Proposal for a COUNCIL DECISION authorising Romania to apply a measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2012-01-26
Institutions: European Commission
Subjects: Romania, VAT, derogation from EU law, small business, tax exemption

EUROPEAN COMMISSION 

Brussels, 26.1.2012 
COM(2012) 14 final 

2012/0002 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Romania to apply a measure derogating from Article 287 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(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  on  6 July  2011  Romania  requested 
authorisation  to  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 50 000. By letter registered with the Commission on 30 August 2011, Romania 
subsequently replaced its request by a new request to exempt taxable persons whose 
annual turnover is no higher than EUR 65 000. In accordance with Article 395(2) of 
the  VAT  Directive,  the  Commission  informed  the  other  Member  States  by  letter 
dated  8 November  2011  of  the  request  made  by  Romania.  By  letter  dated 
9 November 2011, the Commission notified Romania 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 Romania was fixed at EUR 35 000, calculated 
in accordance with the conversion rate on the day of accession (Article 287(18)) of 
the VAT Directive).  

The  Romanian  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 65  000  calculated  in  accordance  with  the 
conversion  rate  on  the  day  of  accession.  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. 

In general, Romania faces a significant problem of VAT non-compliance. In order to 
assist Romania, the Commission services have provided technical assistance in order 
to  evaluate  the  deficiencies  of  the  Romanian  tax  administration  in  terms  of  VAT 
control and non-compliance. Missions were organised to Bucharest with the aim to 

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identify  suitable  remedies  compatible  with  the  VAT  Directive  and  a  number  of 
recommendations  were  formulated  in  this  context  for  which  Romania  asked  the 
Commission  for  support  with  regard  to  their  implementation.  This  proposal  should 
therefore be seen as a part of a package of measures to improve the general level of 
compliance  and  to  simplify  the  procedure  for  collecting  VAT.  It  will  notably  be 
complemented by the introduction of a flat-rate scheme for small operators pursuant 
to Article 281 of the VAT Directive which will be applicable to small operators who 
do no  want  to  make  use  of  this  simplification  measure. A consultation of  the VAT 
Committee took place on 19 October 2011 to this effect. 

The  derogation  would  run  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. On the basis of information provided by 
Romania, the impact on the overall amount of tax revenue collected at the stage of 
final consumption will be negligible. 

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  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 65 000 and therefore has a potential positive impact for businesses. At the same 
time, it is expected that this simplification measure will improve the general level of 
VAT compliance. 

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

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

Authorisation for Romania to apply a derogating measure from the VAT Directive as 
regards an exemption scheme for businesses with an annual turnover no higher than 
the equivalent in national currency of EUR 65 000 at the conversion rate on the day 
of their accession. 

Legal basis 

Article 395 of the VAT Directive. 

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). 

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, 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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2012/0002 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Romania to apply a measure derogating from Article 287 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) 

By  letter  registered  with  the  Commission  on  30  August  2011,  Romania  requested 
authorisation  for  a  measure  derogating  from  point  (18)  of  Article  287  of  Directive 
2006/112/EC in order to exempt taxable persons whose annual turnover is no higher 
than the equivalent in national currency of EUR 65 000 at the conversion rate on the 
day of accession. This would release those taxable persons from certain or all of the 
value  added  tax  (VAT)  obligations  referred  to  in  Chapters  2  to  6  of  Title  XI  of 
Directive 2006/112/EC. 

In  accordance  with  the  second  subparagraph  of  Article  395(2)  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letter  dated 
8 November 2011 of the request made by Romania. By letter dated 9 November 2011, 
the Commission notified Romania 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  Directive  2006/112/EC.  The  measure  derogates 
from  Title  XII  of  Directive  2006/112/EC  only  insofar  as  the  taxable  person's  annual 
turnover  threshold  for  the  scheme  is  higher  than  that  currently  allowed  for  Romania 
under point (18) of Article 287 of Directive 2006/112/EC, which is EUR 35 000. 

A  higher  threshold  for  the  special  scheme  for  small  enterprises  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. Overall, it is expected that 
this measure will improve the general level of VAT compliance. 

1 

OJ L 347, 11.12.2006, p. 1. 

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(5) 

(6) 

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 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 Romania is in line with that proposal. 

The derogation has no impact on the Union's own resources accruing from VAT and 
only 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 point (18) of Article 287 of Directive 2006/112/EC, Romania is 
authorised  to  exempt  from  VAT  taxable  persons  whose  turnover  is  no  higher  than  the 
equivalent  in  national  currency  of  EUR  65  000  at  the  conversion  rate  on  the  day  of  its 
accession to the European Union. 

Article 2 

This  Decision  shall  apply  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 Romania. 

Done at Brussels, 

For the Council 
The President 

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COM(2004) 728 final. 

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