Proposal for a Council Decision authorising the Italian Republic to apply a measure derogating from Article 285 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2008-06-30
Institutions: European Commission
Subjects: Italy, VAT, derogation from EU law, small business, tax exemption, turnover

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.6.2008 
COM(2008) 404 final 

Proposal for a 

COUNCIL DECISION 

authorising the Italian Republic to apply a measure derogating from Article 285 of 
Council Directive 2006/112/EC on the common system of value added tax 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. 

Grounds for and objectives of the proposal 

Pursuant  to  Article  395(1)  of  Directive  2006/112/EC  of  28  November  2006  on  the 
common  system  of  value  added  tax  (hereafter  'the  VAT  Directive'),  the  Council, 
acting unanimously on a proposal from the Commission, may authorise any Member 
State to apply special measures for derogation from the provisions of that Directive, 
in order to simplify the procedure for collecting VAT or to prevent certain forms of 
tax evasion or avoidance. 

By letter registered with the Secretariat-General of the Commission on 15 November 
2007 Italy requested authorisation to exempt taxable persons whose annual turnover 
is  no  higher  than  EUR  30 000.  In  accordance  with  Article  395(2)  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letter  dated  6 
May 2008 of the request made by Italy. By letter dated 8 May 2008 the Commission 
notified Italy that it had all the information necessary to consider the request. 

1.2. 

General context 

Chapter  1  of  Title  XII  of  the  VAT  Directive  allows  for  the  possibility  for  Member 
States  to  apply  special  schemes  for  small  enterprises,  including  the  possibility  of 
exempting taxable persons below a certain annual turnover. This exemption implies 
that a taxable person does not have to charge VAT on his supplies and, consequently, 
he can not deduct the VAT on his inputs. 

This measure was first introduced in accordance with the provisions of Article 14 of 
Council Directive 67/228/EEC. However, those Member States which did not make 
use of the option provided for under that provision could subsequently, according to 
Article 24(2)(b) of Directive 77/388EEC now recast as the first paragraph of Article 
285  of  the  VAT  Directive,  only  exempt  taxable  persons  from  VAT  whose  annual 
turnover is no higher than EUR 5 000.  

Italy  did  not  make  use  of  the  option  provided  by  Article  14  of  Council  Directive 
67/228/EEC.  Therefore  it  has  a  significant  number  of  taxable  persons  with  a  very 
low annual turnover under the normal VAT scheme and these very small businesses, 
required to fulfil all VAT obligations, may find them disproportionately burdensome 
when compared to larger businesses. 

The  Italian  derogation  request  seeks  to  simplify  the  VAT  system  for  small 
enterprises  by  introducing  the  simplification  measure  referred  to  in  the  first 
paragraph of Article 285 of the VAT Directive but applying the measure to taxable 
persons  with  an  annual  turnover  no  higher  than  EUR  30.000.  This  measure  will 
significantly  reduce  the  burdens  on  those  businesses  eligible  for  the  scheme  and 
release them from many of the obligations under the normal VAT arrangements. In 
addition,  the  scheme  will  ease  the  collection  of  the  tax  for  the  national 
administration.  

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The  scheme  would  be  optional  for  taxable  persons,  and  Italy  does  not  expect  all 
eligible enterprises to make use of it, as businesses who predominantly sell to other 
taxable  persons  may  prefer  to  operate  within  the  normal  VAT  arrangements. 
Therefore  Italy  calculates 
that  out  of  around  930 000  eligible  businesses, 
approximately 710 000 would make use of the simplification measure.  

The scheme would have a negligible impact on the total amount of tax revenue. Italy 
estimates  a  revenue  reduction  of  some  0.15%  in  the  first  year  of  implementation, 
rising to around 0.25% in the following two years. 

Italy  would  also  like  to  have  the  possibility  to  increase  the  ceiling  in  order  to 
maintain the value of the exemption in real terms. 

The  derogation  would  run  until  the  earliest  of  31  December  2010  or  the  entry  into 
force of a Directive on the annual turnover threshold below which a taxable person 
may be exempt from VAT.  

1.3. 

Existing provisions in the area of the proposal 

In 2004 the Commission made a proposal to increase the annual turnover threshold 
available to Member States (COM(2004) 728 final) for the exemption from VAT of 
taxable persons to EUR 100 000. 

1.4. 

Consistency with the other policies and objectives of the Union 

Not applicable. 

2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

2.1. 

Consultation of interested parties 

Not relevant 

2.2. 

Collection and use of expertise 

There was no need for external expertise. 

2.3. 

Impact assessment 

The  decision  aims  at  introducing  a  simplification  measure  which  removes  many  of 
the VAT obligations for businesses operating with an annual turnover no higher than 
EUR 30 000 and therefore has a potential positive impact. 

Because  of  the  narrow  scope  of  the  derogation,  and  its  limited  application  in  time, 
the scope will in any case be limited. 

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Summary of the proposed action 

Authorisation for Italy to apply a derogating measure from Directive 2006/112/EC as 
regards  the  introduction  of  a  simplification  measure  for  businesses  with  an  annual 
turnover no higher than EUR 30 000. 

