Proposal for a Council Decision authorising the Kingdom of Sweden and the United Kingdom of Great Britain and Northern Ireland to apply a measure derogating from Article 167 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2009-10-13
Institutions: European Commission
Subjects: Sweden, United Kingdom, VAT, basis of tax assessment, derogation from EU law, provision of services, tax exemption, tax on consumption, tax relief

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.10.2009 
COM(2009) 522 final 

Proposal for a 

COUNCIL DECISION 

authorising the Kingdom of Sweden and the United Kingdom of Great Britain and 
Northern Ireland to apply a measure derogating from Article 167 of Council 
Directive 2006/112/EC on the common system of value added tax  

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Article 395 of Directive 2006/112/EC of 28 November 2006 on the common system 
of  value  added  tax  (‘the  VAT  Directive’)  provides  that  the  Council,  acting 
unanimously on a proposal from the Commission, may authorise any Member State 
to  introduce  special  measures  derogating  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. 

The  Kingdom  of  Sweden  (hereinafter  'Sweden')  and  the  United  Kingdom  of  Great 
Britain and Northern Ireland (hereinafter 'the United Kingdom') were authorised by 
Council Decision 2007/133/EC of 30 January 2007 (OJ L 57 of 24.2.2007, p. 12) to 
introduce a special measure derogating from Article 167 of the VAT Directive until 
31 December 2009. 

This  authorisation  enables  them  to  postpone  the  right  of  deduction  of  VAT  until  it 
has  been  paid  to  the  supplier  in  respect  of  taxable  persons  with  an  annual  turnover 
which  does  not  exceed  SEK  3 000 000  for  Sweden  and  GBP  1 350 000  for  the 
United  Kingdom,  allowing  them  to  benefit  from  an  optional  scheme  (cash 
accounting), according to which, pursuant to Article 66(b) of the VAT Directive, the 
VAT on their output transactions becomes chargeable when they have received the 
payment . 

By letter registered by the Secretariat-General of the Commission on 3 March 2009, 
Sweden  requested  an  extension  of  this  measure.  By  letter  registered  by  the 
Secretariat-General  of  the  Commission  on  15  January  2009,  the  United  Kingdom 
requested an extension of this measure and that the ceiling for the annual turnover for 
the  scheme  be  increased  to  GBP  1 500 000.  The  United  Kingdom  stated  that  the 
increase  would  make  it  possible  to  maintain  the  link  with  the  threshold  of  EUR 
2 000 000 for microenterprises, in view of the current exchange rate between sterling 
and  the  Euro,  and  would  result  in  opening  up  the  scheme  to  a  further  6 800 
undertakings. 

In accordance with Article 395(2) of the VAT Directive, by letters of 9 July 2009 the 
Commission informed the other Member States of the request made by Sweden and 
the United Kingdom and, by letters of 13 July 2009 notified Sweden and the United 
Kingdom that it had all the information it considered necessary for appraisal of the 
request. 

The cash accounting scheme is a simplified optional tax scheme intended for small 
undertakings which do not qualify for tax exemption. It enables such taxable persons 
to  apply  a  simple  rule  based  on  the  date  of  payment  for  their  input  and  output 
transactions, to determine at what point they must exercise their right to deduct VAT 
and  pay  the  tax  to  the  revenue  authorities.  It  is  thus  a  simplification  measure  in 
particular  for  those  undertakings  experiencing  difficulty  in  determining,  under  the 
normal rules, the date of chargeability for their input and output transactions, and for 
those  which  do  not  maintain  an  accrual  basis  of  accounting.  Furthermore,  this 
scheme  creates  a  cash-flow  advantage  in  particular  for  those  undertakings  whose 

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expenditure  is  mainly  not  liable  to  VAT,  such  as  salaries,  or  for  those  who  are 
subject to large delays in payment by their customers which they cannot impose on 
their suppliers.  

The  Commission,  in  its  proposal  of  28  January  2009  for  a  directive  amending 
Directive  2006/112/EC  as  regards  the  rules  on  invoicing  (COM(2009)  21  final), 
included  provisions  enabling  Member  States  to  postpone  the  right  to  deduct  VAT 
arising  until  it  has  been  paid  to  the  supplier  in  respect  of  taxable  persons  with  an 
annual turnover not exceeding a ceiling, which could be fixed by Member States at 
up  to  EUR  2 000 000  (i.e.  the  threshold  for  microenterprises  according  to 
Commission Recommendation 2003/361/EC of 6 May 2003, OJ L 124 of 20.5.2003, 
p.36),  and  accordingly  entitled  to  use  an  optional  scheme  under  which  the  VAT  to 
which their output transactions is liable does not become chargeable until they have 
received the payment. 

