Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Lithuania to apply a measure derogating from Article 287 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2011-03-23
Institutions: European Commission
Subjects: VAT, basis of tax assessment, delivery, distributive trades, provision of services, tax exemption, tax harmonisation, tax on consumption, tax relief

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EUROPEAN COMMISSION 

Brussels, 23.3.2011 
COM(2011) 134 final 

2011/0057 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Lithuania 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 

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  '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 Commission at 19 November 2010, Lithuania requested 
authorisation  to  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR  45  000.  In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the 
Commission  informed  the  other  Member  States  by  letter  dated  21  January  2011  of 
the  request  made  by  Lithuania.  By  letter  dated  25  January  2011,  the  Commission 
notified Lithuania that it had all the information necessary to consider the request. 

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  maximum  threshold  for  Lithuania  was  fixed  at  EUR  29  000, 
calculated  in  accordance  with  the  conversion  rate  on  the  day  of  accession  (Article 
287(11) of the VAT Directive).  

The  Lithuanian  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 45 000. 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 system would be 
optional for taxable persons. 

On the basis of information provided by Lithuania, the impact on the overall amount 
of tax revenue collected at the stage of final consumption will be negligible. 

The  derogation  would  run  from  1  January  2012  until  the  earliest  of  31  December 
2014  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. 

Existing provisions in the area of the proposal 

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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  with  the  possibility  of  updating  this  amount  each 
year. 

Consistency with the other policies and objectives of the Union 

Not applicable. 

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  aims  at  introducing  a  simplification  measure  which  removes  many  of 
the VAT obligations for businesses operating with an annual turnover no higher than 
EUR 45 000 and therefore has a potential positive impact for businesses. 

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

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

Authorisation  for  Lithuania  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 45 000. 

Legal basis 

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

Subsidiarity principle 

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

Proportionality principle 

The proposal complies with the proportionality principle for the following reason(s). 

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The  implementing  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. 

4. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Union budget 

5. 

OPTIONAL ELEMENTS 

The proposal includes a sunset clause. 

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2011/0057 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Lithuania 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 tax1 ('the VAT Directive'), 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  Commission  on  19  November  2010,  Lithuania  requested 
authorisation for a measure derogating from Article 287(11) of the VAT Directive in order to 
exempt  taxable  persons  whose  annual  turnover  is  no  higher  than  EUR  45  000.  This  measure 
will release those taxable persons form certain or all of the value added tax (VAT) obligations 
referred to in Chapters 2 to 6 of Title XI of the VAT Directive. 

In  accordance  with  the  second  subparagraph  of  Article  395(2)  of  the  VAT  Directive,  the 
Commission informed the other Member States by letter dated 21 January 2011 of the request 
made by Lithuania. By letter dated 25 January 2011, the Commission notified Lithuania that it 
had all the information necessary to consider the request. 

A special scheme for small enterprises is an option which is already available to Member States 
under  Title  XII  of  the  VAT  Directive.  The  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 Lithuania under Article 287(11) of the VAT Directive, which is 
EUR 29 000. 

A  higher  threshold  for  the  special  scheme  is  a  simplification  measure  as  it  may  significantly 
reduce the VAT obligations of the smallest businesses, whilst that special scheme is optional for 
taxable persons and allows businesses to opt for the normal VAT arrangements. 

In its proposal for a Directive simplifying valued added tax obligations of 29 October 20042, the 
Commission  included  provisions  aimed  at  allowing  Member  States  to  set  the  annual  turnover 

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OJ L 347, 11.12.2006, p. 1. 
COM(2004) 728final (OJ C 24, 29.1.2005, p. 8). 

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ceiling  for  the  VAT  exemption  scheme  at  up  to  EUR  100  000  or  the  equivalent  in  national 
currency,  with  the  possibility  of  updating  this  amount  each  year.  The  request  submitted  by 
Lithuania is in line with this proposal. 

(6) 

The derogation will have no impact on the Union's own resources accruing from VAT and will 
only  have  a  negligible  effect  on  the  overall  amount  of  the  tax  revenue  of  the  Member  State 
collected at the stage of final consumption, 

HAS ADOPTED THIS DECISION: 

Article 1 

By  way  of  derogation  from  Article  287(11)  of  Directive  2006/112/EC,  the  Republic  of  Lithuania  is 
authorised to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent 
in national currency of EUR 45 000 at the conversion rate on the day of its accession to the European 
Union. 

This decision shall take effect on the day of its notification. 

Article 2 

It  shall  apply  from  1  January  2012  until  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 until 31 December 2014, whichever date is earlier. 

Article 3 

This Decision is addressed to the Republic of Lithuania. 

Done at Brussels, 

For the Council 
The President 

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