Proposal for a COUNCIL DECISION authorising Romania to apply measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2012-02-17
Institutions: European Commission
Subjects: Romania, VAT, derogation from EU law, motor vehicle, purchase, tax relief

EUROPEAN COMMISSION 

Brussels, 17.2.2012  
COM(2012) 63 final 

2012/0026 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Romania to apply measures derogating from Articles 26(1)(a) and 168 of 
Directive 2006/112/EC on the common system of value added tax 

 
 
  
 
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,  the  Council,  acting  unanimously  on  a  proposal  from  the 
Commission, may authorise any Member State to apply special measures derogating from the 
Directive in order to simplify the procedure for charging the tax or to prevent certain types of 
tax evasion or avoidance. 

By  letters  registered  with  the  Commission  on  15  February  2011  and  on  22  June  2011, 
Romania requested an authorisation to introduce measures derogating from Articles 26(1)(a) 
and 168 of Directive 2006/112/EC in order to limit to 50% the right of deduction with respect 
to  the  purchase  of  certain  types  of  motor  vehicles  and  the  purchase  of  goods  and  services 
related  thereto.  By  letter  registered  with  the  Commission  on  27  September  2011,  Romania 
subsequently replaced its request by a new request to apply the abovementioned measure only 
to certain types of motorized road vehicles, which are not entirely used by the taxable person 
for  business  purposes.  In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the 
Commission  informed  the  other  Member  States  by  letter  dated  1  December  2011  of  the 
request  made  by  Romania.  By  letter  dated  5  December  2011,  the  Commission  notified 
Romania that it had all the information necessary to consider the request. 

General context 

Article 168 of Directive 2006/112/EC provides that a taxable person is entitled to deduct the 
VAT charged on purchases made for the purpose of his taxed transactions. Article 26(1)(a) of 
the same Directive requires the use of goods forming part of the assets of a business for non-
business purposes to be a supply of services for a consideration if the VAT on the goods was 
eligible for deduction.  

In the case of motor vehicles, this system is difficult to apply for a number of reasons, notably 
because it is difficult to identify accurately the split between business and non-business use. 
Where  records  are  kept,  they  add  an  additional  burden  to  both  the  business  and  the 
administration in maintaining and checking them. The number of vehicles concerned means 
that even small-scale individual evasion has the capacity to grow into significant sums. 

As  an  alternative  to  the  system  set  out  in  the  Directive,  the  Romanian  tax  authorities  have 
requested  that  they  be  allowed  to  limit  the  initial  deduction  to  a  set  percentage  and  in  turn 
relieve  the  business  from  accounting  for  tax  on  the  private  use.  This  has  the  benefit  of 
simplifying  the  system  for  all  concerned  and  ensuring  that  a  percentage  of  the  tax,  which 
might have otherwise been evaded, is collected. 

The percentage restriction requested is 50%. This is based on Romania's own assessment and, 
under  the  terms  of  the  proposal,  would  be  reviewed  upon  any  request  by  Romania  for 
extension beyond 2014. 

The new system will apply to all businesses in which the vehicles are not used exclusively for 
business  purposes.  However,  certain  types  of  motor  vehicles  would  be  excluded  from  the 

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restriction to the right of deduction and would therefore be subject to the normal rules, namely 
any vehicle with more than 9 seats (including the driver's) and with a maximum permissible 
laden mass of more than 3 500 kilograms. This mainly restricts the field of application to cars, 
vans,  pick-ups,  motorbikes  and  mopeds.  In  addition,  a  detailed  list  of  particular  vehicles, 
which  are  to  be  excluded  from  the  restriction, is  provided,  based  on  the  fact  that  their  non-
business use is considered as negligible. 

Existing provisions in the area of the proposal 

Article  176  of  Directive  2006/112/EC  stipulates  that  the  Council  shall  determine  the 
expenditure on which the VAT is not deductible. Until such time, it authorises Member States 
to maintain exclusions, which were in place on 1 January 1979. There are therefore a number 
of "stand still" provisions restricting the right to deduct in relation to motor vehicles. 

