Proposal for a Council Decision authorising Romania to apply a reduced rate of VAT to certain labour-intensive services referred to in Article 28(6) of Directive 77/388/EEC
Date: 2006-11-28
Institutions: European Commission
Subjects: EU employment policy, Romania, VAT rate, home care, service industry, tax relief

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.11.2006 
COM(2006) 736 final 

Proposal for a 

COUNCIL DECISION 

authorising Romania to apply a reduced rate of VAT to certain labour-intensive services 
referred to in Article 28(6) of Directive 77/388/EEC 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1)  BACKGROUND 

110 

•  Grounds for and objectives of the proposal 

This proposal for a Decision is intended to implement, as far as Romania is concerned, 
the provisions of Directive 2006/18/EC, which was adopted on 14 February 2006 (OJ 
L 51, 22.02.2006, p. 12), from Romania's date of accession to the European Union. The 
Directive extends until 31 December 2010 the experiment of reduced rates for labour-
intensive services and makes it possible for all Member States to take part in it under 
the same conditions. The purpose of this proposal is therefore to extend this possibility 
to  Romania  and  authorise  it  to  apply  such  a  reduced  rate  once  it  joins  the  European 
Union, so as to ensure equal treatment for all Member States.  

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•  General context 

1. 
On  14 February  2006,  the  Council  adopted  Directive 2006/18/EC  amending 
Directive 77/388/EEC with regard to reduced rates of value added tax, and in particular 
Article 28(6)  thereof.  Paragraph  6  was  added  by  Council  Directive 1999/85/EC  of 
22 October 1999 (OJ L 277, 28.10.1999, p.34) and applied initially until 31 December 
2002.  The  provisions  were  then  extended  by  Directive 2002/92/EC  of  3 December 
(OJ  L  331,  7.12.2002,  p.27)  until  31 December  2003  and  by 
2002 
Directive 2004/15/EC  of  10 February  2004  (OJ  L  52,  21.2.2004,  p.61)  until 
31 December 2005. To achieve a better understanding of the impact of reduced rates, 
the  Council  asked  the  Commission  to  prepare  an  assessment  report  on  the  impact  of 
reduced  rates  applied  to  locally  supplied  services,  notably  in  terms  of  job  creation, 
economic growth and the proper functioning of the internal market. 

2. 
Pending  the  outcome  of  that  assessment,  Directive 2006/18/EC  extends  the 
experiment  of  reduced  rates  for  labour-intensive  services  until  31 December  2010.  It 
also allows all Member States to take part in the experiment under the same conditions. 

Member  States  wishing  to  avail  themselves  for  the  first  time  of  the  facility 
3. 
provided for in Article 28(6) of Directive 77/388/EEC and those wishing to amend the 
list  of  services  to  which  they  had  applied  that  provision  in  the  past  had  to  submit  a 
request  to  the  Commission,  together  with  the  relevant  particulars  for  the  purpose  of 
assessment,  by  31 March  2006  and  comply  with  the  procedure  and  conditions  laid 
down  in  Article 1(2)  of  Directive  2006/18/EC.  On  this  basis,  the  Commission  has 
presented the Council with a proposal for a Decision authorising 17 Member States to 
apply a reduced rate to certain labour-intensive services1. 

4. 
By  letter  dated  31  March  2006,  Romania  also  submitted  a  request  to  apply  a 
reduced rate for certain services, referred to in points 1 and 4 of Annex K to Directive 
77/388/EEC, supplying the information necessary for an assessment. 

5. 
Since  all  the  Member  States  may  temporarily  apply  a  reduced  rate  to  certain 
categories  of  labour-intensive  services,  the  same  possibility  should  be  offered  to  the 

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COM(2006) 410 final. 

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accession countries, authorising them to apply the reduced rate from their accession to 
the European Union, if they so request under the same procedure and conditions as the 
present  Member  States.  Recital  (3)  of  Directive  2006/18/EC  states  that  one  of  the 
objectives of that Directive is to apply the same conditions to all Member States which 
wish to take part in the experiment of reduced rates for labour-intensive services. It is 
therefore  appropriate  to  apply  the  fourth  subparagraph  of  Article  28(6)  of  Directive 
77/388/EEC  by  analogy  and  mutatis  mutandis  to  the  accession  countries,  taking 
account  of  the  specific  legal  situation  of  those  States  in  the  period  leading  up  to 
accession.  

6. 
Under  Article  55  of  the  Act  concerning  the  conditions  of  accession  of  the 
Republic  of  Bulgaria  and  Romania  and  the  adjustments  to  the  Treaties  on  which  the 
European Union is founded (OJ L 157, 21.06.2005, p. 203), at the duly substantiated 
request of Bulgaria or Romania submitted to the Commission no later than the date of 
accession, the Council, acting on a proposal from the Commission, may take measures 
consisting  of  temporary  derogations  from  acts  of  the  institutions  adopted  between  1 
October  2004  and  the  date  of  accession.  Under  the  same  Article,  moreover,  the 
measures shall be adopted according to the voting rules governing the adoption of the 
act from which a temporary derogation is sought.  

