Proposal for a Council Decision amending Decisions 98/161/EC, 2004/228/EC and 2004/295/EC as regards the extension of measures to prevent evasion of value added tax in the waste sector
Date: 2005-12-07
Institutions: European Commission
Subjects: Italy, Netherlands, Spain, VAT, derogation from EU law, tax evasion, waste recycling

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.12.2005 
COM(2005)635 final 

Proposal for a 

COUNCIL DECISION 

amending Decisions 98/161/EC, 2004/228/EC and 2004/295/EC as regards 
the extension of measures to prevent evasion of value added tax in the waste sector 

. 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

110 

•  Grounds for and objectives of the proposal 

Pursuant to Article 27(1) of the Sixth Council Directive 77/388/EEC of 17th 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, the Council, acting 
unanimously on a proposal from the Commission, may authorise any Member State to 
apply  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. 

By letters registered with the Secretariat-General of the Commission on 3 August 2005, 
25 October 2005 and 26 September 2005: Spain; the Netherlands and Italy respectively 
have requested to be authorised to renew measures derogating from either Article 21, 
or Articles 2 and 28a(1) of Directive 77/388/EEC. In accordance with Article 27(2) of 
that  Directive  the  Commission  informed  the  other  Member  States  by  letters  dated  6 
September  2005,  26  October  2005  and  24  October  2005  of  these  requests.  The 
Commission informed Spain, the Netherlands and Italy by letters dated respectively 7 
September 2005, 27 October 2005 and 25 October 2005 that it had all the information 
it considered necessary for appraisal of the request. 

120 

•  General context 

The Member States concerned have all experienced problems in the past of VAT losses 
in the waste and recycling sector. The most common abuse consists of the non payment 
to the tax authorities of invoiced VAT by small businesses involved in the waste trade 
who  subsequently  disappear  and  become  untraceable.  The  recipient  is  left  with  an 
invoice which is valid for tax deduction whilst at the same time the output tax remains 
unpaid. These problems led to separate derogations based on the needs and approaches 
of the Member States concerned. 

Thus  the  Kingdom  of  Spain  and  Italy  applied  for,  and  received,  authority  to  apply 
special  measures  derogating  from  Article  21  until  at  the  latest  31  December  2005, 
whilst the Netherlands received an authority to apply special measures derogating from 
Articles  2  and  28a(1)  to  the  same  date.  In  the  event  of  the  coming  into  force  of  a 
special scheme for the application of VAT to the waste sector amending the Sixth VAT 
Directive, the extant Decisions provide for the termination of the authority. 

Believing the measures concerned to be effective and that there is a continuing need to 
retain  them,  the  Member  States  involved  have  now  requested  an  extension  to  their 
respective authorities. Although a reverse charge in the waste sector is proposed as an 
option  within  the  6th  Directive  as  part  of  Commission  proposal  COM(2005)89  to 
rationalise  the  number  of  Article  27  derogations,  it  is  by  no  means  certain  that 
agreement  will  be  reached  on  the  dossier  before  31  December  2005.  An  extension  is 
therefore necessary to ensure the continuity of the legal base for the existing measures.  

As a general rule, Article 21(1)(a) of Directive 77/388/EEC, stipulates that the taxable 
person  supplying  goods  or  services  is  normally  liable  to  pay  value  added  tax.  Both 
Spain and Italy, however, would like to continue to apply a reverse charge procedure 

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which derogates from this by making the taxable person to whom the supplies of goods 
or services are made, liable for the payment of VAT. In the circumstances of the waste 
and recycling market this will have the effect of simplifying the application of the tax 
and of safeguarding revenue, which will be paid by the person who is also deducting 
the VAT charged, rather than by a supplier with a tendency to disappear. 

Although  supplies  in  the  sector  concerned  would  normally  be  taxable  at  the  standard 
rate,  the  Netherlands  wishes  to  maintain  their  derogation  from  Article  2  and  28a(1) 
which authorises the application of an exemption, subject to some additional criteria, to 
supplies and intra-community acquisitions of used and waste materials. 

