Proposal for a Council Decision authorising Greece and Portugal to introduce special measures derogating from Article 21(1) of Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes (Only the Greek and Portuguese versions are authentic)
Date: 2006-06-02
Institutions: European Commission
Subjects: Greece, Portugal, VAT, delivery, derogation from EU law, ferrous metal, non-ferrous metal, provision of services, waste

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.6.2006 
COM(2006) 263 final 

Proposal for a 

COUNCIL DECISION 

authorising Greece and Portugal to introduce special measures derogating from Article 
21(1) of Directive 77/388/EEC on the harmonisation of the laws of the Member States 
relating to turnover taxes 

(Only the Greek and Portuguese versions are authentic) 

(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 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, 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 letter registered with the Secretariat-General of the Commission on 19 September 
2005,  Portugal  requested  an  authorisation  to  introduce  measures  derogating  from 
Article 21(1) of Directive 77/388/EEC. In accordance with Article 27(2) of Directive 
77/388/EEC  the  Commission  informed  the  other  Member  States  of  the  request  by 
Portugal on 8 March 2006. The Commission notified Portugal on 9 March 2006 that it 
had  received  all  the  information  that  it  considered  necessary  for  appraisal  of  the 
request. 

By  letter  registered  at  the  Commission’s  Secretariat-General  on  15  March  2006,  the 
Greek authorities requested an extension to their existing derogation authorised under 
Decision 2002/736/EC (as amended by Decision 2004/227/EC). At the same time they 
requested to move from the exemption to a reverse charge by derogating from Article 
21(1) of Council Directive 77/388/EEC. In accordance with Article 27(2) of Directive 
77/388/EEC,  the  Commission,  in  a  letter  dated  28  March  2006,  informed  the  other 
Member  States  of  the  request  by  Greece.  By  letter  dated  31  March  2006,  the 
Commission notified Greece that it had all the information it considered necessary for 
appraisal of the request. 

120 

•  General context 

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

Greece  and  Portugal  would  like  to  apply  a  reverse  charge  procedure,  whereby  the 
taxable person to whom the supplies of goods or services are made becomes liable to 
account for the VAT on the supply of the following goods: 

the supply of ferrous and non ferrous waste, scrap, and used materials including 
(1) 
that of semi-finished products resulting from the processing, manufacturing or melting 
down of non-ferrous metals; 

the  supply  of  ferrous  and  non-ferrous  semi-processed  products  and  certain 

(2) 
associated processing services 

(3) 
the supply of residues and other recyclable materials consisting of ferrous and 
non-ferrous  metals,  their  alloys,  slag,  ash,  scale  and  industrial  residues  containing 
metals  or  their  alloys  and  the  supply  of  selection,  cutting,  fragmenting  and  pressing 

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services for these products; 

(4) 
the supply of, and certain processing services relating to, ferrous waste as well 
as  parings,  scrap,  waste  and  used  and  recyclable  material  consisting  of  cullet,  glass, 
paper, paperboard and board, rags, bone, leather, composition leather, parchment, raw 
hides and skins, tendons and sinews, twine, cordage, rope, cables, rubber and plastic; 

the supply of the materials referred to in point (4) after processing in the form 

(5) 
of cleaning, polishing, selection, cutting or casting into ingots; 

(6) 

the supply of scrap and waste from the working of base materials. 

The reverse charge would only apply to supplies made in Greece and Portugal. 

Portugal has highlighted the difficulties it faces in collecting the VAT due in the waste 
trading  sector  because  of  tax  evasion.  A  characteristic  form  of  evasion  is  that  a 
business within the waste material supply chain does not pay the invoiced VAT to the 
tax authority after reselling the raw materials yet their customers are able to deduct the 
tax legitimately. The result is reduced state revenues as well as the supplier obtaining 
an unfair market advantage, which adversely affects legitimate businesses. Portugal has 
estimated  that  in  2005  VAT  was  not  paid  in  relation  to  44%  of  the  VAT  returns 
submitted in the waste sector. 