7. 
As Directive 2006/18/EC was adopted after 1 October 2004, the Council, acting 
on  a  proposal  from  the  Commission,  may  take  a  decision  on  Romania's  request 
according to the voting rules governing the adoption of the act from which a temporary 
derogation is sought. In the present case, the voting rules require a unanimous decision 
by the Council. Unanimity is required both by Article 93 of the Treaty establishing the 
European  Community  (the  legal  basis  for  the  adoption  of  Directive  2006/18/EC)  and 
by the first subparagraph of Article 28(6) of Directive 77/388/EEC.  

ASSESSMENT BY THE COMMISSION 

The Commission considers that Romania's request was presented according to a similar 
procedure  to,  and  under  the  same  conditions  as,  those  laid  down  in  Article  1  of 
Directive 2006/18/EC, which applies to the current Member States.  

Article  55  of  the  Act  of  Accession  of  Bulgaria  and  Romania  enables  the  Council, 
referring to Article 28(6) of Directive 77/388/EEC, to ensure equal treatment for all the 
Member  States,  from  the  date  of  accession  of  Bulgaria  and  Romania,  as  regards  the 
experiment of reduced rates for labour-intensive services. 

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•  Existing provisions on the subject covered by the proposal 

The exercise involves the implementation of Article 28(6) of Directive 77/388/EEC, as 
last amended by Directive 2006/18/EC with regard to reduced rates of VAT for labour-
intensive services. The legal basis for this implementation is Article 55 of the Act of 
Accession of Bulgaria and Romania.  

•  Consistency with the other policies and objectives of the Union 

Directive 1999/85/EC  formed  part  of  EU  employment  policy  and  was  intended,  in 
particular,  to  promote  an  increase  in  employment  and  reduce  the  level  of  undeclared 
labour.  The  problem  of  unemployment  was  so  serious  that  those  Member  States 

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wishing to do so were allowed to experiment with the operation and impact, in terms of 
job creation, of a reduction in the VAT rate on labour-intensive services not currently 
listed in Annex H to Directive 77/388/EEC.  

However,  the  introduction  of  such  a  targeted  reduction  in  the  VAT  rate  entails  some 
risk to the proper operation of the internal market and tax neutrality; it was therefore 
necessary to adopt an experimental measure which Member States could opt to apply. 
Provision was also made for a specific authorisation procedure and for the scope of the 
Decision  to  be  made  subject  to  strict  conditions  so  that  it  remained  verifiable  and 
limited.  This  is  the  background  against  which  Directive 2006/18/EC,  which  extended 
this experiment for the third time, was adopted and this Decision is being proposed. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

Directive 2006/18/EC  is  the  result  of  negotiations  in  the  Council  on  Commission 
proposal COM(2003) 397 final on the review of reduced rates of VAT. This proposal 
for  a  Decision  is  intended  to  apply  the  Directive  to  Romania,  following  its  formal 
request  to  take  part  in  the  experiment.  Interested  parties  have  not  therefore  been 
consulted again. 

•  Collection and use of expertise 

Outside expertise has not been required. 

•  Impact assessment 

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This proposal for a Decision is intended to implement, as far as Romania is concerned, 
from  the  date  of  accession  until  31  December  2010,  the  provisions  of  Directive 
2006/18/EC, which provides in particular for the extension of an existing provision. 

To  achieve  a  better  understanding  of  the  impact  of  reduced  rates,  the  Directive  also 
lays down that the Commission must prepare an assessment report by 30 June 2007, on 
the basis of a study carried out by an independent economic think-tank, on the impact 
of reduced rates applied to locally supplied services, notably in terms of job creation, 
economic growth and the proper functioning of the internal market. At this stage, there 
is therefore no reason to examine other options. 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

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•  Summary of the proposed action 

To enable Romania, which has made a request to this effect, to apply, from the date of 
accession, a reduced rate to certain labour-intensive services, pursuant to Article 28(6) 
of Directive 77/388/EEC.  

310 

•  Legal basis 

Article 55 of the Act of Accession of Bulgaria and Romania, with reference to Article 
28(6)  of  Directive  77/388/EEC,  as  amended  by  Directive 2006/18/EC  of  14 February 

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2006. 

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•  Subsidiarity principle 

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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 reasons. 

The  Decision  authorises  Romania,  which  has  specifically  so  requested,  to  apply  a 
reduced  rate  of  VAT  for  certain  labour-intensive  services.  It  therefore  imposes  no 
obligation. 

Given  the  limited  scope  of  the  derogations  provided  for  in  the  Decision,  the  special 
measure is proportionate to the aim pursued. The Decision involves no financial cost to 
the Community. Although the reduction in the rates of VAT may involve a reduction in 
revenue for States, those that have submitted requests expect that the effectiveness of 
the measure in increasing employment and reducing the scale of the shadow economy 
will  offset  this  loss.  VAT  places  no  financial  burden  on  economic  operators,  and 
consumers should, in principle, benefit from the reduction in rates, in so far as this will 
be reflected in final prices.  

•  Choice of instruments 

Proposed instrument(s): other. 

Other means would not be appropriate for the following reasons. 

