Proposal for a Council Directive amending Council Directive 2002/38/EC as regards the period of application of the value added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services
Date: 2006-11-24
Institutions: European Commission
Subjects: VAT, broadcasting, electronic commerce, provision of services, tax exemption, television

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.11.2006 
COM(2006) 739 final 

2006/0245 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Council Directive 2002/38/EC as regards the period of application of the value 
added tax arrangements applicable to radio and television broadcasting services and 
certain electronically supplied services 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

Council  Directive  2002/38/EC  of  7  May  2002  amending  and  amending  temporarily 
Directive 77/388/EEC as regards the value added tax arrangements applicable to radio 
and television broadcasting services and certain electronically supplied services, the so 
called e-commerce VAT Directive, contains a number of provisions which were due to 
expire on 30 June 2006 unless extended. 

When enacted, it was intended that the provisions covering the place of supply of these 
services and certain facilitation measures for non-EU businesses should be reviewed by 
the Council before the end of the first three years of operation and, on the basis of a 
proposal from the Commission, revised or extended as needed. On 15 May 2006, the 
Commission  adopted  the  required  report  to  the  Council  as  well  as  a  proposal 
temporarily extending the validity of Council Directive 2002/38/EC until 31 December 
20081.  The  report  sets  out  in  some  detail  the  reasons  why  these  measures  should 
continue  in  operation,  outlining  in  particular  the  successful  manner  in  which  they 
achieved their original objective. Given the recent provenance of this report, it is not 
necessary to repeat these arguments in detail here. 

In June 2006 however, the Council decided on an extension which runs only to the end 
of the current year. 

In the view of the Commission, an extension of the original measures was needed in 
order  to  ensure  the  proper  functioning  of  the  internal  market  and  to  ensure  the 
continued elimination of distortion. Allowing the 2002 measures to expire would have 
led  to  consequences  which  nobody  would  have  welcomed.  In  the  longer  run,  the 
adoption by the Council of proposals from the Commission on the place of supply of 
services  (COM  (2005)  334)  and  on  the  simplification  of  VAT  obligations  (COM 
(2004)  728)  will  encompass  the  long  term  fulfilment  of  the  aims  of  Directive 
2002/38/EC.  The  slow  rate  of  legislative  progress  by  Member  States  in  the  Council 
however  meant  that  these  changes  would  not  have  been  in  place  in  time  before  the 
2002 measures expire. Indeed it is highly improbable that that they will be in place by 
the end of 2006. Accordingly, it is the view of the Commission that an extension to the 
end of 2008, as originally proposed, is still required. This will allow sufficient time for 
the  adoption  of  the  two  proposals  mentioned  above  and  for  Member  States  to  ensure 
that the infrastructural changes necessary are in place. 

The objective of this proposal remains the same as the earlier extension proposal. The 
2002 Directive rectified an obvious shortcoming in one of the basic provisions of VAT 
law which conflicted with the neutrality central to VAT, leaving European business at 
a competitive disadvantage. 

The detailed justification for extending 2002 measures in their present form is already 
set  out  in  detail  in  the  proposal  and  report  of  May  2006  remains  valid  and  it  is  not 

1 

COM (2006) 210 final of 15 May 2006. 

EN 

2 

   EN 

 
                                                 
considered necessary to repeat them in detail here.  

This  proposal  will  also  ensure  the  continued  functioning  provisions  of  Council 
Regulation (EC) No 1798/2003 relating to e-service operations.  

•  General context 

Council  Directive  2002/38/EC  achieved  its  objectives  in  redressing  a  competitive 
disadvantage faced by EU businesses and nobody would wish to revert to the position 
which existed prior to its adoption, confirming the case for extending the provisions 

•  Existing provisions in the area of the proposal 

This  is  a  simple  extension  of  the  existing  provisions  in  Directive  2002/38/EC  so  that 
they remain in force until the end of 2008. In time they will be given permanent effect 
by the adoption of the two proposals already mentioned, COM (2004) 728 and COM 
(2005) 334. Largely because of their much broader scope, legislative progress has been 
slower than expected. Nevertheless, they are likely to be adopted in the near future but 
not in time to cover the expiry of the provisions in the 2002 Directive at the end of the 
current year. 

It should be recalled that, taken together, these two proposed measures will ensure the 
correct long term functioning of the application of VAT to e-services in line with the 
goals set out in Article 5 of Directive 2002/38/EC. 

•  Consistency with the other policies and objectives of the Union 

The provisions whose extension is being proposed are fully in line with established EU 
VAT  policy  as  set  out  in  the  6th  VAT  Directive.  The  original  2002  Directive  was 
occasioned  by  a  lacuna  in  the  coverage  of  the  6th  Directive  caused  by  technological 
change and the need to assure consistent application of the tax. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

Consultation methods, main sectors targeted and general profile of respondents 

Participants in two seminars in the Fiscalis Programme held during the last three years 
to monitor the operation of the 2002 Directive included representatives of all Member 
States and representatives of a majority of the operators involved. 

