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: 2004-09-02
Institutions: European Commission
Subjects: Germany, VAT, derogation from EU law, tax harmonisation, tax law

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.09.2004 
COM(2004) 579 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) 

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EXPLANATORY MEMORANDUM 

By  letter  registered  at  the  Commission’s  Secretariat-General  on  22.03.2004,  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  

In accordance with Article 27(2) of the Sixth Directive, the Commission informed the other 
Member States by letter of 06.08.2004 of the request made by the German Government and 
by  letter  of  10.08.2004  the  Commission  notified  Germany  that  it  had  all  the  information  it 
considers necessary for appraisal of the request. 

Article  1  of  Decision  2000/186/EC  authorises  a  measure,  which  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. 

Under Article 3 of the Decision the authorisation expired on 31 December 2002. That Article 
also  provides  for  retroactive  application  of  the  Decision.  In  the  light  of  a  pending  ECJ 
proceeding,  the  authorisation  was  only  prolonged  until  30  June  2004  by  Council  Decision 
2003/354/EC  of  13  May  20033  to  evaluate  the  conclusions  of  the  ECJ  for  a  future 
prolongation. 

In fact, the validity of Decision 2000/186/EC of 28 February 2000 had to a certain extent been 
questioned  in  preliminary  Court  proceeding  C-17/01,  where  the  German  "Bundesfinanzhof" 
had  asked  for  a  preliminary  ruling  on  the  validity  of  the  procedure  for  adoption  of  this 
decision and on the validity of the retroactive effect of Article 3 of Decision 2000/186/EC. In 
its recent judgement of 29 April 2004, the Court decided that consideration of the procedure 
prior to the adoption of Council Decision 2000/186/EC of 28 February 2000 had disclosed no 
irregularity such as to affect the validity of that decision. The Court also decided that Article 3 
of Decision 2000/186/EC is only invalid in that it provides for the authorisation granted by the 
Council of the European Union to the Federal Republic of Germany to have retroactive effect 
from 1 April 1999. 

Germany  is  now  requesting  authorisation  to  continue  to  apply  the  measure  provided  for  in 
Article  1  of  the  Decision.  The  Commission  already  stated  in  its  proposal4  prior  to  Decision 
2000/186/EEC that it considers the measure in question to be compatible with Article 27 of 
the  Sixth  VAT  Directive  and  in  particular  that  the  derogation  is  justified  by  the  need  to 
simplify  the  procedure  for  charging  VAT;  it  affects  the  amount  of  tax  due  at  the  final 
consumption  stage  only  to  a  negligible  extent.  In  the  above-mentioned  ruling  the  Court  has 
not questioned the validity of Article 1 of Decision 2000/186/EEC. Therefore the derogation 
should be granted. 

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OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2004/7/EC (OJ L 27, 30.1.2004, p. 44). 
OJ L 59, 4.3.2000, p. 12. 
Council Decision 2003/354/EC of 13 May 2003, OJ L 123, 17.5.2003, p. 47. 
COM(1999)690 final. 

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The  question  as  to  the  validity  of  the  retroactive  effect  provided  for  in  Article  3  of  the 
Decision has no influence on a prolongation of the measure provided for in Article 1 for the 
future. 

The validity of the authorisation should therefore be prolonged until 31 December 2009. 

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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 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community,  

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(1), and in particular Article 27(1) thereof, 

Having regard to the proposal from the Commission5, 

Whereas: 

(1) 

In  a  letter  registered  by  the  Commission's  Secretariat-General  on  22.03.2004  the 
German  authorities  requested  authorisation  to  continue  to  apply  a  derogation  which 
had been granted by Article 1 of Council Decision 2000/186/EC(3) 

(2) 

The other Member States were informed of the request on 06.08.2004, 

(3) 

(4) 

(5) 

The  derogating  measure  is  intended  to  exclude  expenditure  on  goods  and  services 
completely from the right to deduct VAT when the goods and services are used more 
than 90 % 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  of 
Directive 77/388/EEC, as amended by Article 28f of that Directive and is justified by 
the need to simplify the procedure for charging VAT; it affects the amount of tax due 
at the final consumption stage only to a negligible extent. 

The authorisation expired on 30 June 20046, although the legal situation and the facts 
which justified application of the simplification measure in question have not changed 
and continue to exist. 

In  its  recent  judgement  of  29  April  2004  in  case  C-17/01,  the  Court  decided  that 
consideration of the procedure prior to the adoption of Council Decision 2000/186/EC 
of 28 February 2000 had disclosed no irregularity such as to affect the validity of that 
the  new  authorisation  should  be  prolonged  until 
decision; 
31 December 2009.  

the  duration  of 

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OJ C , , p. . 
Council Decision 2003/354/EC of 13 May 2003, OJ L 123, 17.5.2003, p. 47. 

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(6) 

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

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 17(2) of Directive 77/388/EEC Germany is authorised to 
exclude expenditure on goods and services from the right to deduct VAT when the goods and 
services in question are used more than 90 % for the private purposes of a taxable person or of 
his employees, or, more generally, for non-business purposes. 

This Decision shall apply until 31 December 2009. 

Article 2 

Article 3 

This Decision is addressed to the Federal Republic of Germany. 

Done at Brussels,  

For the Council 
The President 

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