the VAT in that sector, without having 
any effect on the amount of tax due.  

The requested measure is to be considered first and foremost as a measure to prevent 
certain types of tax evasion in the waste recycling sector, such as the non-payment of 
invoiced VAT by traders engaged in the collection, sorting and basic transformation of 
waste material, who subsequently become untraceable. The measure also has the effect 
of simplifying the work of the tax authorities.. 

5 

6 

145, 

OJ  L 
13.6.1977, 
(OJ L 260, 11.10.2003, p. 8). 
OJ C […], […], p. […]. 

p. 

1.  Directive 

last 

amended 

by  Directive 

2003/92/EC 

4 

 
 
  
 
                                                 
(6) 

(7) 

(8) 

(9) 

The  measure  is  proportionate  to  the  objectives  pursued,  since  it  is  not  intended  to 
apply to all taxable operations in the sector concerned but only to specific operations 
which pose considerable problems of tax evasion. 

On 7 June 2000 the Commission published a strategy to improve the operation of the 
VAT system in the short term, in which it undertook to rationalise the large number of 
derogations  currently  in  force.  In  some  cases,  however,  this  rationalisation  could 
involve extending certain particularly effective derogations to all Member States.  

The  Commission's  recent  contacts  with  certain  national  administrations  and 
representatives of the sector suggest that special rules specifically adapted to the sector 
might  be  necessary  to  ensure  fairer  taxation  of  the  traders  concerned  across  the 
Community.  The  Commission  intends  to  prepare  a  proposal  for  a  special  scheme 
applying to the waste recycling sector. 

Consequently, this derogation should expire on the date of entry into force of a special 
scheme for the application of VAT to the recycled waste sector, but not later than 31 
December 2005. 

(10)  The derogation has no adverse impact on the European Communities' own resources 
accruing from VAT, nor does it have any effect on the amount of VAT charged at the 
final stage. 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  21(1)(a)  of  Directive  77/388/EEC,  as  worded  in  Article 
28(g) thereof, Italy is hereby authorised, to designate the recipients of the supplies of goods 
and services referred to in Article 2 of this Decision as the persons liable to pay VAT. 

Article 2 

The recipient of the supply of goods or services may be designated as the person liable to pay 
VAT in the following instances: 

– 

– 

supplies  and  associated  operations  of  ferrous  waste  and  scrap,  as  well  as  of 
glass, paper and board, rags, bone and leather, rubber and plastic, including the 
supplies of those materials after they have undergone certain processing such 
as cleaning, polishing, selection, cutting or casting into ingots. 

Supplies and associated operations of ferrous and non-ferrous semi-processed 
products, such as pig iron,  refined copper and copper alloys and crude nickel 
and aluminium. 

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Article 3 

This  decision  shall  expire  on  the  date  of  entry  into  force  of  a  special  scheme  for  the 
application  of  VAT  to  the  recycled  waste  sector  amending  Directive  77/388/EEC,  but  not 
later than 31 December 2005. 

This Decision is addressed to Italy. 

Done at Brussels, […] 

Article 4 

For the Council 
The President 

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