Proposal for a Council Decision authorising Germany to conclude an agreement with Switzerland that includes provisions derogating from Articles 2 and 3 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes
Date: 2005-08-26
Institutions: European Commission
Subjects: EC Directive, Germany, Switzerland, VAT, approximation of laws, derogation from EU law, engineering structure, provision of services, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 26.8.2005 
COM(2005) 392 final 

Proposal for a 

COUNCIL DECISION 

authorising Germany to conclude an agreement with Switzerland that includes 
provisions derogating from Articles 2 and 3 of the Sixth Council Directive 77/388/EEC 
on the harmonisation of the laws of the Member States relating to turnover taxes 

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EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

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•  Grounds for and objectives of the proposal 

In  a  letter  registered  at  the  Commission's  Secretariat-General  on  14  January  2005, 
Germany  requested  authorisation,  under  Article  30(1)  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  -  Common  system  of  value  added  tax:  uniform  basis  of 
assessment,  to  conclude  an  agreement  with  Switzerland  that  includes  tax  provisions 
derogating from Articles 2 and 3 of the said Directive. 

In accordance with Article 30(2) of Directive 77/388/EEC, the Commission informed 
the  other  Member  States  on  17  January  2005  of  the  request  made  and  by  letter  of 
19 January  2005,  the  Commission  notified  Germany  that  it  had  all  the  information  it 
considered necessary for appraisal of the request. 

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•  General context 

The  agreement  between  Germany  and  Switzerland  will  be  on  the  building  and  the 
maintenance  of  a  frontier  bridge  across  the  Rhine  between  Laufenburg  (Baden-
Württemberg)  and  Laufenburg  (Aargau),  which  links  the  German  federal  road  B  34 
and the Swiss canton road K 130. 

The  agreement  provides  that  goods  and  services  supplied  for  the  building  and  the 
maintenance of the bridge will be subject to Swiss value added tax and that no German 
value added tax will be charged on these supplies. 

It  also  provides  that  goods  imported  from  Switzerland  into  Germany  will  be  exempt 
from  value  added  tax,  provided  that  the  goods  are  used  for  the  building  or  the 
maintenance of this frontier bridge. The derogation does not apply to goods imported 
for the same purposes by a public authority. 

The  principles  of  territoriality  laid  down  in  Directive  77/388/EEC  would  require 
supplies of goods and services carried out in German territory to be subject to German 
value added tax whereas corresponding work carried out in Swiss territory would not 
be subject to the provisions of Directive 77/388/EEC. Applying these provisions would 
mean  breaking  down  operations  according  to  the  territory  in  which  each  part  of  the 
works was carried out. All goods imported from Switzerland into Germany for building 
or maintaining the bridge would also be subject to value added tax in Germany. 

The  contracting  States  consider  that  applying  these  rules  would  mean  major  tax 
complications  for  the  businesses  responsible  for  carrying  out  the  works  in  question. 
They therefore consider that the tax provisions in the draft agreement are justified and 
that they will simplify the businesses' tax responsibilities. 

The  Commission  accepts  that  the  proposed  way  of  taxing  the  building  and  the 
maintenance  works  and  waiving  value  added  tax  on  goods  imported  for  use  in  those 
works  is  a  simplification  which  will  make  it  easier  for  the  businesses  concerned  to 

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apply the tax rules than would be the case if the normal rules were applied. 

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•  Existing provisions in the area of the proposal 

It should be pointed out that the Council has on several previous occasions authorised 
Germany  to  conclude  similar  agreements  with  third  countries  on  projects  in  frontier 
areas  and  that  these  earlier  agreements  included  tax  provisions  similar  to  those 
proposed here. 

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•  Consistency with other policies and objectives of the Union 

Not applicable. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

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Not relevant. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

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The  Decision  proposal  aims  at  simplifying  the  procedure  for  charging  the  tax  in 
relation  to  the  building  and  maintenance  of  a  frontier  bridge  and  has  therefore  a 
potential positive economic impact. 

The impact will in any case be limited because of the narrow scope of the derogation. 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

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•  Summary of the proposed action 

Authorisation  for  Germany  to  conclude  an  agreement  with  Switzerland  that  includes 
provisions  derogating  from  the  Sixth  Council  Directive  77/388/EEC  as  regards  the 
territorial application of VAT. 

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•  Legal basis 

Article  30  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 - Common 
system of value added tax: uniform basis of assessment. 

