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: 2011-05-04
Institutions: European Commission
Subjects: Romania, VAT, derogation from EU law, financial solvency, provision of services, tax evasion, tax harmonisation

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EUROPEAN COMMISSION 

Brussels, 4.5.2011 
COM(2011) 235 final 

2011/0104 (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. 

BACKGROUND TO THE PROPOSAL 

Article 395 of Directive 2006/112/EC of 28 November 2006 on the common system of value 
added  tax  (‘VAT  Directive’)  provides  that  the  Council,  acting  unanimously  on  a  proposal 
from  the  Commission,  may  authorise  any  Member  State  to  introduce  special  measures 
derogating  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 letter registered at the Commission on 4 November 2009 Romania requested authorisation 
to introduce a special measure derogating from Article 193 of the VAT Directive in order to 
designate the taxable recipients of supplies of wheat, rye, barley, maize, soya, rapeseed and 
sunflower seed as the persons liable to pay VAT instead of the suppliers. 

By letter registered at the Commission on 2 July 2010 Romania requested a further derogation 
to extend the scope of the measure to other products. 

By  letter  registered  at  the  Commission  on  26 July  2010  Romania  sought  authorisation  for  a 
period of two years, and undertook not to request its extension. 

By  letter  registered  at  the  Commission  on  20 December 2010  Romania  again  confined  its 
derogation  request  to  wheat,  rye,  barley  and  barley  for  malting,  maize,  soya,  rapeseed, 
sunflower seed, and sugar beet. 

In  accordance  with  Article 395(2)  of  the  VAT  Directive,  the  Commission  notified  the  other 
Member States of Romania's requests by letter of 15 March 2011. By letter of 22 March 2011, 
the Commission notified Romania that it had all the information it considered necessary for 
appraisal of the requests. 

In support of its request, Romania explained that it had found cases of tax evasion in the trade 
in certain cereals and oilseeds, usually carried out by setting up fly-by-night businesses. These 
businesses buy goods, without payment of VAT, either from suppliers outside Romania - and 
so their supplies are exempt under Article 138 of the VAT Directive - or from local producers 
covered by the tax exemption scheme for small enterprises provided for in Article 287 of the 
Directive, or do not declare their sales. 

They  then  supply  these  goods  to  customers  in  Romania  –  wholesalers,  exporters  and 
processors – and invoice the VAT but disappear after delivery of the goods without paying the 
tax to the Treasury.  

Their customers, however, are entitled to deduct the VAT as they are in possession of a valid 
invoice. 

The special measure that is the subject of this proposal would make the customer the taxable 
person liable to the tax instead of the supplier, while still allowing the customer to deduct the 
tax in accordance with the ordinary rules. In this way the supplier would no longer be able to 
collect  the  VAT  from  its  taxable  customer  without  paying  it  back  to  the  Treasury.  Such  a 
measure would put an immediate stop to this particular type of tax evasion. 

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During its application Romania would be able to introduce conventional anti-fraud measures 
that are compatible with the VAT Directive and designed to combat this type of VAT evasion 
after expiry of the authorisation. 

This is nevertheless a radical measure that goes against the fractionated-payment principle of 
the  VAT  system  and  so  carries  the  risk  that  evasion  will  shift  to  the  stage  when  the  raw 
materials are processed into industrial or food products, or to other sectors. 

To forestall such risks Romania should, after a short application period, introduce appropriate 
declaration  and  control  measures  to  run  concurrently.  The  taxable  persons  covered  by  the 
measure will be required, in particular, to verify the taxable status of their customers before 
applying the measure, make separate reference to these operations in their VAT returns, and 
keep a list of customers for which the measure was applied at the disposal of the Romanian 
administration. 

The  Romanian  authorities  must  also  tighten  up  controls  on  taxable  persons  engaged  in 
processing  these  products  as,  once  they  no  longer  incur  VAT  on  their  purchases  of  raw 
materials, they might be tempted not to declare the sales of their processed products. 

Lastly, the Romanian authorities must ensure that the persons involved in the cases of evasion 
relating  to  the  products  covered  by  the  special  measure  do  not  transfer  their  fraudulent 
activities to other agricultural products or other sectors of the economy. 

The Commission must be notified of the measures adopted. 

The  taxable  persons  who,  among  other  similar  transactions  involving  agricultural  products, 
are  engaged  in  supplying  the  goods  in  question,  together  with  the  persons  to  whom  these 
supplies  are  made,  should  be  allowed  to  apply  the  special  measure  without  incurring 
disproportionate  administrative  costs  or  running  any  risk  as  to  legal  certainty.  The  measure 
should apply only to unprocessed products, which are not normally used in the unaltered state 
for final consumption. 

The  goods  targeted  by  the  special  measure  can  be  determined  accurately,  avoiding  any 
ambiguity,  by  using  the  combined  nomenclature  laid  down  in  Council  Regulation  (EEC) 
No 2658/87  of  23 July  1987  on  the  tariff  and  statistical  nomenclature  and  on  the  Common 
Customs Tariff. 

Bearing  in  mind  the  provisions  of  Article  395  of  the  VAT  Directive,  the  arguments  put 
forward by Romania and the context in which the proposed special measure will be applied, 
the Commission believes that the derogation requested meets the conditions laid down in that 
article and, in particular, that it helps to prevent tax fraud, without affecting the amount of tax 
revenue collected at the stage of final consumption. Consequently, the Commission believes it 
must present the corresponding proposal to the Council. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

The  proposed  decision  concerns  implementation  of  a  measure  to  prevent  tax  fraud  in 
connection with a number of products of a specific economic sector. It will therefore have a 
beneficial impact, particularly for honest taxable persons operating in that sector and for the 
Member State in question. There was no need to consult external experts or interested parties 

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or to assess the impact of this decision. The impact will in any case be limited because of the 
narrow scope and limited period of application of the derogation. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The  purpose  of  the  proposed  decision  is  to  allow  Romania  to  apply  a  special  measure 
derogating  from  Article 193  of  the  VAT  Directive  for  the  purpose  of  shifting  VAT  liability 
away from the supplier to the taxable recipient of supplies of certain agricultural products on 
which VAT is due and the taxable amount of which is over a given threshold. 