Under Article 55 of the Act of Accession of Bulgaria and Romania, with reference to 
Article  28(6)  of  Directive  77/388/EEC,  as  amended  by  Directive 2006/18/EC  of 
14 February  2006,  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. 

4)  BUDGETARY IMPLICATIONS 

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The proposal has no implication for the Community budget. 

5)  ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

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570 

The proposal includes a sunset clause on all or part of the legislative act if predefined 
conditions are met.  

•  Detailed explanation of the proposal by chapter or by article 

Article 1 

Article  1  provides  that,  under  Article  55  of  the  Act  of  Accession  of  Bulgaria  and 

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Romania  and  with  reference  to  the  first  and  fourth  subparagraphs  of  Article  28(6)  of 
Directive 77/388/EEC, Romania is authorised to apply, from accession to the European 
Union, a reduced rate of VAT for certain labour-intensive services. 

Article 2 

The purpose of Article 2 is to authorise Romania to apply the reduced rates laid down 
in the third subparagraph of Article  12(3)(a) of Directive 77/388/EEC to  the services 
for which it has submitted a request under a similar procedure to that provided for in 
the  fourth  subparagraph  of  Article 28(6)  of  that  Directive and  which  are  mentioned 
therein. 

Articles 3 to 4 

These Articles concern the period of application of the provisions under Article 28(6) 
of Directive 77/388/EEC and the addressee of the Decision. 

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Proposal for a 

COUNCIL DECISION 

authorising Romania to apply a reduced rate of VAT to certain labour-intensive services 
referred to in Article 28(6) of Directive 77/388/EEC 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having regard to the Treaty of Accession of Bulgaria and Romania2, and in particular Article 
4(3) thereof, 

Having regard to the Act of Accession of Bulgaria and Romania3, and in particular Article 55 
thereof, 

Having  regard  to  the  Sixth  Council  Directive  (77/388/EEC)  of  17  May  1977  on  the 
harmonization of the laws of the Member States relating to turnover taxes - Common system 
of value added tax: uniform basis of assessment4, and in particular Article 28(6) thereof, 

Having regard to the proposal from the Commission5, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

2 
3 
4 

5 

Under  Article  28(6)  of  Directive  77/388/EEC,  the  Council  may  authorise  a  Member 
State to apply a reduced rate of VAT to certain labour-intensive services. 

services 

The 
conditions  provided 
Directive 77/388/EEC and be included in the list given in Annex K thereto. 

concerned  must  meet 

the 

for 

in 

Article  28(6)  of  Directive  77/388/EEC,  as  amended  by  Directive  2006/18/EC, 
extended the period of application of the reduced rates of VAT to 31 December 2010. 
It  also  enables  Member  States  wishing  to  avail  themselves  for  the  first  time  of  the 
facility  provided  and  those  which  want  to  change  the  list  of  services  to  which  they 
have applied the said provision in the past to submit their request to the Commission. 

The  said  Article  is  intended  to  make  it  possible  for  all  Member  States  to  take  part 
under  the  same  conditions  in  the  experiment  of  reduced  rates  for  labour-intensive 
services. It is therefore appropriate to grant the acceding States, from their accession to 

OJ L 157, 21.6.2005, p. 11. 
OJ L 157, 21.6.2005, p. 203. 
OJ L 145, 13.6.1977, p.1. Directive as last amended by Directive No 2006/69/EC (OJ L 221, 12.8.2006, 
p. 9).  
OJ C […], […], p. […]. 

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the European Union, the same possibility of applying a reduced rate of VAT to certain 
labour-intensive services.  

By letter dated 31 March 2006, Romania submitted a request to apply a reduced rate of 
VAT  to  certain  labour-intensive  services  referred  to  in  the  fourth  subparagraph  of 
Article 28(6) of Directive 77/388/EEC. 

To  ensure  equality  among  the  Member  States,  this  Decision  should  apply  from  the 
date of entry into force of the Treaty of Accession of Bulgaria and Romania. 

This Decision will have no impact on the Communities' own resources derived from 
VAT, 

(5) 

(6) 

(7) 

HAS ADOPTED THIS DECISION: 

Article 1 

Under Article 55 of the Act of Accession of Bulgaria and Romania read in conjunction with 
the  first  and  fourth  subparagraphs  of  Article  28(6)  of  Directive  77/388/EEC,  Romania  is 
authorised  to  apply,  from  the  entry  into  force  of  the  Treaty  of  Accession  of  Bulgaria  and 
Romania until 31 December 2010, the reduced rates provided for in the third subparagraph of 
Article 12(3)(a) to the services mentioned in Article 2. 

Article 2 

Romania is authorised for the following two services, referred to in points 1 and 4 of Annex K 
to Directive 77/388/EEC: 

small  services  of  repairing  clothing  and  household  linen  (including  mending 

(a) 
and alteration), 

(b) 

domestic care services. 

Article 3 

This Decision shall  apply  subject  to,  and from the date of  entry into force  of, the Treaty of 
Accession of Bulgaria and Romania and shall cease to have effect on 31 December 2010. 

Article 4 

This Decision is addressed to Romania. 

Done at Brussels,  

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For the Council 
The President 

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