Proposal for a Council Implementing Decision of [...] authorising Germany, Italy and Austria to introduce a special measure derogating from Article 193 of Directive 2006/112/EC and amending Decision 2007/250/EC to extend the period of validity of the authorisation granted to the United Kingdom
Date: 2010-04-26
Institutions: European Commission
Subjects: Austria, Germany, Italy, United Kingdom, VAT, computer, derogation from EU law, mobile phone, tax system

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EUROPEAN COMMISSION 

Brussels, 26.4.2010 
COM(2010)175 final 

2010/0100 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

of [...] 

authorising Germany, Italy and Austria to introduce a special measure derogating from 
Article 193 of Directive 2006/112/EC and amending Decision 2007/250/EC to extend the 
period of validity of the authorisation granted to the United Kingdom 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

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: '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  letters  registered  with  the  Secretariat-General  of  the  Commission  on,  respectively,  3 
August  2007,  23  December  2009,  and  17  February  2010,  Italy,  Germany  and  Austria 
requested authorisation to apply a measure derogating from Article 193 of the VAT Directive. 
In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  11  January  2010  of  the  request  made  by  Germany,  and  by 
letters  dated  9  March  2010  of  the  requests  made  by  Italy  and  Austria.  By  letter  dated  12 
January  2010  the  Commission  notified  Germany,  and  by  letters  dated  11  March  2010  Italy 
and Austria, that it had all the information necessary to consider the requests. 

By letter registered with the Secretariat-General of the Commission on 10 February 2010, the 
United  Kingdom  requested  authorisation  to  continue  to  apply  a  measure  derogating  from 
Article 193 of the VAT Directive. In accordance with Article 395(2) of the VAT Directive, 
the  Commission  informed  the  other  Member  States  by  letter  dated  9  March  2010  of  the 
request  made  by  the  United  Kingdom.  By  letter  dated  11  March  2010,  the  Commission 
notified the United Kingdom that it had all the information necessary to consider the request. 

General context 

As a general rule, the person liable for the payment of value added tax to the tax authorities 
under  Article  193  of  the  VAT  Directive,  is  the  taxable  person  supplying  the  goods.  The 
purpose of the derogation requested by Germany, Italy and Austria is to place that liability on 
the  taxable  person  to  whom  the  supplies  are  made,  but  only  under  certain  conditions  and 
exclusively in the case of particular products, notably mobile telephones and integrated circuit 
devices, but also some related products. 

Within these trade sectors, a number of businesses engage in tax evasion by not paying VAT 
to the tax authorities after selling the products. However, their customers, insofar as they are 
taxable persons with a right of deduction, being in receipt of a valid invoice, remain entitled 
to a tax deduction. In the most aggressive forms of this tax evasion, the same goods are, via a 
'carousel scheme', supplied several times without payment of the VAT to the tax authorities. 
By designating in those cases the person to whom the goods are supplied as the person liable 
for  the  VAT,  the  derogation  would  remove  the  opportunity  to  engage  in  that  form  of  tax 
evasion. However, it would not affect the amount of VAT due. 

In September 2009, the Commission adopted a proposal (COM(2009) 511) to amend the VAT 
Directive to allow all interested Member States to apply such a measure on a temporary basis 
to certain goods and services without the need to apply for a derogation under article 395 of 
that Directive. Those goods were mobile telephones, integrated circuit devices, perfumes and 
precious  metals,  and  the  services  were  greenhouse  gas  emission  allowances.  The  ECOFIN 

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Council  agreed  on  2  December  2009  only  on  that  part  of  the  proposal  which  relates  to 
greenhouse gas emission allowances, while the other part of the proposal will require further 
consideration. Pending agreement on such a proposal, the Commission committed itself to put 
forward a proposal for any founded request for a derogation for the application of the reverse 
charge  mechanism  to  mobile  phones  and  electronic  circuit  devices.  Germany,  Italy  and 
Austria  have  made  such  requests.  The  requests  by  Italy  and  Austria  include  several  items 
which  either  directly  relate  to  or  are  of  a  comparable  nature  to  mobile  telephones  and 
integrated circuit devices; for these items the same logic applies.  

Austria stated that due to the scale, complexity and sophisticated nature of the carousel fraud 
in  Austria,  organisational  measures  alone  would  not  be  sufficient  to  counter  the  fraud. 
Similarly,  Germany  also  considers  that  the  organisational  measures  they  have  implemented 
are  insufficient  to  counter  the  fraud,  and  regard  the  application  of  the  reverse  charge 
mechanism to sales of those products most affected to be an important instrument to quickly 
and effectively counter the threat of VAT fraud. Italy estimates that the losses due to this type 
of fraud have been steadily rising for some years now. 

Austria and Germany have requested the application of a transaction threshold of EUR 5.000 
in order to reduce the burden on small traders. 