The  legal  basis  of  this  decision  is  Article 395  of  the  VAT  Directive,  which  was  adopted 
pursuant to Article 113 of the Treaty on the Functioning of the European Union. Under this 
article, a Member State wishing to apply special measures derogating from the Directive must 
obtain an authorisation from the Council, which will take the form of a Council Implementing 
Decision. Since it is an implementing measure involving the harmonisation of legislation on 
turnover taxes, the principle of subsidiarity has been adhered to. 

The proposal complies with the principle of proportionality and therefore does not go beyond 
what is necessary to achieve the objective of preventing tax fraud because it involves only a 
part  of  a  specific,  limited  economic  sector  and  a  small  number  of  taxable  persons  and 
transactions. Accordingly, it derogates from the principles of the VAT Directive, in particular 
the principle of fractionated payments, only to a limited and appropriate extent. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implications for the Union budget. 

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2011/0104 (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 tax (VAT)1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

By  letters  registered  at  the  Commission  on  4 November  2009,  2 July  2010,  26 July 
2010  and  20 December  2010,  Romania  requested  authorisation,  for  a  period  of  two 
years,  to  designate  as  liable  to  value  added  tax  (VAT)  the  taxable  persons  to  whom 
supplies  of  certain  cereals  and  oilseeds  are  made,  by  way  of  derogation  from 
Article 193 of Directive 2006/112/EC; it has said that it will not seek renewal of this 
authorisation. 

The  Commission  forwarded  Romania’s  request  to  other  Member  States  by  letter  of 
15 March 2011. By letter of 22 March 2011, the Commission notified Romania that it 
had all the information it considered necessary for appraisal of the requests. 

Romania has found cases of tax evasion in the trade in certain unprocessed agricultural 
products,  cereals  and  oilseeds.  Some  operators  do  not  pay  VAT  on  to  the  Treasury 
after delivering their products, especially if they have acquired them without payment 
of input tax. Their customers, however, are entitled to deduct the VAT as they are in 
possession of a valid invoice. 

Designating the taxable person to whom the goods are supplied as liable for the VAT 
instead  of  the  supplier  would  be  a  temporary  emergency  measure  that  would  put  an 
end  to  this  form  of  evasion.  Application  of  this  measure  for  two  years  should  give 
Romania  time  to  introduce  in  the  agricultural  sector  definitive  measures  compatible 
with the Directive 2006/112/EC that would prevent and combat this form of evasion. 

To prevent the fraudulent activity being transferred to the processing stage of food or 
industrial  goods,  or  to  other  products,  Romania  should  introduce  at  the  same  time 
appropriate declaration and control measures and notify the Commission thereof. 

1 

OJ L 347, 11.12.2006, p. 1. 

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(6) 

(7) 

(8) 

To  ensure  that  the  special  measure  applies  only  to  unprocessed  agricultural  products 
and  that  the  taxable  persons  concerned  do  not  incur  disproportionate  administrative 
costs  or  run  any  risk  as  to  legal  certainty,  the  goods  covered  by  the  special  measure 
should  be  determined  by  using  the  combined  nomenclature  laid  down  in  Council 
Regulation  (EEC)  No 2658/87  of  23 July  1987  on  the  tariff  and  statistical 
nomenclature and on the Common Customs Tariff2. 

The  special  measure  is  justified  and  proportionate  to  the  objectives  pursued.  It  is  of 
fixed duration and concerns only a number of clearly designated products that are not 
normally used in the unaltered state for final consumption and have been the subject of 
tax  evasion  activities  that  have  caused  a  substantial  loss  of  VAT  revenue.  Given  the 
scale of this lost tax revenue, the measure should be adopted as soon as possible. 

The special measure will not affect the amount of VAT collected by Romania at the 
final  consumption  stage  and  will  have  no  adverse  impact  on  the  European  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  hereby 
authorised to designate as the person liable to pay VAT the taxable recipient of supplies of the 
following  goods,  as  set  out  in  the  combined  nomenclature  established  by  Regulation (EEC) 
No 2658/87: 

CN code 

Product 

1001 10 00 

Durum wheat 

1001 90 10 

Spelt for sowing 

ex 1001 90 91 

Common wheat, seed 

ex 1001 90 99 

Other spelt and common wheat, not for sowing 

1002 00 00 

1003 00 

1005 

1201 00 

1205 

1206 00 

Rye 

Barley 

Maize 

Soya beans, whether or not broken 

Rape or colza seeds, whether or not broken 

Sunflower seeds, whether or not broken 

2 

OJ L 256, 7.9.1987, p. 1. 

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1212 91 

Sugar beet 

Article 2 

The  authorisation  provided  for  in  Article 1  is  subject  to  Romania’s  introducing  appropriate 
and effective declaration and control obligations on taxable persons who supply the goods to 
which that authorisation applies. 

Romania  shall  notify  the  Commission  of  the  introduction  of  the  obligations  and  measures 
referred to in the first paragraph. 

This Decision shall apply for two years from the time of its notification. 

Article 3 

Article 4 

This Decision is addressed to Romania. 

Done at Brussels, 

For the Council 
The President 

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