Bearing  in  mind  the  provisions  of  Article 395  of  the  VAT  Directive  and  the 
arguments  put  forward  by  Sweden  and  the  United  Kingdom,  the  Commission 
believes that the derogation requested meets the conditions laid down in that Article, 
and, in particular,  as part  of the  optional cash accounting scheme, that it simplifies 
the  procedure  for  levying  the  tax  for  microenterprises.  Consequently,  and  also 
bearing in mind the background information set out above, the Commission has no 
objection  to  this  request  and  therefore  believes  it  must  present  the  corresponding 
proposal  to  the  Council.  In  particular,  the  annual  turnover  ceilings  for  the  scheme, 
once  the  conversion  rules  under  Articles  399  and  400  of  the  VAT  Directive  are 
applied, are below that which it proposed.  

The  Commission  is  of  the  opinion,  however,  that  the  period  of  application  of  this 
derogation should be limited in order to assess regularly, based in particular on the 
relevant information provided by those Member States, whether the legal and factual 
grounds for applying it today continue to obtain. It also believes that this derogation 
should  in  any  case  cease  to  apply  once  the  harmonised  rules  proposed  by  the 
Commission for this special scheme enter into force. 

2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

The  proposed  decision  makes  it  possible  to  maintain  an  optional  cash  accounting 
scheme which aims to simplify the application of the VAT rules by microenterprises 
while improving their cash-flow situation. It will therefore have a positive impact on 
those  undertakings.  There  was  no  need  to  consult  external  experts  or  interested 
parties  nor  to  assess  the  impact  of  this  decision.  The  impact  will  in  any  case  be 
limited  because  of  the  narrow  scope  and  limited  period  of  application  of  the 
derogation. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The purpose of the proposed decision is to allow Sweden and the United Kingdom to 
continue  to  derogate  from  Article  167  of  the  VAT  Directive  and  thus  postpone  the 
right to deduct VAT arising until the latter has been paid to the supplier in respect of 
taxable persons with an annual turnover which does not exceed SEK 3 000 000 for 

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Sweden and GBP 1 500 000 for the United Kingdom, and which therefore qualify for 
an optional scheme (cash accounting), according to which, pursuant to Article 66(b) 
of  the  VAT  Directive,  the  VAT  on  their  output  transactions  becomes  chargeable 
when they have received the payment. 

The  legal  basis  of  this  decision  is  Article 395  of  the  VAT  Directive,  which  was 
adopted pursuant to Article 93 of the Treaty establishing the European Community. 
Under  this  Article,  a  Member  State  wishing  to  apply  special  measures  derogating 
from  the  said  Directive  must  obtain  an  authorisation  from  the  Council,  which  will 
take the form of a Council Decision. Since it is an implementing measure involving 
the  harmonisation  of  legislation  on  turnover  taxes,  the  principle  of  subsidiarity  has 
been adhered to. 

The proposal complies with the principle of proportionality and therefore does not go 
beyond  what  is  necessary  to  achieve  the  objective  of  simplification,  because  it 
involves  only  a  small  number  of  taxable persons  which,  moreover,  can  opt  for  this 
scheme  or  otherwise.  Accordingly,  it  derogates  from  the  principles  of  the  VAT 
Directive only to a limited and appropriate extent. 

4. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Community budget. 

5. 

ADDITIONAL INFORMATION 

The  proposal  provides  that  the  period  of  application  of  the  decision  is  to  expire 
automatically  on  the  date  of  entry  into  force  of  provisions  establishing  harmonised 
rules enabling all the Member States to apply the special derogating measure sought.  