•  Existing provisions in the area of the proposal 

France and Greece enjoy similar derogations to the Netherlands in that they allow for 
the  application  of  an  exemption  from  VAT  in  certain  circumstances  to  operations 
involving fresh industrial waste and recuperable material.  

•  Consistency with other policies and objectives of the Union 

Not applicable. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

130 

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•  Consultation of interested parties 

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Not relevant. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

229 

230 

The proposed Decision aims to maintain derogations which simplify the procedure for 
charging the tax and which combat VAT evasion or avoidance. 

Given the narrow scope of application, and the fact that the proposed Decision simply 
renews existing derogations, the impact will in any case be limited. 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

305 

•  Summary of the proposed action 

Decision renewing authorisations granted until 31 December 2005 to the Netherlands 
to apply an exemption, and for Italy and Spain to apply a reverse charge, to supplies 
made in the waste sector.  

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•  Legal basis 

Article  27(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 

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system of value added tax: uniform basis of assessment. 

329 

•  Subsidiarity principle 

331 

332 

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

•  Proportionality principle 

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

This Decision concerns authorisations granted to a number of Member States on their 
own request and do not constitute any obligations.  

Given the limited scope of the derogation, the special measures are proportionate to the 
aim pursued. 

•  Choice of instruments 

Proposed instruments: other. 

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

Under Article 27 of the Sixth Council Directive 77/388/EEC on the harmonisation of 
the laws of the Member States relating to turnover taxes, derogation from the common 
VAT rules is only possible with the authorisation of the Council acting unanimously on 
a proposal from the  Commission.  A Council Decision is the only suitable instrument 
since it can be addressed to individual member states. 

4)  BUDGETARY IMPLICATION 

409 

The proposal has no implication for the Community budget. 

5)  ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

The proposal includes a sunset clause. 

•  Detailed explanation of the proposal 

533 

570 

The  proposal  only  changes  the  expiry  date  for  each  of  the  identified  Decisions. 
Because  of  the  wording  of  the  existing  derogations,  this  will  have  the  effect  of 
authorising  the  derogation  in  each  case  until  the  earlier  of  31  December  2009  or  the 
date of entry into force of the so called "rationalisation Directive" (currently proposal 
COM(2005)89)  containing  a  special  scheme  for  the  application  of  VAT  to  the  waste 
sector.  As  proposed,  this  will  allow  all  Member  States  to  apply  a  reverse  charge  to 
certain  supplies,  including  waste,  after  consultation  with  the  VAT  Committee 
(established under Article 29 of Directive 77/388/EEC.) The special scheme referred to 
will therefore essentially be an option within the 6th directive.  

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Proposal for a 

COUNCIL DECISION 

amending Decisions 98/161/EC, 2004/228/EC and 2004/295/EC as regards 
the extension of measures to prevent evasion of value added tax in the waste sector 

(Only the Dutch, Spanish and Italian versions are authentic) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the 
laws of the Member States relation to turnover taxes – Common system of valued added tax: 
uniform basis of assessment1, and in particular Article 27 thereof, 

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

Under  Article  27(1)  of  Directive  77/388/EEC,  the  Council,  acting  unanimously  on  a 
proposal  from  the  Commission,  may  authorise  any  Member  State  to  apply  special 
measures  for  derogation  from  that  Directive  in  order  to  simplify  the  procedure  for 
charging  the  valued  added  tax  (VAT)  or  to  prevent  certain  types  of  tax  evasion  or 
avoidance. 

By letter registered by the Secretariat-General of the Commission on 25 October 2005 
the Netherlands requested an extension of Council Decision 98/161/EC of 16 February 
1998 authorising the Kingdom of the Netherlands to apply a measure derogating from 
Articles 2 and 28a(1) of the Sixth Council Directive 77/388/EEC on the harmonisation 
of the laws of the Member States relating to turnover taxes3.  

By letter registered by the Secretariat-General of the Commission on 3 August 2005 
Spain requested an extension of Council Decision 2004/228/EC of 26 February 2004 
authorising Spain to apply a measure derogating from Article 21 of the Sixth Council 
Directive 77/388/EEC on the harmonisation of the laws of the Member States relating 
to turnover taxes 4.  