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•  Subsidiarity principle 

The proposal falls under the exclusive competence of the Community. The subsidiarity 
principle therefore does not apply. 

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•  Proportionality principle 

The proposal complies with the proportionality principle for the following reason(s). 

This  Decision  concerns  an  authorisation  granted  to  a  Member  State  upon  its  own 
request and does not constitute any obligation. 

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

•  Choice of instruments 

Proposed instruments: other. 

Other means would not be adequate for the following reason(s). 

According to Article 30 of the Sixth Directive 77/388/EEC on the harmonisation of the 
laws  of  the  Member  States  relating  to  turnover  taxes,  only  a  Council  Decision  is 
possible. 

4)  BUDGETARY IMPLICATION 

If  authorisation  is  granted,  the  project  would  have  a  totally  insignificant  impact  on 
Community own resources obtained from value added tax. 

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Proposal for a 

COUNCIL DECISION 

authorising Germany to conclude an agreement with Switzerland that includes 
provisions derogating from Articles 2 and 3 of the Sixth Council 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 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 assessment1, and in particular Article 30 thereof, 

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Under  article  30(1)  of  Directive  77/388/EEC,  the  Council,  acting  unanimously  on  a 
proposal from the Commission, may authorise any Member State to conclude with a 
third country an agreement which may contain derogations from that Directive. 

In  a  letter  registered  at  the  Commission's  Secretariat-General  on  14  January  2005, 
Germany  requested  authorisation  to  conclude  an  agreement  with  Switzerland  on  the 
building  and  the  maintenance  of  a  frontier  bridge  across  the  Rhine  between 
Laufenburg (Baden-Württemberg) and Laufenburg (Aargau). 

In accordance with article 30(2) of Directive 77/388/EEC, the Commission informed 
the  other  Member  States  by  letter  dated  17  January  2005  of  the  request  made  by 
Germany. By letter dated 19 January 2005, the Commission notified Germany that it 
had all the information it considered necessary for appraisal of the request. 

The agreement is to contain provisions on VAT derogating from Articles 2(2) and 3 of 
Directive 77/388/EEC in respect of goods and services supplied for the building and 
the maintenance of the frontier bridge and of goods imported for the same purposes. 

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2 

OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2004/66/EC (OJ L 168, 1.5.2004, p. 35). 
OJ C , , p. . 

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(5) 

(6) 

(7) 

(8) 

If  the  derogations  to  Directive  77/388/EEC  were  not  granted,  building  and 
maintenance carried out in Germany would be subject to German VAT whereas those 
carried  out  in  Switzerland  would  not  be  subject  to  the  provisions  of  Directive 
77/388/EEC. Also, goods imported from Switzerland into Germany for the building or 
the maintenance of the frontier bridge would be subject to German VAT.  

Application  of  these  normal  rules  would  mean  serious  tax  complications  for  the 
businesses responsible for carrying out the works. 

This derogation is intended to simplify the collection of taxes on the works involved in 
building and maintaining the bridge in question. 

The  derogation  will  have  a  totally  insignificant  effect  on  the  Community's  own 
resources accruing from VAT. 

HAS ADOPTED THIS DECISION:  

Article 1 

Germany  is  hereby  authorised  to  conclude  an  Agreement  with  Switzerland  that  includes 
provisions derogating from the Sixth Council Directive 77/388/EEC that covers the building 
and  the  maintenance  of  a  frontier  bridge  across  the  Rhine  between  Laufenburg  (Baden-
Württemberg) and Laufenburg (Aargau). 

The derogating tax provisions of the Agreement are set out in Articles 2 and 3. 

Article 2 

By way of derogation from Article 3 of the Sixth Council Directive 77/388/EEC, the part of 
the bridge that is situated in German territory shall be deemed to be part of Swiss territory for 
the purposes of the supplies of goods and services for the building and the maintenance of the 
bridge. 

Article 3 

By  way  of  derogation  from  Article  2(2)  of  the  Sixth  Council  Directive  77/388/EEC,  goods 
imported  from  Switzerland  into  Germany  shall  not  be  subject  to  value  added  tax,  provided 
they  are  used  for  the  building  or  the  maintenance  of  the  bridge  referred  to  in  Article  1. 
However, this derogation shall not apply to goods imported for the same purposes by a public 
authority. 

This Decision is addressed to the Federal Republic of Germany. 

Done at Brussels,  

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For the Council 
The President 

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