Proposal for a Council Decision authorising the Federal Republic of Germany to continue to apply a measure derogating from Article 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2009-07-16
Institutions: European Commission
Subjects: Germany, VAT, derogation from EU law, provision of services, tax harmonisation, tax relief

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.7.2009 
COM(2009) 364 final 

Proposal for a 

COUNCIL DECISION 

authorising the Federal Republic of Germany to continue to apply a measure derogating 
from Article 168 of Directive 2006/112/EC on the common system of value added tax 

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EXPLANATORY MEMORANDUM 

CONTEXT OF THE PROPOSAL 

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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  to  derogate  from  the  provisions  of  that  Directive,  in 
order  to  simplify  the  procedure  for  collecting  value  added  tax  (VAT)  or  to  prevent 
certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Secretariat-General  of  the  Commission  on  19  December 
2008, the Federal Republic of Germany (hereinafter 'Germany') requested authorisation 
to  continue  a  measure  derogating  from  Article  168  of  the  VAT  Directive.  In 
accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission  informed  the 
other Member States by letter dated 3 June 2009 of the request made by Germany. By 
letter  dated  9  June  2009,  the  Commission  notified  Germany  that  it  had  all  the 
information necessary to consider the request. 

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General context 

According to Article 168 of the VAT Directive, a taxable person is entitled to deduct 
the  VAT  charged  on  purchases  of  goods  and  services  made  for  the  purposes  of  his 
taxed  transactions.  The  derogating  measure  however,  of  which  the  extension  is 
requested  by  Germany,  excludes  VAT  borne  on  goods  and  services  that  are  used  for 
more than 90% for private or non-business purposes by a taxable person entirely from 
the right of deduction. 

This derogating measure had initially been granted by Council Decision 2000/186/EC 
of 28 February 2000 (OJ L 59, 4.3.2000, p. 12) for a period until 31 December 2002 
and was subsequently extended by Council Decision 2003/354/EC of 13 May 2003 (OJ 
L  123,  17.5.2003,  p.  47)  until  30  June  2004  and  again  by  Council  Decision 
2004/817/EC  of  19  November  2004  (OJ  L  357,  2.12.2004,  p.  33)  until  31  December 
2009. 

The  Commission  already  stated  in  its  proposal  prior  to  Decision  2000/186/EEC 
(COM(1999)690 final) that it considers the measure in question to be compatible with 
Article 27 of the Sixth Directive 77/388/EEC (OJ L 145, 13.6.1977, p. 1); which has 
been  replaced,  without  any  substantial  modification,  by  Article  395  of  the  VAT 
Directive. In particular, the Commission put forward that the derogation is based on the 
need to simplify the procedure for charging VAT where, at the same time, it affects the 
amount  of  tax  due  at  the  final  consumption  stage  only  to  a  negligible  extent.  The 
derogation should therefore be granted taking into account that the situation and facts, 
on  which  the  initial  derogation  was  based,  continue  to  exist.  However,  the  extension 
should  be  limited  in  time  in  order  to  be  able  to  assess,  before  considering  a  possible 
new  extension  request  and  on  the  basis  of  appropriate  information  provided  by 
Germany,  whether  these  circumstances,  justifying  the  derogation,  have  not  changed 
over time. Therefore, the derogation should in be limited to 31 December 2012. 

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130 

Existing provisions in the area of the proposal 

Council  Decision  of  19  November  2004  authorising  Germany  to  apply  a  measure 
derogating from Article 17 of the Sixth Directive 77/388/EEC on the harmonisation of 
the laws of the Member States relating to turnover taxes (OJ L 357, 2.12.2004, p. 33). 

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Consistency with the other policies and objectives of the Union 

Not applicable. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

Consultation of interested parties 

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Not relevant. 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

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The  Decision  proposal  aims  at  simplifying  the  procedure  for  charging  the  VAT  in 
relation to goods and services which are to a very large extent used for non-business 
purposes and has, therefore, a potential positive impact. 

However, because of the narrow scope of the derogation and the limited application in 
time, the impact will in any case be limited. 

LEGAL ELEMENTS OF THE PROPOSAL 

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Summary of the proposed action 

Authorisation for Germany to continue to apply a derogating measure from the VAT 
Directive  as  regards  the  total  exclusion  of  the  right  of  deduction  in  case  goods  and 
services are used by a taxable person for more than 90% for non-business purposes. 

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Legal basis 

Article 395 of the VAT Directive. 

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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. 

Proportionality principle 

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

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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. 

Choice of instruments 

Under  Article  395  of  the  VAT Directive,  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. 

BUDGETARY IMPLICATION 

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The proposal has no implication for the Community budget. 

ADDITIONAL INFORMATION 

Review/revision/sunset clause 

The proposal includes a sunset clause. 

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Proposal for a 

COUNCIL DECISION 

authorising the Federal Republic of Germany to continue to apply a measure derogating 
from Article 168 of 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 tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

the  Federal  Republic  of  Germany  (hereinafter 

By letter registered with the Secretariat-General of the Commission on 19 December 
'Germany')  requested 
2008, 
authorisation  to  continue  to  apply  a  measure  derogating  from  the  provisions  of 
Directive  2006/112/EC  governing  the  right  of  deduction  and  previously  granted  by 
Council Decision 2004/817/EC2 under the then applicable Sixth Directive 77/388/EC3. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States of the request made by Germany in a letter dated 3 
June  2009.  By  a  letter  dated  9  June  2009,  the  Commission  notified  Germany  that  it 
had all the information that it considered necessary to consider the request. 

The  derogating  measure  is  intended  to  exclude  VAT  borne  on  goods  and  services 
completely from the right of deduction when the goods and services are used for more 
than  90%  for  the  private  purposes  of  the  taxable  person,  or  of  his  employees,  or  for 
non-business purposes in general. 

The  measure  derogates  from  Article  168  of  Directive  2006/112/EC  establishing  the 
general principle of the right of deduction and is intended to simplify the procedure for 
charging VAT. The amount of tax due at the final consumption is only affected to a 
negligible effect. 

The  legal  and  factual  situation  which  justified  the  current  application  of  the 
simplification  measure  in  question  has  not  changed  and  continues  to  exist.  Germany 
should  therefore  be  authorised  to  apply  the  simplification  measure  during  a  further 

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OJ L 347, 11.12.2006, p. 1. 
OJ L 357, 2.12.2004, p. 33. 
OJ L 145, 13.6.1977, p.1. 

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period, but limited in time until 31 December 2012 in order to allow an evaluation of 
the measure. 

(6) 

The  derogation  will  not  adversely  affect  the  Community's  own  resources  accruing 
from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 168 of Directive 2006/112/EC, Germany is authorised to 
exclude VAT borne on goods and services from the right to deduct VAT when the goods and 
services in question are used more than 90% for the private purposes of a taxable person or of 
his employees, or, more generally, for non-business purposes. 

The Decision shall apply until 31 December 2012. 

Article 2 

Article 3 

This Decision is addressed to the Federal Republic of Germany. 

Done at Brussels,  

For the Council 
The President 

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