Proposal for a Council implementing decision authorising the Kingdom of the Netherlands to apply a measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (Only the Dutch version is authentic)
Date: 2010-04-06
Institutions: European Commission
Subjects: Netherlands, VAT, clothing industry, derogation from EU law, subcontracting, tax evasion, tax system

EN 

EN 

   EN 

 
 
EUROPEAN COMMISSION 

Brussels, 6.4.2010 
COM(2010)129 final 

2010/0071 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Kingdom of the Netherlands to apply a measure derogating from Article 
193 of Directive 2006/112/EC on the common system of value added tax 

(Only the Dutch version is authentic) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

CONTEXT OF THE PROPOSAL 

110 

Grounds for and objectives of the proposal 

Pursuant  to  Article  395  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  29  January 
2010,  the  Netherlands  requested  authorisation  to  apply  a  derogating  measure  in  the 
ready-to-wear  clothing  industry,  as  previously  granted  for  limited  period  by  Council 
Decision  2007/740/EC.  In  accordance  with  Article  395(2)  of  Directive  2006/112/EC, 
the Commission informed the other Member States by letter dated 25 February 2010 of 
the request made by the Netherlands. By letter dated 2 March 2010, the Commission 
notified  the  Netherlands  that  it  had  all  the  information  necessary  to  consider  the 
request. 

120 

General context 

The requested measure, i.e. a reverse charge mechanism, is essentially to be considered 
as  a  measure  to  prevent  certain  types  of  tax  evasion  in  the  ready-to-wear  clothing 
industry.  Subcontractors  in  the  ready-to-wear  clothing  industry  are  sometimes  small 
companies,  which  have  often  proved  to  be  transitory  businesses,  difficult  for  the  tax 
administration  to  control and vehicles  for tax  evasion.  A  common  form  of  evasion  is 
the  non-payment  to  the  tax  authorities  of  invoiced  VAT  by  subcontractors,  who 
subsequently become untraceable but leaving the customer (contractor) in receipt of a 
valid  invoice  for  tax  deduction.  The  Decision  authorises  the  Kingdom  of  the 
Netherlands to apply, in the ready-to-wear clothing industry, a scheme for shifting the 
obligation  to  pay  over  the  VAT  to  the  tax  authorities  from  the  subcontractor  to  the 
clothing firm (the contractor). 

In this context, Council Decision 2007/740/EC authorised the Netherlands to apply this 
scheme,  which  derogates  from  Article  193  of  the  VAT  Directive,  until  31  December 
2009.  As  to  assess  the  impact  of  the  derogating  measure  on  the  one  hand  and  other 
factors on the other hand, that Decision included the obligation for the Netherlands to 
submit  a  report  on  the  effectiveness  of  the  measure  and  on  possible  evidence  of 
relocations  of  subcontractors  in  the  ready-to-wear  clothing  industry  to  other  Member 
States. 

It  appears  from  that  report  that  the  derogating  measure,  in  combination  with 
developments on the international market, has led to a considerable improvement of the 
fraud situation in the ready-to-wear clothing industry in the Netherlands. The number 
of companies qualifying for the derogating measure is constantly declining, the market 
is stabilising and the level of supervision of the tax authorities is increasing.  

According  to  the  Netherlands,  a  final  decision  on  whether  the  derogating  measure 

EN 

2 

   EN 

 
should be abolished would need to be taken at a later stage, probably in 2011, and after 
having consulted other stakeholders such as the employment inspectorate and the body 
responsible  for  social  insurance.  It  would  therefore  be  necessary  to  extend  the 
derogating measure until the end of 2012. In case the Netherlands would still consider 
it necessary to further extend the derogating measure, a new evaluation report should 
be sent, together with the derogation request, no later than 1 April 2012. 

130 

Existing provisions in the area of the proposal 

Council Decision of 13 November 2007 authorising the Kingdom of the Netherlands to 
apply  a  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the 
common  system  of  value  added  tax  (Council  Decision  2007/740/EC,  OJ  L  300, 
17.11.2007, p. 71). 

141 

Consistency with the other policies and objectives of the Union 

Not applicable. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

Consultation of interested parties 

219 

Not relevant. 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

229 

230 

The implementing Decision proposal aims at combating possible VAT evasion in the 
ready-to-wear clothing industry and has therefore a potential positive economic 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 

305 

Summary of the proposed action 

Authorisation for the Kingdom of the Netherlands to apply a measure derogating from 
Article 193 of the VAT Directive as regards the use of a reverse charge mechanism for 
certain transactions in the ready-to-wear clothing industry. 

310 

Legal basis 

Article 395 of the VAT Directive. 

329 

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 

EN 

3 

   EN 

 
 
 
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). 

The  Decision  concerns  an  authorisation  granted  to  a  Member  State  upon  its  own 
request and does not constitute any obligation. 