Greece  has  similarly  encountered  revenue  losses  in  this  sector.  By  virtue  of  Council 
Decision 2004/227/EC, which extended the lifespan of Council Decision 2002/736/EC, 
Greece  was  authorised  to  apply  an  exemption  until  the  end  of  2005  to  supplies  and 
intra-Community  acquisitions  of  certain  recyclable  waste  by  taxable  persons  whose 
sales  of  such  products  in  the  previous  year  fell  below  €900,000.  Authority  was  also 
obtained  to  exempt  supplies  and  intra-Community  acquisitions  of  non-ferrous  metal 
waste, regardless of the taxable person's turnover. 

The  Greek  authority's  assessment  is  that  the  exemption  has  not  worked  as  well  as 
envisaged  in  preventing  avoidance  and  evasion.  Those  businesses  subject  to  the 
exemption  have  the  disadvantage  of  not  being  able  to  deduct  value  added  tax  (VAT) 
incurred in making their supplies and as a result have been rendered less competitive. 
This in its turn led to an increase in businesses applying for, and being authorised, not 
to use the exemption. This was an option provided for under Decision 2002/736/EC. 

In  common  with  Portugal  and  a  number  of  other  Member  States,  the  Greek 
Government would like to apply a reverse charge procedure. A reverse charge would 
not  have  the  disadvantage  of  removing  from  the  supplier  their  right  to  deduct  and 
would  ensure  a  wider  coverage  of  the  measure  and  therefore  prevent  the  leakage  of 
more tax. 

The  proposal  allows  for  the  authorisation  of  the  reverse  charge  until  31st  December 
2009.  However,  it  should  be  taken  into  account  that  on  16  March  2005,  the 
Commission presented a proposal for a Directive modifying Directive 77/388/EEC as 
regards certain measures to simplify the procedure for charging VAT and to assist in 
countering  tax  evasion  and  avoidance,  and  repealing  certain  Decisions  granting 
derogations  (the  rationalisation  of  Article  27  derogations).  This  proposal  includes, 
amongst  other  things,  similar  legislation  to  the  requested  measure.  The  proposed 

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130 

141 

derogation will, therefore, and only to the extent that it is covered by the rationalisation 
Directive,  cease  to  have  effect  as  from  the  entry  into  force  of  measures  in  this  area 
contained in the Directive resulting from the rationalisation proposal.  

•  Existing provisions in the area of the proposal 

Similar  derogations  in  relation  to  Article  21(1)  of  Directive  77/388/EEC  have  been 
granted to other Member States. 

•  Consistency with other policies and objectives of the Union 

Not applicable. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

219 

Not relevant. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

229 

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The  Decision  proposal  aims  at  simplifying  the  procedure  for  charging  the  tax  and  at 
combating  possible  VAT  evasion  or  avoidance  and  has  therefore  a  potential  positive 
economic impact. 

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

3)  LEGAL ELEMENTS OF THE PROPOSAL 

305 

•  Summary of the proposed action 

Authorisation  for  Greece  and  Portugal  to  apply  a  measure  derogating  from  Article 
21(1) of the Sixth Council Directive 77/388/EEC as regards the use of a reverse charge 
mechanism for domestic supplies of certain waste materials. 

310 

•  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 
system of value added tax: uniform basis of assessment. 

329 

•  Subsidiarity principle 

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

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331 

332 

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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 two Member States upon their 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): 

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  on  the  authority  of  the  Council  acting  unanimously  on  a 
proposal from the Commission. A Council Decision is the only suitable instrument. 

4)  BUDGETARY IMPLICATION 

409 

The proposal has no implication for the Community budget. 

5)  ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

533 

The proposal includes a sunset clause. 

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Proposal for a 

COUNCIL DECISION 

authorising Greece and Portugal to introduce special measures derogating from Article 
21(1) of Directive 77/388/EEC on the harmonisation of the laws of the Member States 
relating to turnover taxes 

(Only the Greek and Portuguese versions are authentic) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  the  sixth  Council  Directive  77/388/CEE  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 27(1) thereof, 

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

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 tax or to prevent certain types of tax evasion or avoidance. 

In a letter  registered  by  the Secretariat-General of the Commission on 19 September 
2005 Portugal requested authorisation to introduce a special measure derogating from 
Article 21(1) of Directive 77/388/EEC.  

