Proposal for a Council Decision authorising the Republic of Estonia and the Republic of Slovenia to apply a measure derogating from Article 167 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2009-10-29
Institutions: European Commission
Subjects: Estonia, Slovenia, VAT, derogation from EU law, goods and services, small and medium-sized enterprises, tax relief, tax system, turnover

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 29.10.2009 
COM(2009)608 final 

Proposal for a 

COUNCIL DECISION 

authorising the Republic of Estonia and the Republic of Slovenia 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  (hereinafter  ‘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  Republic  of  Estonia  (hereinafter  'Estonia')  and  the  Republic  of  Slovenia 
(hereinafter  'Slovenia')  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 allows them to defer the right of deduction of VAT until the VAT 
has  been  paid  to  the  supplier  in  respect  of  taxable  persons  with  an  annual  turnover 
which  does  not  exceed  EUR  208  646  in  the  case  of  Slovenia  or  which  have  been 
registered as sole proprietors in the case of Estonia, allowing them to benefit from an 
optional  scheme  (cash  accounting)  whereby,  pursuant  to  Article  66(b)  of  the  VAT 
Directive, the VAT on their output transactions becomes chargeable when they have 
received the payment. 

By  two  letters  registered  at  the  Secretariat-General  of  the  Commission  on 
4 September  2009,  Estonia  asked  for  an  extension  of  the  measure  and  that  taxable 
persons  should  now  be  eligible  for  the  scheme  if  their  annual  turnover  does  not 
exceed  EUR 208 646.  By  two  letters  registered  at  the  Secretariat-General  of  the 
Commission  on  23  and  31  July  2009,  Slovenia  also  asked  for  an  extension  of  the 
measure and that the annual turnover ceiling for the scheme be increased to EUR 400 
000.  Slovenia  stated  that  this  increase  would  make  it  possible  to  reduce  the 
administrative  burdens  on  a  greater  number  of  small  businesses  while  improving 
their cash-flow situation. It would result in making the scheme available to a further 
8 787 taxable persons. 

In accordance with Article 395(2) of the VAT Directive, by letters of 1 October 2009 
in  the  case  of  Estonia  and  25  September  2009  in  the  case  of  Slovenia,  the 
Commission  forwarded  these  requests  to  the  other  Member  States,  and  informed 
Estonia by letter of 5 October 2009 and Slovenia by letter of 29 September 2009 that 
it had all the information it considered necessary for appraisal of the requests. 

The cash accounting scheme is a simplified optional tax scheme intended for small 
undertakings which do not qualify for tax exemption. It allows such taxable persons 
to  apply  a  simple  rule  based  on  the  date  of  payment  for  their  input  and  output 
transactions,  to  determine  when  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  expenditure  is 

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mainly not liable to VAT, such as salaries, or those who are subject to major 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  allowing  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), who would then be entitled to use an optional scheme under which the VAT to 
which their output transactions are 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  Estonia  and  Slovenia,  the  Commission  believes  that  the 
derogation requested meets the conditions laid down in that Article, and, in particular 
that, as part of the optional cash accounting scheme, 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  as 
appropriate, 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 Estonia and Slovenia to continue to 
derogate  from  Article  167  of  the  VAT  Directive  and  thus  postpone  the  right  to 
deduct VAT arising until the VAT has been paid to the supplier in respect of taxable 
persons with an annual turnover which does not exceed EUR 400 000 for Slovenia 
and  the  equivalent  in  national  currency  of  EUR  208  646  for  Estonia,  and  which 

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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 IMPLICATIONS 

The proposal has no implications 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 Republic of Estonia and the Republic of Slovenia 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  Republic  of  Estonia  (hereinafter  'Estonia')  and  the  Republic  of  Slovenia 
(hereinafter 'Slovenia') were authorised by Council Decision 2007/133/EC3, by way of 
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  EUR 208 646  in  the 
case of Slovenia and they must be registered as sole proprietors in the case of Estonia. 

Estonia and Slovenia requested authorisation to extend this special derogating measure 
by letters registered by the Commission’s Secretariat-General on 4 September 2009 in 
the case of Estonia and on 23 and 31 July 2009 in the case of Slovenia. Estonia also 
asked  that  taxable  persons  should  now  be  eligible  for  the  scheme  if  their  annual 
turnover  does  not  exceed  EUR  208 646.  Slovenia  asked  to  raise  the  annual  turnover 
ceiling for the scheme to EUR 400 000. 

In  accordance  with  Article 395(2)  of  Directive  2006/112/EC,  by  letters  of  1  October 
2009  in  the  case  of  Estonia  and  25  September  2009  in  the  case  of  Slovenia  the 
Commission forwarded their requests to the other Member States, and by letters of 5 
October 2009 in the case of Estonia and 29 September 2009 in the case of Slovenia, 

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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) 

informed  those  countries  that  it  had  all  the  information  it  considered  necessary  for 
appraisal of the request. 

The  cash  accounting  scheme  is  a  simplified  optional  scheme  intended  for  small 
undertakings which do not qualify for tax exemption. It allows such taxable persons to 
apply  a  simple  rule  based  on  the  date  of  payment  for  their  input  and  output 
transactions, to determine when they must exercise their right to deduct VAT and pay 
the  tax  to  the  revenue  authorities.  This  scheme  thus  constitutes  a  simplification 
measure  for  those  taxable  persons,  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 also allowing 
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  Estonia  or  Slovenia  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, Estonia and Slovenia 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  this  scheme,  their  annual  turnover  must  not  exceed  EUR 400 000  in  the  case  of 
Slovenia and the equivalent in national currency of EUR 208 646, determined in accordance 
with Articles 399 and 400 of Directive 2006/112/EC, in the case of Estonia.  

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. 

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Article 3 

This Decision is addressed to the Republic of Estonia and the Republic of Slovenia. 

Done at Brussels,  

For the Council 
The President 

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