In  2004,  the  Commission  made  a  proposal1,  which  contains  rules  on  which  categories  of 
expenditure may be subject to a restriction on the right to deduct but the Council, has not been 
able yet to reach an agreement on that proposal. 

Consistency with other policies and objectives of the Union 

Not applicable. 

2. 

CONSULTATION  OF 
ASSESSMENTS 

Consultation of interested parties 

Not relevant. 

INTERESTED 

PARTIES  AND 

IMPACT 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

The proposal is designed to counter VAT evasion and to simplify the procedure for charging 
tax and has, therefore, a potential positive impact for both businesses and administrations. The 
solution has been identified by Romania as a suitable measure and is comparable to other past 
and present derogations.  

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

The proposal aims to authorise Romania to apply a measure derogating from Article 168 of 
Directive  2006/112/EC  so  as  to  restrict  the  right  of  a  taxable  person  to  deduct  VAT  on 
expenditure  related  to  certain  motorised  road  vehicles  when  the  vehicle  is  not  used 

1 

COM(2004) 728 final 
http://eur-lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0728en01.pdf 

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exclusively  for  business  purposes.  Where  the  right  to  deduct  has  been  limited,  a  derogation 
from  Article  26(1)(a)  of  Directive  2006/112/EC  will  relieve  the  taxable  person  from 
accounting  for  tax  on  the  non-business  use  of  the  vehicle.  The  measure  is  restricted  to 
vehicles under a certain seating capacity and under a certain weight, and provision is made for 
a limited number of specified exceptions from the rule. 

The  restriction  is  set  at  a  flat  rate  of  50%.  This  rate  and  the  necessity  for  the  derogating 
measures are to be reviewed and reported on by Romania upon any request for an extension. 
The  Decision  will  expire  on  the  earlier  of  the  date  specified  in  the  Decision  or  the  date  on 
which Union rules come into force governing restrictions on the right to deduct in this area. 

Legal basis 

Article  395(1)  of  Council  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  Union.  The  subsidiarity  principle 
therefore does not apply. 

Proportionality principle 

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

This  Decision  concerns  an  authorisation  granted  to  a  Member  State  on  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: Council Decision. 

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

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

4. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Union budget. 

5. 

OPTIONAL ELEMENTS 

The proposal includes a review clause and a sunset clause. 

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2012/0026 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Romania to apply measures derogating from Articles 26(1)(a) and 168 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 tax2, 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 27 September 2011, Romania requested 
authorisation to introduce special measures concerning certain motorised road vehicles 
derogating from those provisions laid down in Directive 2006/112/EC which govern a 
taxable person's right to deduct VAT paid on the purchase of goods and services and 
those which require tax to be accounted for on business assets used for non-business 
purposes; 

In  accordance  with  the  second  subparagraph  of  Article  395(2)  of  Directive 
2006/112/EC, the Commission informed the other Member States of the request made 
by Romania by letter dated 1 December 2011. By letter dated 5 December 2011, the 
Commission notified Romania that it had all the information necessary to consider the 
request; 

Article  168  of  Directive  2006/112/EC  establishes  a  taxable  person's  right  to  deduct 
VAT charged on supplies of goods and services received by him for the purposes of 
his  taxed  transactions.  Article  26(1)(a)  of  that  Directive  contains  a  requirement  to 
account  for  VAT  when  a  business  asset  is  put  to  use  for  the  private  purposes  of  the 
taxable  person  or  his  staff  or,  more  generally,  for  purposes  other  than  those  of  his 
business; 

The non-business use of vehicles is difficult to identify accurately and even where it is 
possible,  the  mechanism  for  doing  so  is  often  burdensome.  Under  the  requested 
measures, the amount of VAT on expenditure eligible for deduction concerning motor 
vehicles,  which  are  not  used  entirely  for  business,  purposes  should,  with  some 
exceptions, be set at a flat percentage rate. Based on currently available information, 

2 

OJ L 347 11.12.2006, p.1. 