In accordance with Article 27(2) of Directive 77/388/EEC, the Commission informed 
the  other  Member  States  of  the  request  made  by  Portugal  in  a  letter  dated  8  March 
2006. In a letter dated 9 March 2006, the Commission notified Portugal that it had all 
the information it considered necessary for appraisal of the request. 

In a letter registered by the Secretariat-General of the Commission on 15 March 2006 
Greece requested authorisation to introduce a special measure derogating from Article 
21(1) of Directive 77/388/EEC. 

In accordance with Article 27(2) of Directive 77/388/EEC, the Commission informed 
the  other  Member  States  of  the  request  made  by  Greece  in  a  letter  dated  28  March 
2006. In a letter dated 31 March 2006, the Commission notified Greece that it had all 
the information it considered necessary for appraisal of the request. 

1 
2 

OJ L 145, 13.6.1977, p.1. Directive last amended by Directive 2006/18/EC (OJ L 51, 22. 2.2006, p. 12).  
OJ C , , p. . 

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(6) 

(7) 

(8) 

(9) 

The  derogating  measure  from  Article  21(1)  of  Directive  77/388/EEC  is  intended  to 
allow  Greece  and  Portugal  to  counter  tax  evasion  or  avoidance  in  the  waste  sector. 
Typically,  the  entrepreneurs  within  the  chain  of  trading  waste  material,  a  significant 
number of whom go missing, do not pay VAT to the tax authorities after reselling the 
raw materials. Their customers, who are in receipt of a valid invoice, however remain 
entitled to a tax deduction.  

The measure is proportionate to the objectives pursued since it is not intended to apply 
generally, but to specific sectors and supplies which pose considerable problems with 
regard to avoidance or evasion. 

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

The authorisation should be limited to 31 December 2009, so that through experience 
gained  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 the derogations pursuant to Article 27 of Directive 77/388/EEC. 
It is therefore necessary to limit the application period for those parts of this Decision 
which are covered by the proposal, to the date that the proposed Directive enters into 
force. 

(10)  The  derogation  has  no  negative  impact  on  the  Community’s  own  resources  accruing 

from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 21(1) of Directive 77/388/EEC, in the version set out in 
Article  28g  thereof,  Greece  and  Portugal  are  authorised  to  designate  the  taxable  person,  to 
whom the supplies of goods and services referred to in Article 2 of this Decision are made, as 
the person liable to pay VAT. 

The  recipients  of  the  following  supplies  of  goods  and  services  may  be  designated  as  the 
person liable to pay VAT: 

Article 2 

(1) 

(2) 

(3) 

the  supply  of  ferrous  and  non  ferrous  waste,  scrap,  and  used  materials 
including  that  of  semi-finished  products  resulting  from  the  processing, 
manufacturing or melting down of non-ferrous metals; 

the  supply  of  ferrous  and  non-ferrous  semi-processed  products  and  certain 
associated processing services 

the supply of residues and other recyclable materials consisting of ferrous and 
non-ferrous  metals,  their  alloys,  slag,  ash,  scale  and  industrial  residues 
containing  metals  or  their  alloys  and  the  supply  of  selection,  cutting, 
fragmenting and pressing services for these products; 

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(4) 

the supply of, and certain processing services relating to, ferrous waste as well 
as parings, scrap, waste and used and recyclable material consisting of cullet, 
glass,  paper,  paperboard  and  board,  rags,  bone,  leather,  composition  leather, 
parchment,  raw  hides  and  skins,  tendons  and  sinews,  twine,  cordage,  rope, 
cables, rubber and plastic; 

(5) 

the supply of the materials referred to in point (4) after processing in the form 
of cleaning, polishing, selection, cutting or casting into ingots; 

(6) 

the supply of scrap and waste from the working of base materials. 

Article 3 

The  authorisation  granted  under  Article  1  of  this  Decision  shall  expire  on  the  date  of  entry 
into  force  of  a  Directive  rationalising  the  derogations  pursuant  to  Article  27  of  Directive 
77/388/EEC to the extent that supplies in Article 2 of this Decision are contained within that 
Directive, or on the 31 December 2009, whichever is the earlier. 

Article 4 

This Decision is addressed the Hellenic Republic and the Portuguese Republic. 

Done at Brussels,  

For the Council 
The President 

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