2005/259/: Council Decision of 14 March 2005 authorising the Republic of Cyprus to apply a 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: 2005-03-14
Institutions: Council of the European Union
Subjects: Cyprus, VAT, basis of tax assessment, derogation from EU law, fraud, tax avoidance

L 78/48

EN

Official Journal of the European Union

24.3.2005

COUNCIL DECISION

of 14 March 2005

authorising the Republic of Cyprus to apply a 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

(2005/259/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community,

establishing the European

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

(4)

(5)

(6)

The measure is strictly targeted so that it can only be
invoked when a series of conditions have been met and
an absolute tax loss identified; and is therefore propor-
tionate to the aim pursued.

Similar derogations have been granted to other Member
States to counter tax avoidance and have been found to
be effective.

This derogation will safeguard the amount of VAT due at
the final consumption stage and has no negative impact
on the Communities’ own resources from VAT,

Having regard to the proposal from the Commission,

Whereas:

HAS ADOPTED THIS DECISION:

(1)

(2)

(3)

In a letter registered by the Commission’s Secretariat-
General on 11 November 2004,
the Republic of
Cyprus sought authorisation for a measure in existence
prior to accession to the European Union and which
derogates
of Directive
77/388/EEC.

from Article

11(A)(1)(a)

intended to
The measure requiring a derogation is
counter tax avoidance through the manipulation of the
value of supplies subject to value added tax (VAT).

in Article 11(A)(1)(a) of

The measure should apply only in cases where the
administration is able, based on the facts, to conclude
that the determination of the taxable amount provided
the said Directive is
for
influenced by family, legal or business ties between the
supplier and the recipient. In this matter the adminis-
tration should not act on mere presumptions, and the
parties concerned should be allowed to adduce evidence
to the contrary where they dispute the level of the open
market value established by the administration.

Article 1

By way of derogation from Article 11(A)(1)(a) of Directive
77/388/EEC, the Republic of Cyprus is hereby authorised to
use the open market value as the taxable amount of a supply
in the circumstances described in Article 2.

Article 2

The open market value may be applied only when all
following conditions are met:

the

1. The consideration paid is less than the open market value of

the supply;

2. The recipient of the supply does not have a right to deduct

in full;

(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).

3. The person making the supply and the recipient are
connected by family, business or legal ties, as defined in
national legislation;

24.3.2005

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Official Journal of the European Union

L 78/49

4. A number of facts make it possible to conclude that these
family, business or legal ties have influenced the determi-
nation of
in Article
the taxable amount provided for
11(A)(1)(a) of Directive 77/388/EEC.

Article 4

This Decision is addressed to the Republic of Cyprus.

Article 3

The authorisation granted under Article 1 shall expire on the
date of entry into force of a Directive rationalising the dero-
gations pursuant to Article 27 of Directive 77/388/EEC which
counter avoidance of VAT through the valuation of supplies
between connected persons, or on the 1 June 2009,
whichever is the earlier.

Done at Brussels, 14 March 2005.

For the Council

F. BODEN
The President