Given the very 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.  Moreover,  a  Council  Decision  is  the  most  suitable  instrument 
since it can be addressed to individual Member States. 

331 

332 

342 

BUDGETARY IMPLICATION 

409 

The proposal has no implication for the Community budget. 

ADDITIONAL INFORMATION 

Review/revision/sunset clause 

The proposal includes a sunset clause. 

533 

E-3837 

EN 

4 

   EN 

 
 
 
 
 
 
2010/0071 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Kingdom of the Netherlands to apply a measure derogating from Article 
193 of Directive 2006/112/EC on the common system of value added tax 

(Only the Dutch version is authentic) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, 

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 European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

1 
2 

By  letter  registered  with  the  Secretariat-General  of  the  Commission  on  29  January 
2010,  the  Netherlands  requested  authorisation  to  apply  special  tax  measures  in  the 
ready-to-wear  clothing  industry  as  previously  authorised  for  a  limited  period  by 
Decision 2007/740/EC2. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed  the  other  Member  States  by  letter  dated  25  February  2010  of  the  request 
made by the Netherlands. By letter dated 2 March 2010, the Commission notified the 
Kingdom of the Netherlands that it had all the information necessary to consider the 
request. 

The  arrangement  would  authorise  the  Netherlands  to  apply  in  the  ready-to-wear 
clothing industry a scheme for shifting the subcontractor's obligation to pay over VAT 
to the tax authorities from the subcontractor to the clothing firm (the contractor). 

These arrangements have proven in the past to be an effective prevention measure in a 
sector  in  which  collecting  VAT  is  made difficult  by  the  problems  of identifying and 
supervising the activities of subcontractors. The requested measure is therefore to be 
considered as a measure to prevent certain types of tax evasion and avoidance in the 
ready-to-wear clothing industry.  

OJ L 347, 11.12.2006, p. 1. Directive amended by Directive 2006/138/EC (OJ L 384, 29.12.2006, p. 92) 
Council Decision of 13 November 2007 authorising the Kingdom of the Netherlands to apply a measure 
derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (OJ L 
300, 17.11.2007, p. 71) 

EN 

5 

   EN 

 
                                                 
(5) 

(6) 

(7) 

(8) 

(9) 

The location for the manufacture of ready-to-wear clothes is influenced by low labour 
costs  and  subcontractors  relocate  easily  from  one  country  to  another.  Therefore, 
Decision 2007/740/EC requested the Netherlands to monitor and evaluate the impact 
of  these  factors  on  the  effectiveness  of  the  derogation  and  to  submit  a  report  to  the 
Commission by 31 July 2009. 

This  report  indicated  that  the  fraud  situation  has  considerably  improved  and  that  the 
number  of  ready-to-wear  clothing  firms  qualifying  for  the  reverse  charge  procedure 
under  Decision  2007/740/EC  has  steadily  declined  as  a  result  of  the  derogating 
measure  and  international  market  developments.  Consequently,  stability  is  gradually 
returning to the ready-to-wear clothing sector in the Netherlands.  

In order to complete that process, the Kingdom of the Netherlands has requested the 
measure  to  be  extended  again  for  a  limited  period  and  has  announced,  at  the  same 
time, that a final decision on the possible abolishment of the measure would be taken 
in  2011.  It  is  therefore  appropriate  that  the  derogation  would  be  granted  until  31 
December 2012.  

In case the Kingdom of the Netherlands would still consider another extension of the 
derogating measure beyond 2012, a new evaluation report should be submitted to the 
Commission together with that extension request no later than 1 April 2012. 

The  derogation  will  not  have  an  adverse  effect  on  the  European  Communities'  own 
resources accruing from value added tax nor does it affect the amount of VAT charged 
at the final stage of consumption. 

HAS ADOPTED THIS IMPLEMENTING DECISION:  

Article 1 

By way of derogation from Article 193 of Council Directive 2006/112/EC, the Kingdom of 
the  Netherlands  is  hereby  authorised  to  apply  until  31  December  2012  in  the  ready-to-wear 
clothing industry a scheme for shifting the subcontractors' obligations to pay over VAT to the 
tax authorities from the subcontractor to the clothing firm (the contractor). 

Article 2 

Any possible request for extending the measure beyond 2012 should be accompanied by the 
submission  of  a  report  to  the  Commission  by  the  Netherlands,  in  particular  as  regards  the 
effectiveness  of  the  measure  and  any  other  evidence  of  relocations  of  subcontractors  in  the 
ready-to-wear clothing industry to other countries, and be sent no later than 1 April 2012. 

This implementing Decision is addressed to the Kingdom of the Netherlands. 

Article 3 

EN 

6 

   EN 

 
Done at Brussels, 

For the Council 
The President 

EN 

7 

   EN