3.2. 

Legal basis 

Article  395  of  the  VAT  Directive  2006/112/EC  of  28  November  2006  on  the 
common system of value added tax. 

3.3. 

Subsidiarity principle 

In  accordance  with  Article  395  of  the  VAT  Directive,  a  Member  State  wishing  to 
introduce measures derogating from the said Directive must obtain an authorisation 
from  the  Council,  which  will  take  the  form  of  a  Council  Decision.  Therefore,  the 
proposal complies with the subsidiarity principle. 

3.4. 

Proportionality principle 

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

•  The Decision concerns an authorisation granted to a Member State upon its own 

request and does not constitute any obligation. 

•  Given the limited scope of the derogation, the special measure is proportionate to 

the aim pursued. 

3.5. 

Choice of instruments 

Proposed instruments: Council Decision. 

Other means would not be adequate for the following reason : 

Under  Article  395  of  the  VAT  Directive  2006/112/EC  on  the  common  system  of 
value  added  tax, 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  most  suitable  instrument  since  it  can  be  addressed  to 
individual Member States. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has a negligible implication for the Community budget. 

5. 

ADDITIONAL INFORMATION 

5.1. 

Review/revision/sunset clause 

The proposal includes a sunset clause. 

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Proposal for a 

COUNCIL DECISION 

authorising the Italian Republic to apply a measure derogating from Article 285 of 
Council Directive 2006/112/EC on the common system of value added tax 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax,1 and in particular Article 395(1) thereof, 

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

1 

2 
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The  Italian  Republic  did  not  make  use  of  the  provisions  of  Article  14  of  Directive 
67/228/EEC3  which  means  that  a  scheme  to  exempt  taxable  persons  could  only  be 
introduced  in  respect  of  taxable  persons  whose  annual  turnover  was  no  higher  than 
EUR 5 000. 

In a letter registered by the Commission's Secretariat General on 15 November 2007 
Italy  requested  authorisation  for  a  measure  derogating  from  Article  285  of  the  VAT 
Directive in order to exempt taxable persons whose annual turnover is no higher than 
EUR  30 000.  This  will  release  those  taxable  persons  from  certain  or  all  of  the  VAT 
obligations referred to in Chapters 2 to 6 of Title XI of the VAT Directive. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC  the  Commission 
informed the other Member States by letter dated 6 May 2008 of the request made by 
Italy.  By  letter  dated  8  May  2008,  the  Commission  notified  Italy  that  it  had  all  the 
information necessary to consider the request.  

A  special  scheme  for  small  enterprises  is  already  available  to  Member  States  under 
Title XII of the VAT Directive. This measure derogates from Article 285 of the VAT 
Directive only insofar as the annual turnover threshold for the scheme is higher than 
that currently allowed for Italy.  

A  higher  threshold  may  significantly  reduce  the  VAT  obligations  of  the  smallest 
businesses  whilst  being  optional  for  taxable  persons  allows  businesses  to  opt  for  the 
normal VAT arrangements.  

OJ L 347, 11.12.2006, p.1. Directive last amended by Directive 2008/8/EC (OJ L 44, 20.02.2008, p.11-
22) 
OJ C , , p. . 
OJ C 71, 14.04.1967, p. 1303/67. Directive repealed by Directive 77/388/EEC 

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(6) 

(7) 

(8) 

(9) 

The  Commission  is  committed  to  establishing  a  common  annual  turnover  threshold 
below which taxable persons may be exempt from VAT as a measure to help reduce 
the burdens on small businesses. In 2004 the Commission proposed4 to allow Member 
States the option of increasing the annual turnover threshold for small businesses to be 
exempt from VAT. The Italian request is in line with the Commission proposal and is 
a considered and appropriate means of reducing the burdens for small businesses. 

Italy would also like the possibility to increase the ceiling to maintain its value in real 
terms,  and  so  be  able  to  apply  a  provision  akin  to  that  in  Article  286  of  the  VAT 
Directive to this measure. 

The  derogation  will  have  no  impact  on  the  European  Communities'  own  resources 
accruing from value added tax. 

From  information  provided  by  the  Italian  Republic,  the  measure  will  lead  to  a 
reduction  of  the  overall  amount  of  tax  revenue  collected  at  the  final  stage  of 
consumption  of  some  0.15%  in  the  first  year  of  implementation,  rising  to  around 
0.25% in the following two years. 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  285  of  Directive  2006/112/EC,  Italy  is  authorised  to 
exempt from VAT taxable persons whose annual turnover is no higher than EUR 30 000. This 
scheme is optional for taxable persons. 

Italy may raise that ceiling in order to maintain the value of the exemption in real terms. 

Article 2 

Article 3 

This Decision shall expire on the date of entry into force of Community rules establishing a 
common annual turnover threshold below which taxable persons may be exempt from VAT, 
but on 31 December 2010 at the latest. 

This Decision is addressed to Italy. 

Article 4 

4 

OJ C 24, 29.01.2005, p.8. 

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Done at Brussels,  

For the Council 
The President 

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