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4 

OJ  L  145,  13.6.1977,  p.  1.  Directive  as 
(OJ L 168, 1.5.2004, p. 35). 
OJ C […], […], p. […]. 
OJ  L  53,  24.2.1998,  p.  19.  Decision  as 
(OJ L 219, 19.6.2004, p. 11). 
OJ L 70, 9.3.2004, p. 37. 

last  amended  by  Directive  2004/66/EC 

last  amended  by  Decision  2004/514/EC 

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(4) 

(5) 

(6) 

(7) 

(8) 

By  letter  registered  by  the  Secretariat-General  of  the  Commission  on  26  September 
2005 Italy requested an extension of Council Decision 2004/295/EC of 22 March 2004 
authorising Italy to apply a measure derogating from Article 21 of the Sixth Council 
Directive 77/388/EEC on the harmonisation of the laws of the Member States relating 
to turnover taxes5.  

In accordance with Article 27(2) of Directive 77/388/EEC, the Commission informed 
the other Member States of the mentioned requests. In letters dated 27 October 2005; 7 
September  2005;  and  25  October  2005,  the  Commission  respectively  notified  the 
Netherlands, Spain and Italy that it had all the information it considered necessary for 
the appraisal of their individual requests. 

Decision  98/161/EC  authorised  the  Netherlands  to  apply,  until  31  December  1999, 
certain  measures  to  prevent  evasion  connected  with  the  supply  and  intra-community 
acquisition  of  used  and  waste  materials.  Decision  2000/435/EC6  extended  the  expiry 
date of Decision 98/161/EC until 31 December 2003. It was subsequently followed by 
Decision 2004/514/EC7 which further extended the authorisation given under Decision 
98/161/EC until the earlier of the date of entry into force of a special scheme for the 
application of VAT to the recycled waste sector or 31 December 2005. 

Decision 2004/228/EC authorised Spain to apply a measure to prevent evasion of VAT 
in the waste recycling sector. The Decision expires on the earlier of the date of entry 
into force of a special scheme for the application of VAT to the recycled waste sector 
or 31 December 2005. 

Decision 2004/295/EC authorised Italy to apply a measure to prevent evasion of VAT 
in the waste recycling sector. The Decision expires on the earlier of the date of entry 
into force of a special scheme for the application of VAT to the recycled waste sector 
or 31 December 2005. 

(9) 

The  measures  are  proportionate  to  the  objectives  pursued  since  they  are  intended  to 
apply to specific supplies which pose considerable risks of tax evasion. 

(10)  The matters of law and of fact which justified the application of the special measures 
in question have not been changed and still pertain. However, on 16 March 2005 the 
Commission  submitted  a  proposal  for  a  Council  Directive  amending  Directive 
77/388/EEC as regards certain measures to simplify the procedure for charging value 
added tax and to assist in countering tax evasion and avoidance, and repealing certain 
Decisions granting derogations8. The proposed Directive would, if adopted, empower 
Member  States  to  designate  the  recipient  of  certain  goods  and  services  in  the  waste 
sector as the person liable to pay the tax. 

(11)  Consequently,  it  is  necessary  to  extend  the  application  of  Decisions  98/161/EC, 
2004/228/EC and 2004/295/EC, until 31 December 2009 or until 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, whichever is the earlier. 

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OJ L 97, 1.4.2004, p. 63. 
OJ L 172, 12.7.2000, p. 24 
OJ L 219, 19.6.2004, p. 11. 
COM(2005) 89. 

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

HAS ADOPTED THIS DECISION:  

In Article 1 of Decision 98/161/EC, the date "31 December 2005" is replaced by the date "31 
December 2009" 

Article 1 

In Article 3 of Decision 2004/228/EC, the date "31 December 2005" is replaced by the date 
"31 December 2009" 

Article 2 

In Article 3 of Decision 2004/295/EC, the date "31 December 2005" is replaced by the date 
"31 December 2009" 

Article 3 

Article 4 

This Decision is addressed to the Kingdom of the Netherlands, the Kingdom of Spain and the 
Italian Republic. 

Done at Brussels,  

For the Council 
The President 

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