2006/388/EC: Council Decision of  15 May 2006  authorising the Republic of Lithuania to apply a measure derogating from Article 21 of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes
Date: 2006-05-15
Institutions: Council of the European Union
Subjects: Lithuania, VAT, delivery, derogation from EU law, provision of services, tax evasion, tax harmonisation

3.6.2006

EN

Official Journal of the European Union

L 150/13

COUNCIL DECISION

of 15 May 2006

authorising the Republic of Lithuania to apply a measure derogating from Article 21 of the Sixth
Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover
taxes

(2006/388/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 thereof,

Having regard to the proposal from the Commission,

Whereas:

(1)

(2)

(3)

(4)

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

any Member State

in order

By letter registered with the Secretariat-General of the
Commission on 28 June 2005,
the Republic of
Lithuania
referred to as Lithuania) has
requested to be authorised to introduce measures dero-
gating from Article 21 of Directive 77/388/EEC.

(hereinafter

27(2)

accordance with Article

of Directive
In
77/388/EEC,
the Commission informed the other
Member States by letter dated 22 August 2005 of the
request made by Lithuania. By letter dated 23 August
2005, the Commission notified Lithuania that it had all
the information it considered necessary for appraisal of
the request.

Article 21(1) of Directive 77/388/EEC, in the version set
in Article 28g thereof, stipulates that, under the
out
internal system, the taxable person supplying goods or
services is normally liable to pay value added tax (VAT).

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

2006/18/EC (OJ L 51, 22.2.2006, p. 12).

(5)

(6)

(7)

(8)

(9)

(10)

The purpose of the derogation requested by Lithuania is
to make, under certain conditions, the recipient liable for
VAT due on the supply of goods and services in the case
of insolvency procedures or of restructuring procedures
subject to judicial oversight, of timber transactions, of
ferrous and non-ferrous waste and of
supplies of
construction work.

Taxable persons under insolvency procedures or restruc-
turing procedures subject to judicial oversight are often
prevented by financial difficulties
from paying VAT
invoiced on their supplies of goods and services. The
recipient can nonetheless deduct VAT even though it
has not been paid by the supplier.

Problems are encountered in the timber market of
Lithuania because of the nature of the market and the
businesses involved. The market is dominated by small
local companies, often resellers and intermediaries, which
the tax authorities have found difficult to control. The
most common form of evasion involves the invoicing of
supplies followed by the disappearance of the business
without paying tax but leaving the customer in receipt of
a valid invoice for tax deduction.

Similar problems of non-payment of invoiced VAT are
encountered in the Lithuanian waste recycling sector of
ferrous and non-ferrous metals.

in the Lithuanian
Comparable problems also occur
in particular in relation to VAT
construction sector,
invoiced by subcontractors who subsequently disappear.

By designating the recipient as the person liable for the
VAT in the abovementioned cases that adversely affects
public finances, the derogation removes the difficulties
encountered without affecting the amount of tax due.
This has the effect of simplifying the work of the tax
authorities for charging the tax and of preventing certain
types of tax evasion or avoidance.

(11)

The measure is proportionate to the objectives pursued
since it is not intended to apply generally, but only to
specific operations and sectors which pose considerable
problems in charging the tax or of
tax evasion or
avoidance.

L 150/14

EN

Official Journal of the European Union

3.6.2006

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

2. supplies of timber;

(12)

(13)

The authorisation should be limited to 31 December
2009, so that in the light of the experience gleaned up
to that date an assessment may be made whether or not
the derogation remains justified. However, on 16 March
2005 the Commission proposed a Directive rationalising
some of
to Article 27 of
Directive 77/388/EEC (1).
is therefore necessary to
bring the application period for
this
those parts of
Decision which are covered by the proposal, to an end
when that Directive enters into force.

the derogations pursuant

It

(14)

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

HAS ADOPTED THIS DECISION:

Article 1

in the version set out

By way of derogation from Article 21(1)(a) of Directive
77/388/EEC,
in Article 28g thereof,
Lithuania is hereby authorised to designate the taxable person,
to whom the supplies of goods or services referred to in Article
2 are made, as the person liable to pay VAT.

Article 2

3. supplies of

ferrous waste and scrap, residues and other
ferrous and non-ferrous

recyclable materials consisting of
metals;

4. supplies of construction work by a subcontractor to either a
general contractor, another subcontractor or a company
which carries out its own construction work.

Article 3

The authorisation granted under Article 1 shall expire on 31
December 2009. However, points (3) and (4) of Article 2 shall
cease to have effect on the date of the entry into force of a
Directive rationalising the derogations pursuant to Article 27 of
Directive 77/388/EEC which includes a special scheme for the
application of VAT to that sector, provided that date is before
31 December 2009.

Article 4

This Decision is addressed to the Republic of Lithuania.

The recipient of
the supply of goods or services may be
designated as the person liable to pay VAT in the following
instances:

Done at Brussels, 15 May 2006.

1. supplies of goods and services by a taxable person while
restructuring

under
insolvency
procedure subject to judicial oversight;

procedure

an

or

a

For the Council
The President

U. PLASSNIK

(1) OJ C 125, 24.5.2005, p. 12.