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Proposal for a 

COUNCIL DECISION 

authorising the Kingdom of Sweden and the United Kingdom of Great Britain and 
Northern Ireland to apply a measure derogating from Article 167 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,  and  in  particular 
Article 93 thereof, 

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

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

The  Kingdom  of  Sweden  (hereinafter  'Sweden')  and  the  United  Kingdom  of  Great 
Britain  and  Northern  Ireland  (hereinafter  'the  United  Kingdom')  were  authorised,  by 
Council  Decision  2007/133/EC,3  by  derogation  from  Article 167  of  Directive 
2006/112/EC, to postpone the right of deduction of value added tax (VAT) until it has 
been paid to the supplier of goods or of services, in respect of taxable persons using an 
optional cash accounting scheme under which, in accordance with Article 66(b) of that 
Directive,  VAT  on  their  supplies  of  goods  and  of  services  becomes  chargeable  on 
receipt of the payment. In order to qualify for this scheme, their annual turnover must 
not exceed SEK 3 000 000 for Sweden and GBP 1 350 000 for the United Kingdom. 

Sweden  and  the  United  Kingdom  have  requested  authorisation  to  extend  this  special 
derogating measure by letters registered by the Commission’s Secretariat-General on 
3 March 2009 for Sweden and on 15 January 2009 for the United Kingdom. The latter 
Member State has also asked that the ceiling for the annual turnover for the scheme be 
raised to GBP 1 500 000. 

In accordance with Article 395(2) of Directive 2006/112/EC, by letters of 9 July 2009 
the  Commission  informed  the  other  Member  States  of  the  request  made  by  Sweden 
and  the  United  Kingdom  and,  by  letters  of  13  July  2009  notified  Sweden  and  the 
United Kingdom that it had all the information it considered necessary for appraisal of 
the request. 

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OJ L 347, 11.12.2006, p. 1. 
OJ C , p. . 
OJ L 57, 24.2.2007, p. 12. 

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(4) 

(5) 

The  cash  accounting  scheme  is  a  simplified  optional  scheme  intended  for  small 
undertakings which do not qualify for tax exemption. It enables such taxable persons 
to  apply  a  simple  rule  based  on  the  date  of  payment  for  their  input  and  output 
transactions, to determine at what point they must exercise their right to deduct VAT 
and  pay  the  tax  to  the  revenue  authorities.  This  scheme  thus  constitutes  for  those 
taxable  persons  a  simplification  measure  which  can,  furthermore,  create  a  cash-flow 
advantage for them.  

On  28  January  2009,  the  Commission  proposed  a  directive  (COM(2009)  21  final) 
amending  Directive  2006/112/EC  as  regards  the  rules  on  invoicing  and  enabling  the 
Member States to postpone the right to deduct VAT arising until it has been paid to the 
supplier in respect of taxable persons with an annual turnover not exceeding a ceiling, 
which  could  be  fixed  by  Member  States  at  up  to  EUR  2 000 000, and  accordingly 
entitled  to  use  an  optional  scheme  under  which  the  VAT  to  which  their  transactions 
are liable does not become chargeable until they have received the payment. 

(6) 

The special derogating measure does not affect the amount of VAT revenue collected 
by Sweden or the United Kingdom at the final consumption stage and has no impact 
on the European Communities’ own resources accruing from VAT, 

HAS ADOPTED THIS DECISION: 

Article 1 

By  way  of  derogation  from  Article  167  of  Directive  2006/112/EC,  Sweden  and  the  United 
Kingdom  are  authorised  to  postpone  the  right  of  deduction  of  the  value  added  tax  of  the 
taxable persons, as defined in the second paragraph, until it has been paid to their suppliers. 

The taxable persons concerned must have opted for a scheme under which the value added tax 
on  their  supplies  of  goods  and  of  services  becomes  chargeable  on  receipt  of  the  payment. 
Under  the  scheme,  their  annual  turnover  must  not  exceed  SEK  3 000 000  for  Sweden  and 
GBP 1 500 000 for the United Kingdom.  

Article 2 

This  Decision  shall  apply  from  1 January 2010  until  the  date  of  entry  into  force  of  the 
provisions of a directive authorising the Member States to postpone the right of deduction of 
value  added  tax  arising  until  it  has  been  paid  to  the  supplier  in  respect  of  taxable  persons 
whose  annual  turnover  does  not  exceed  a  certain  ceiling  and  who  therefore  benefit  from  an 
optional  scheme  according  to  which  the  tax  on  their  supplies  of  goods  and  of  services 
becomes chargeable when they have received the payment. In any event, this Decision shall 
apply until 31 December 2012 at the latest. 

This  Decision  is  addressed  to  the  Kingdom  of  Sweden  and  the  United  Kingdom  of  Great 
Britain and Northern Ireland. 

Article 3 

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Done at Brussels,  

For the Council 
The President 

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