Proposal for a Council Implementing Decision authorising the Republic of Latvia to apply a measure derogating from Article 287 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2010-07-05
Institutions: European Commission
Subjects: Latvia, VAT, derogation from EU law, small and medium-sized enterprises, tax system, tax-free allowance

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EUROPEAN COMMISSION 

Brussels, 5.7.2010 
COM(2010)360 final 

2010/0193 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Latvia to apply a measure derogating from Article 287 of 
Council Directive 2006/112/EC on the common system of value added tax 

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EXPLANATORY MEMORANDUM 

CONTEXT OF THE PROPOSAL 

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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  ‘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  17  February 
2010, Latvia requested authorisation to exempt taxable persons whose annual turnover 
is  no  higher  than  EUR  50 000.  In  accordance  with  Article  395(2)  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letter  dated 
4 May  2010  of  the  request  made  by  Latvia.  By  letter  dated  7  May  2010,  the 
Commission  notified  Latvia  that  it  had  all  the  information  necessary  to  consider  the 
request. 

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General context 

Chapter  1  of  Title  XII  of  the  VAT  Directive  allows  for  the  possibility  for  Member 
States  to  apply  special  schemes  for  small  enterprises,  including  the  possibility  of 
exempting  taxable  persons  below  a  certain  annual  turnover.  This  exemption  implies 
that a taxable person does not have to charge VAT on his supplies and, consequently, 
he can not deduct the VAT on his inputs. 

This  annual  turnover  ceiling  differs  from  one  Member  State  to  another,  particularly 
according  to  its  date  of  accession.  For  Member  States  that  acceded  after  1  January 
1978,  an  annual  turnover  threshold  has  been  fixed  by  Article  287  of  the  VAT 
Directive. The threshold for Latvia was fixed at EUR 17 200 which corresponded with 
LVL 10 000, calculated in accordance with the conversion rate on the day of accession 
(Article 287(10) of the VAT Directive). 

The Latvian derogation request seeks to simplify the VAT system for small enterprises 
by introducing this simplification measure for taxable persons with an annual turnover 
no  higher  than  EUR  50 000.  The  measure  will  significantly  reduce  the  burdens  on 
those  businesses  eligible  for  the  scheme  and  release  them  from  many  of  the  VAT 
obligations under the normal VAT arrangements. 

The  scheme  would  be  optional  for  taxable  persons,  and  if  the  threshold  is  increased, 
Latvia  expects  about  60%  of  the  taxable  persons  eligible  (32 494  taxable  persons  in 
2008) to make use of the simplification measure. 

According  to  an  analysis  carried  out  by  Latvia  of  VAT  declarations  of  economic 
operators  within  the  foreseen  threshold,  the  net  amount  of  VAT  payable  into  the 
national budget of these taxable persons is a negative figure. As a result, the proposed 
measure would have almost no impact on the overall amount of VAT revenue collected 

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at the stage of final consumption. 

The derogation would run until the earliest of 31 December 2013 or the entry into force 
of  a  Directive  on  the  annual  turnover  threshold  below  which  supplies  of  a  taxable 
person may be exempt from VAT. 

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Existing provisions in the area of the proposal 

In  2004,  the  Commission  made  a  proposal  to  increase  the  annual  turnover  threshold 
available  to  Member  States  (COM(2004)  728  final)  for  the  exemption  from  VAT  of 
taxable persons to EUR 100 000.  

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Consistency with the other policies and objectives of the Union 

Not applicable. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

Consultation of interested parties 

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Not relevant. 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

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The decision aims at introducing a simplification measure which removes many of the 
VAT obligations for businesses operating with an annual turnover no higher than EUR 
50 000 and therefore has a potential positive impact. 

Because of the narrow scope of the derogation, and its limited application in time, the 
scope will in any case be limited. 