Summary of responses and how they have been taken into account 

Because  of  the  sensitive  nature  of  the  relationship  between  taxpayers  and  tax 
administrations,  it  is  not  appropriate  to  identify  individual  contributions  to  this 
dialogue. All  significant issues  raised were however addressed in  the  report  from  the 
Commission to the Council and it is not considered necessary to repeat them here. 

EN 

3 

   EN 

 
 
•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

The only other option open to the Commission would be to allow the 2002 provisions 
to lapse.  

The  reasons  why  this  is  not  a  realistic  option  are  set  out  in  the  report  from  the 
Commission to the Council. 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action 

The  proposal  will  extend  the  period  of  application  foreseen  in  Article  1  of  Council 
Directive  2002/38/EC  thereby  ensuring  that  the  measures  adopted  for  the  correct 
taxation  of  certain  electronically  supplied  services  and  radio  and 
television 
broadcasting services remain in place. 

•  Legal basis 

Article 93 of the Treaty and Council Directive 2002/38/EC 

•  Subsidiarity principle 

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). 

The Proposal is a simple extension of the period of application of an existing measure 
in the 6th VAT Directive. There is no other reasonable alternative. 

The measures adopted in 2002 have worked satisfactorily for both Member States and 
the businesses concerned. There is no alternative option which would better achieve the 
objectives of the original measure.  

•  Choice of instruments 

Proposed instruments: Directive. 

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

This  Proposal  extend  the  period  of  application  of  a  provision  already  enacted  in  a 
Directive. There is no alternative means to achieve this objective.  

EN 

4 

   EN 

 
 
4)  BUDGETARY IMPLICATION 

The proposal has no quantifiable implication for the Community budget. 

5)  ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

Given  that  these  measures  will  in  time  be  subsumed  in  other  legislation  which  is 
currently under discussion in the Council, there is no need for a revision clause. 

The proposal includes a sunset clause. 

•  Correlation table 

The  Member  States  are  required  to  communicate  to  the  Commission  the  text  of 
national  provisions  transposing  the  Directive  as  well  as  a  correlation  table  between 
those provisions and this Directive. 

EN 

5 

   EN 

 
 
2006/0245 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Council Directive 2002/38/EC as regards the period of application of the value 
added tax arrangements applicable to radio and television broadcasting services and 
certain electronically supplied services 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
93 thereof, 

Having regard to the proposal from the Commission2, 

Having regard to the opinion of the European Parliament3, 

Having regard to the opinion of the European Economic and Social Committee4, 

Whereas: 

(1) 

(2) 

The  provisions  of  Council  Directive  2002/38/EC  of  7  May  2002  amending  and 
amending  temporarily  Directive  77/388/EEC  as  regards  the  value  added  tax 
arrangements  applicable  for  radio  and  television  broadcasting  services  and  certain 
electronically  supplied  services  were  extended  until  31  December  2006  by  Council 
Directive  2006/58/EC  of  27  June  2006  amending  Council  Directive  2002/38/EC  as 
regards  the  period  of  application  of  the  value  added  tax  arrangements  applicable  to 
radio and television broadcasting services and certain electronically supplied services5 

It has not yet been possible to adopt provisions on the place of supply of services and 
on  a  more  general  electronic  mechanism.  Considering  that  he  legal  situation  and  the 
facts which justified the extension until 31  December 2006 have not changed and to 
avoid  a  temporary  gap  in  the  value  added  tax  arrangements  for  radio  and  television 
broadcasting services and certain electronically supplied services, those arrangements 
should continue to apply until 31 December 2008, 

(3) 

Directive 2002/38/EC should therefore be amended accordingly, 

2 
3 
4 
5 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 174, 28.6.2006, p5 

EN 

6 

   EN 

 
                                                 
HAS ADOPTED THIS DIRECTIVE: 

Article 1 

Article 4 of Directive 2002/38/EC is replaced by the following: 

'Article 1 shall apply until 31 December 2008.' 

Article 2 

Transposition 

1. 

Member States shall adopt and publish, by 31 December 2006 at the latest, the laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  this  Directive. 
They  shall  forthwith  communicate  to  the  Commission  the  text  of  those  provisions 
and a correlation table between those provisions and this Directive. 

They shall apply those provisions from 1 January 2007. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

This Directive shall enter into force on the day following that of its publication in the Official 
Journal of the European Union. 

Article 3 

Article 4 

This Directive is addressed to the Member States. 

Done at Brussels, […] 

For the Council 
The President 
[…] 

EN 

7 

   EN