Proposal for a Council Implementing Decision authorising Romania to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2010-06-17
Institutions: European Commission
Subjects: Romania, VAT, delivery, derogation from EU law, financial solvency, provision of services, tax evasion, tax harmonisation, wood product

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EUROPEAN COMMISSION 

Brussels, 17.6.2010 
COM(2010)313 final 

2010/0174 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Romania to introduce a special measure derogating from Article 193 of 
Directive 2006/112/EC on the common system of value added tax 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Grounds for and objectives of the proposal 

Pursuant  to  Article  395  of  Council  Directive  2006/112/EC  of  28  November  2006  on  the 
common  system  of  value  added  tax  (hereinafter  '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  that  Directive  in  order  to  simplify  the  procedure  for 
charging the tax or to prevent certain types of tax evasion or avoidance. 

By  letter  registered  with  the  Secretariat-General  of  the  Commission  on  23  September  2009, 
Romania has requested to be authorised to introduce measures 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 14 December 2009 of the request made by 
Romania. By letter dated 17 December 2009, the Commission notified Romania that it had all 
the information it considered necessary for appraisal of the request 

General context 

As  a  general  rule,  Article  193  of  the  VAT  Directive  stipulates  that  the  taxable  person 
supplying goods or services is normally liable to pay value added tax (VAT).  

The  Romanian  Government  would  like  to  apply  a  reverse  charge  procedure,  whereby  the 
taxable  person,  to  whom  the  supplies  of  goods  or  services  are  made,  becomes  liable  for  the 
payment of the VAT in the following situations: 

- supplies of goods and the provision of services by taxable persons while under an insolvency 
procedure, excluding retailers 

- supplies of wood products by taxable persons – specifically, standing timber, round or cleft 
working  wood,  fuel  wood,  timber  products,  as  well  as  square-edged  or  chipped  wood  and 
wood in the rough, processed or semi-manufactured wood.  

As regards taxable persons under an insolvency procedure and supplying goods and services, 
they  may  be  prevented  by  financial  difficulties  from  paying  the  VAT  received  on  their 
supplies to the competent authorities. On the other hand, the purchaser, if a taxable person, can 
still  deduct  the  VAT  incurred.  The  reverse  charge  is  not  intended  to  be  applied  to  supplies 
made  by  retailers  while  under  an  insolvency  procedure  due  to  the  practical  difficulties  they 
would have in applying such a measure, in particular those they would have in identifying the 
taxable status of their customers at the point of sale. 

The forestry sector in Romania is of particular economic importance. The sector accounts for a 
considerable amount of traders, often small resellers and intermediaries, which frequently fail 
to comply with their VAT obligations. The customers of these suppliers are generally larger, 
well established businesses. 

The present request will be granted until 31 December 2013.  

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2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

Consultation of interested parties 

Not relevant 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

The  Decision  proposal  aims  at  combating  possible  VAT  evasion  or  avoidance  and  has 
therefore a potential positive economic impact. 

Impact will in any case be limited because of the narrow scope of the derogation. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

Authorisation  for  Romania  to  apply  a  measure  derogating  from  Article  193  of  the  VAT 
Directive as regards the use of a reverse charge mechanism in case of supplies of goods and 
services by taxable persons under an insolvency procedure, excluding retailers, and supplies of 
wood products. 

Legal basis 

Article 395 of the VAT Directive 

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). 

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

4. 

BUDGETARY IMPLICATION 

BUDGETARY IMPLICATION 

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The proposal has no implication for the Union's budget. 

5. 

OPTIONAL ELEMENTS 

Review/revision/sunset clause 

The proposal includes a sunset clause. 

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2010/0174 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Romania to introduce a special measure derogating from Article 193 of 
Directive 2006/112/EC on the common system of value added tax 

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) 

(5) 

By letter registered with the Secretariat-General of the Commission on 23 September 
2009, Romania requested authorisation to introduce a special measure derogating from 
Article 193 of Directive 2006/112/EC. 

The  Commission  informed  the  other  Member  States  by  letters  dated  14  December 
2009  of  the  request  made  by  Romania.  By  letter  dated  17  December  2009,  the 
Commission notified Romania that it had  all the  information it  considered  necessary 
for appraisal of the request. 

Article 193 of Directive 2006/112/EC provides that the taxable person supplying the 
goods or services is, as a general rule, liable for the payment of the value added tax 
(VAT) to the tax authorities.  

The  purpose  of  the  derogation  requested  by  Romania  is  to  make  the  recipient  of 
supplies  of  goods  or  services  liable  for  VAT  in  two  specific  types  of  circumstances. 
The first case covered is where taxable persons supply wood products as defined in the 
national legislation. The second is where goods and/or services are supplied by taxable 
persons, with the exception of retailers, while under an insolvency procedure. 

Insolvent businesses are often prevented by financial difficulties from paying the VAT 
to the competent authorities on their supplies of goods or services. The recipient can 
nonetheless  in  principle  deduct  the  VAT  even  though  it  has  not  been  paid  to  the 
competent authorities by the supplier. 

1 

OJ L 347, 11.12.2006, p. 1. 

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(6) 

(7) 

(8) 

Since retailers would find it difficult to ascertain the tax status of their customers at the 
point  of  sale,  the  reverse  charge  should  not  apply  to  retailers  while  under  an 
insolvency procedure. 

Romania also encounters problems in the timber market because of the nature of the 
market  and  the  businesses  involved.  The  market  has  a  large  number  of  small 
enterprises which the Romanian authorities have found difficult to control. The most 
common  form  of  tax  evasion  involves  the  supplier  invoicing  for  supplies  then 
disappearing  without  paying  the  tax  to  the  competent  authorities  but  leaving  the 
customer in receipt of a valid invoice for the right of tax deduction. 

By  designating  the  recipient  as  the  person  liable  for  the  payment  of  the  VAT  in  the 
case  of  supplies  of  wood  products  by  taxable  persons  and  in  the  case  of  supplies  of 
goods and the provision of services by taxable persons, with the exception of retailers, 
while  under  an  insolvency  procedure,  the  derogation  removes  the  difficulties 
encountered without affecting the amount of tax due. This has the effect of preventing 
certain types of evasion or avoidance. 

(9) 

The measure is proportionate to the objectives pursued since it is not intended to apply 
generally,  but  only  to  specific  operations  and  sectors  which  pose  considerable 
problems in charging the tax or of tax evasion or avoidance. 

(10)  The authorisation should be valid for a limited period and should therefore expire on 
31  December  2013.  In  light  of  the  experience  gained  up  to  that  date  an  assessment 
may be made whether or not the derogation remains justified. 

(11)  The  derogation  has  no  adverse  impact  on  the  Union's  own  resources  accruing  from 

VAT.  

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 193 of Directive 2006/112/EC, Romania is authorised to 
designate the taxable person to whom the supplies of goods or services referred to in Article 2 
of this Decision are made as the person liable for the payment of the tax. 

The derogation provided for in Article 1 shall apply to: 

Article 2 

(1) 

(2) 

Supplies of wood products by taxable persons; 

Supplies of goods and the provision of services by taxable persons, with the 
exception of retailers, while under an insolvency procedure. 

Wood  products  as  referred  to  in  point  (1)  of  the  first  subparagraph  shall  include  standing 
timber, round or cleft working wood, fuel wood, timber products, as well as square edged or 
chipped wood and wood in the rough, processed or semi-manufactured wood. 

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This Decision shall expire on 31 December 2013. 

Article 3 

Article 4 

This Decision is addressed to Romania. 

Done at Brussels, 

For the Council 
The President 

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