LEGAL ELEMENTS OF THE PROPOSAL 

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Summary of the proposed action 

Authorisation for Latvia to apply a derogating measure from Directive 2006/112/EC as 
regards  the  introduction  of  a  simplification  measure  for  businesses  with  an  annual 
turnover no higher than EUR 50 000. 

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Legal basis 

Article 395 of the VAT Directive 2006/112/EC of 28 November 2006 on the common 
system of value added tax. 

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Subsidiarity principle 

The  proposal  falls  under  the  exclusive  competence  of  the  EU.  The  subsidiarity 
principle therefore does not apply. 

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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 limited scope of the derogation, the special measure is proportionate to the 
aim pursued. 

Choice of instruments 

Proposed instruments: Decision. 

Other means would not be adequate for the following reason(s). 

Under Article 395 of the VAT Directive 2006/112/EC on the common system of value 
added  tax,  derogation  from  the  common  VAT  rules  is  only  possible  with  the 
authorisation of the Council acting unanimously on a proposal from the Commission. 
A  Council  Decision  is  the  most  suitable  instrument  since  it  can  be  addressed  to 
individual Member States. 

BUDGETARY IMPLICATION 

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The proposal has no implication for the Union budget. 

ADDITIONAL INFORMATION 

Review/revision/sunset clause 

The proposal includes a sunset clause. 

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E-3141 

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2010/0193 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Latvia to apply a measure derogating from Article 287 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 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 tax,1 and in particular Article 395(1) thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

In  a  letter  registered  by  the  Commission’s  Secretariat  General  on  17  February  2010, 
Latvia  requested  authorisation  for  a  measure  derogating  from  Article  287(10)  of 
Directive  2006/112/EC  in  order  to  exempt  taxable  persons  whose  annual  turnover  is 
no higher than EUR 50 000. This will release those taxable persons from certain or all 
of the VAT obligations referred to in Chapters 2 to 6 of Title XI of the VAT Directive. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States by letter dated 4 May 2010 of the request made by 
Latvia. By letter dated 7 May 2010, the Commission notified Latvia that it had all the 
information necessary to consider the request. 

A  special  scheme  for  small  enterprises  is  already  available  to  Member  States  under 
Title  XII  of  the  VAT  Directive.  This  measure  derogates  from  Title  XII  of  the  VAT 
Directive only insofar as the taxable person's annual turnover threshold for the scheme 
is  higher  than  that  currently  allowed  for  Latvia  under  Article  287(10)  of  Directive 
2006/112/EC, which is EUR 17 200. 

A  higher  threshold  may  significantly  reduce  the  VAT  obligations  of  the  smallest 
businesses, whilst being optional for taxable persons allows businesses to opt for the 
normal VAT arrangements. 

In its proposal for a Directive simplifying value added tax obligations of 29 October 
20042,  the  Commission  included  provisions  aimed  at  allowing  Member  States  to  set 
the annual turnover ceiling for the VAT exemption scheme at up to EUR 100 000 or 

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OJ L 347, 11.12.2006, p.1. 
COM(2004) 728final (OJ C 24, 29.01.2005, p.8). 

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the equivalent in national currency, with the possibility of updating this amount each 
year. The request submitted by Latvia is in line with this proposal. 

(6) 

The  derogation  will  have  no  impact  on  the  European  Communities’  own  resources 
accruing from value added tax, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 287(10) of Directive 2006/112/EC, the Republic of Latvia 
is authorised to exempt from VAT taxable persons whose annual turnover is no higher than 
the  equivalent  in  national  currency  of  EUR  50 000  at  the  conversion  rate  on  the  day  of  its 
accession. 

Article 2 

This  authorisation  shall  expire  on  the  earlier  of  the  date  of  entry  into  force  of  a  Directive 
amending  the  amounts  of  the  annual  turnover  ceilings  below  which  taxable  persons  may 
qualify for VAT exemption or on 31 December 2013. 

Article 3 

This Decision is addressed to the Republic of Latvia. 

Done at Brussels,  

For the Council 
The President 

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