2004/736/EC:Council Decision of 21 October 2004 authorising the United Kingdom to introduce a special measure derogating from Article 11 of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes
Date: 2004-10-21
Institutions: Council of the European Union
Subjects: United Kingdom, VAT, VAT resource, derogation from EU law, fringe benefit, tax harmonisation, tax system

L 325/58

EN

Official Journal of the European Union

28.10.2004

COUNCIL DECISION

of 21 October 2004

authorising the United Kingdom to introduce a special measure derogating from Article 11 of the
Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to
turnover taxes

(2004/736/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community,

establishing the European

was granted, employees were not included within the
definition of ‘connected’ and since an employee is not
a taxable person who is totally or partially exempt, a
further and more specific derogation is required.

Having regard to the Sixth Council Directive 77/388/EEC of
17 May 1977 on the harmonisation of
the
Member States relating to turnover taxes — Common system
of value added tax: uniform basis of assessment (1) and in
particular Article 27 thereof,

the laws of

(4)

The special measure should apply only in cases where the
the taxable
administration is able to conclude that
amount, as determined in accordance with Article
11(A)(1)(a), has been influenced by the employment
ties between the parties
conclusion
should,
in each case, be based on manifest facts, not
presumptions.

involved. That

Having regard to the proposal from the Commission,

Whereas:

(5)

Given the limited scope of the derogation, the special
measure is proportionate to the aim pursued.

the
By letter registered by the Secretariat-General of
Commission on 13 February 2004,
the United
Kingdom sought authorisation to introduce a special
measure derogating from Article 1(A)(1)(a) of Directive
77/388/EEC.

(6)

The derogation has no adverse impact on the Commu-
nities’ own resources accruing from VAT,

HAS ADOPTED THIS DECISION:

(1)

(2)

The aim of the derogation is to prevent the avoidance of
value added tax (VAT) through the undervaluation of
supplies. It is specifically designed to prevent the circum-
vention of Article 6(2) of Directive 77/388/EEC through
the practice, within the motor vehicle trade, of allowing
staff the use of cars for a nominal charge. Since that
charge appears to be consideration for the supply, VAT
of Directive
is
77/388/EEC on the
the
ties
employee. However, because of
between the two parties involved, the amount actually
paid is artificially low, resulting in significantly smaller
VAT revenues.

amount paid by
the employment

under Article

11(A)(1)(a)

actual

levied

(3)

The United Kingdom has already been granted a request
for a derogation from Article 11 designed to tackle the
problem of undervalued supplies between connected
persons where the recipient of the supply is totally or
partially exempt. Since, at the time when that derogation

Article 1

By way of derogation from Article 11(A)(1)(a) of Directive
77/388/EEC, the United Kingdom is hereby authorised, until
31 December 2009,
in the case of a supply of services
consisting in the use of a motor car, where the supplier and
the recipient are connected persons in the motor trade, to treat
the open market value of that supply as the taxable amount.

Article 2

Article 1 shall apply only if the following conditions are met:

(1) OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive

2004/66/EC (OJ L 168, 1.5.2004, p. 35).

(a)

the supplier has the right to deduct, in whole or in part, the
value added tax applied to the motor car;

28.10.2004

EN

Official Journal of the European Union

L 325/59

(b) the recipient is not a fully taxable person and is linked to
the supplier by employment ties specified in national legis-
lation;

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

(c)

it is reasonable to conclude from the circumstances of the
case that the employment ties referred to in point (b) have
influenced the taxable amount, as determined in accordance
with Article 11(A)(1)(a) of Directive 77/388/EEC.

For the Council
The President

G. ZALM

Done at Luxembourg, 21 October 2004.