In  April  2007  the  United  Kingdom  was  granted  a  derogation  to  apply  such  a  measure  to 
supplies of mobile telephones and integrated circuit devices (Council Decision 2007/250/EC). 
This measure was limited in time, and had an expiry date of 30 April 2009. This expiry date 
was subsequently amended to 30 April 2011 by Council Decision 2009/439/EC. The United 
Kingdom  has  requested  that  this  expiry  date  accords  with  the  expiry  date  of  the  measures 
proposed for the Germany, Italy and Austria. 

Existing provisions in the area of the proposal 

A  similar  derogation  has  been  granted  to  the  United  Kingdom,  and  the  Commission,  in  its 
proposal  COM(2009)  511,  proposed  to  amend  the  VAT  Directive  to  allow  all  interested 
Member States to apply such a measure for a limited time and to limited categories of goods.  

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

Consultation of interested parties 

Not applicable. 

Impact assessment 

The  Decision  proposal  aims  at  combating  VAT  evasion  and  will  therefore  have  a  potential 
positive impact on VAT receipts. 

Nevertheless, the measures will have an impact on the business insofar as the arrangements 
will  be  different  from  those  applying  for  normal  supplies  of  goods.  This  will  introduce  a 
complexity in accounting for businesses which do not deal exclusively in the goods which are 
the subject of the derogation. The control mechanisms envisaged will also impose additional 
obligations on the business sector concerned. It is therefore clear that this derogation fails the 
simplification  test  provided  by  Article  395,  and  only  falls  within  the  scope  of  preventing 
evasion. 

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

Authorisation  for  Germany,  Italy  and  Austria  to  apply  a  measure  derogating  from 
Article 193 of the VAT Directive as regards the use of a reverse charge mechanism 
for domestic supplies of certain electronic devices and their components, and for the 
United Kingdom to continue to apply such a measure. 

4. 

BUDGETARY IMPLICATION 

The proposal has no negative impact on the EU budget. 

5. 

OPTIONAL ELEMENTS 

The proposal includes a sunset clause. 

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2010/0100 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

of […] 

authorising Germany, Italy and Austria to introduce a special measure derogating from 
Article 193 of Directive 2006/112/EC and amending Decision 2007/250/EC to extend the 
period of validity of the authorisation granted to the United Kingdom 

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) 

By  letters  registered  with  the  Secretariat-General  of  the  Commission  on  3  August 
2007,  23  December  2009  and  17  February  2010  respectively  Italy,  Germany  and 
Austria requested authorisation to introduce a special measure derogating from Article 
193 of Directive 2006/112/EC as regards the person liable for payment of value added 
tax  (hereinafter  "VAT").  By  letter  registered  with  the  Secretariat-General  of  the 
Commission on 10 February 2010, the United Kingdom requested to extend the period 
of validity of the authorisation provided for by Council Decision 2007/250/EC of 16 
April 2007 authorising the United Kingdom to introduce a special measure derogating 
from  Article  193  of  Directive  2006/112/EC  on  the  common  system  of  value  added 
tax2. 

The Commission informed the other Member States by letter dated 11 January 2010 of 
the  request  by  Germany  and  by  letter  dated  9  March  2010  of  the  requests  by  Italy, 
Austria  and  the  United  Kingdom.  By  letter  dated  12  January  2010  the  Commission 
informed  Germany  and  by  letter  dated  11  March  2010  Italy,  Austria  and  the  United 
Kingdom, that it had all the information it considered necessary for the appraisal of the 
request.  

(3) 

The  person  liable  for  the  payment  of  VAT  under  Article  193  of  Directive 
2006/112/EC  is  the  taxable  person  supplying  the  goods.  The  purpose  of  the 
derogations  requested  by  Germany,  Italy  and  Austria  is  to  place  that  liability  on  the 

1 
2 

OJ L 347, 11.12.2006, p. 1. 
OJ L 109, 26.4.2007, p. 42.  

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taxable person to whom the supplies are made, but only under certain conditions and 
only  in  the  case  of  particular  products,  notably  mobile  telephones,  integrated  circuit 
devices and certain related goods. 

A  significant  number  of  traders  in  particular  products,  notably  mobile  telephones, 
integrated  circuit  devices  and  certain  related  goods,  evade  paying  VAT  to  the  tax 
authorities after selling their products. Their customers, however, are entitled to a tax 
deduction as they are in possession of a valid invoice. In the most aggressive cases of 
such  tax  evasion  the  same  goods  are,  via  a  'carousel'  scheme,  supplied  several  times 
without payment of the VAT to the tax authorities. By designating the person to whom 
the goods are supplied as the person liable for the VAT in such cases, the derogation 
would  eliminate  the  opportunity  to  engage  in  that  form  of  tax  evasion.  It  would  not 
affect the amount of VAT due. 

For the purposes of ensuring the effective operation of the derogation and preventing 
the  tax  evasion  from  being  shifted  to  other  products  or  towards  the  retail  level, 
Germany,  Italy  and  Austria  should  introduce  appropriate  control  and  reporting 
obligations. The Commission should be informed of the specific measures adopted in 
view of monitoring the operation of the derogation, as well as of its overall evaluation. 

The measure is proportionate to the objectives pursued since it is not intended to apply 
generally,  but  only  to  specific  groups  of  products,  where  there  is  a  high  risk  of  tax 
evasion and where the scale of the tax evasion has resulted in considerable tax losses.  

The  authorisation  should  be  valid  only  for  a  short  period,  because  it  cannot  be 
established with certainty that the objectives of the measure will be achieved nor can 
the  impact  of  the  measure  on  the  functioning  of  the  VAT  systems  within  those 
Member States who apply it, or in other Member States, be gauged in advance.  

The  United  Kingdom  should  be  allowed  to  continue  to  apply  its  existing  special 
measure  until  the  date  of  expiry  of  the  authorisation  granted  to  Germany,  Italy  and 
Austria. 

The  derogation  has  no  negative  impact  on  the  Union's  own  resources  accruing  from 
VAT, 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

HAS ADOPTED THIS IMPLEMENTING DECISION:  

Article 1 

1. By way of derogation from Article 193 of Directive 2006/112/EC, Germany is authorised 
to  designate  the  taxable  person  to  whom  supplies  of  the  following  goods  are  made  as  the 
person liable to pay the VAT: 

(a) 

(b) 

mobile telephones, being devices made or adapted for use in connection with a 
licensed  network  and  operated  on  specified  frequencies,  whether  or  not  they 
have any other use; 

integrated circuit devices such as microprocessors and central processing units 
in a state prior to integration into end user products. 

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2. The derogation shall apply in respect of supplies of goods for which the taxable amount is 
equal to or higher than EUR 5 000. 

Article 2 

By  way  of  derogation  from  Article  193  of  Directive  2006/112/EC,  Italy  is  authorised  to 
designate the taxable person to whom supplies of the following goods are made as the person 
liable to pay the VAT: 

(a) 

mobile telephones, being devices made or adapted for use in connection with a 
licensed  network  and  operated  on  specified  frequencies,  whether  or  not  they 
have any other use, their components and accessories;  

(b) 

personal computers, their components and accessories. 

Article 3 

1. By way of derogation from Article 193 of Directive 2006/112/EC, Austria is authorised to 
designate the taxable person to whom supplies of the following goods are made as the person 
liable to pay the value added tax (hereinafter "VAT"): 

(a) 

(b) 

(c) 

(d) 

mobile telephones, being devices made or adapted for use in connection with a 
licensed  network  and  operated  on  specified  frequencies,  whether  or  not  they 
have any other use; 

integrated circuit devices such as microprocessors and central processing units 
in a state prior to integration into end user products; 

electronic storage media and PC  cards  for use with computers or with any of 
the devices referred to in points (a) and (d); 

electronic devices for the storage, processing or recording of electronic data as 
follows: 

(i) 

handheld devices for recording or playing of sound and/or images; 

(ii)  handheld digital audio players; 

(iii)  handheld digital video players and portable DVD players; 

(iv)  wireless  devices  providing  email,  telephone,  text  messaging,  web 
browsing and other wireless data access, and handheld computers; 

(v)  handheld  or  portable  positional  determination  devices  for  satellite 

navigation systems; 

(vi)  games  consoles  with  a  screen,  or  of  a  kind  used  with  a  television  or 

computer.  

2. The derogation shall apply in respect of supplies of goods for which the taxable amount is 
equal to or higher than EUR 5 000.  

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Article 4 

The  derogation  provided  for  in  Articles  1,  2 and  3  is  subject  to  Germany,  Italy  and  Austria 
introducing  appropriate  and  effective  control  and  reporting  obligations  on  taxable  persons 
who supply goods to which the reverse charge applies in accordance with this Decision.  

Article 5 

Germany,  Italy  and  Austria  shall  inform  the  Commission  where  they  have  adopted  the 
measures referred to in Articles 1 to 4 accordingly and shall, by 31 December 2013, submit a 
report  to  the  Commission  on  the  overall  evaluation  of  the  operation  of  the  measures 
concerned,  in  particular  as  regards  the  effectiveness  of  the  measures  and  any  evidence  of 
shifting tax evasion to other products or to the retail level. 

Article 4 of Decision 2007/250/EC is replaced by the following: 

Article 6 

This Decision shall expire on 31 December 2014."  

"Article 4 

Article 7 

This  decision  and  Decision  2007/250/EC  shall  expire  on  the  date  of  entry  into  force  of  the 
Union rules allowing all Member States to adopt such measures, but on 31 December 2014 at 
the latest. 

Article 8 

This  implementing  Decision  is  addressed  to  the  Federal  Republic  of  Germany,  the  Italian 
Republic,  the  Republic  of  Austria,  and  the  United  Kingdom  of  Great  Britain  and  Northern 
Ireland.  

Done at Brussels, 

For the Council 
The President 

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