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(5) 

(6) 

Romania believes that a rate of 50% is justifiable. At the same time, to avoid double 
taxation, the requirement for accounting for VAT on the non-business use of a motor 
vehicle  should  be  suspended  where  it  has  been  subject  to  this  restriction.  These 
measures can be justified by the need to simplify the procedure for charging VAT and 
to prevent evasion through incorrect record keeping and false tax declaration; 

The  restriction  to  the  right  of  deduction  under  the  special  measures  should  apply  to 
VAT paid on the purchase, intra-Community acquisition, importation, hire or leasing 
of specified motorised road vehicles and on expenditure related thereto, including the 
purchase of fuel; 

Certain  types  of  motor  vehicles  should  be  excluded  from  the  scope  of  the  special 
measures as - due to their nature or the type of business they are used for - any non-
business  use  is  considered  as  negligible.  Therefore,  the  special  measures  should  not 
apply to vehicles with more than nine seats (including the driver's) or with a maximum 
permissible  laden  mass  of  more  than  3  500  kilograms.  In  addition,  a  detailed  list  of 
specific types of vehicles excluded from that restriction should be provided, based on 
their particular use; 

(7) 

These derogating measures should be limited in time to allow for an evaluation of their 
effectiveness and of the appropriate percentage, since the proposed percentage is based 
on initial findings on business use; 

(8)  Where Romania considers a further extension beyond 2014 is necessary, a report on 
the  application  of  the  measure,  which  includes  a  review  of  the  percentage  applied, 
should  be  submitted  to  the  Commission  together  with  the  extension  request  no  later 
than 31 March 2014; 

(9) 

On  29  October  2004,  the  Commission  adopted  a  proposal3  for  a  Council  Directive 
amending  Directive  77/388/EEC,  now  Directive  2006/112/EC,  that  includes  the 
harmonisation  of  the  categories  of  expenses  for  which  exclusions  of  the  right  of 
deduction  may  apply.  Under  this  proposal,  exclusions  on  the  right  to  deduct  may  be 
applied  to  motorised  road  vehicles.  The  derogating  measures  provided  for  in  this 
Decision should expire on the date of the entry into force of such amending Directive, 
if that date is earlier than the date of expiry provided for in this Decision; 

(10)  The  derogation  will  only  have  a  negligible  effect  on  the  overall  amount  of  tax 
collected  at  the  stage  of  final  consumption  and  will  have  no  impact  on  the  Union’s 
own resources accruing from value added tax. 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  168  of  Directive  2006/112/EC,  Romania  is  hereby 
authorised  to  limit  to  50%  the  right  to  deduct  the  VAT  on  the  purchase,  intra-Community 
acquisition,  importation,  hire  or  leasing  of  motorised  road  vehicles  as  well  as  the  VAT 

3 

COM(2004) 728 final 
http://eur-lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0728en01.pdf 

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charged  on  expenditure  related  to  those  vehicles,  where  the  vehicle  is  not  entirely  used  for 
business purposes. 

The restriction set out in the first paragraph shall not apply to motor vehicles with a maximum 
permissible  laden  mass  of  more  than  3  500  kg  or  with  more  than  nine  seats  including  the 
driver's seat. 

Article 1 shall not apply to the following categories of motor vehicles: 

Article 2 

1) 

2) 

3) 

4) 

5) 

6) 

vehicles  used  exclusively  for  emergencies,  security  and  protection  and  courier 
services; 

vehicles used by sales agents and by purchasing agents; 

vehicles  used  for  the  transport  of  passengers  for  remuneration,  including  taxi 
services; 

vehicles  used  to  supply  remunerated  services,  including  hire  or  driving  lessons 
provided by driving schools; 

vehicles used for hire or leasing; 

vehicles used as commodities for trading purposes. 

Article 3 

By way of derogation from Article 26(1)(a) of Directive 2006/112/EC, Romania is authorised 
not to treat as a supply of services for consideration the private use by a taxable person or his 
staff or, more generally, for purposes other than those of his business, of a vehicle to which 
the restriction referred to in Article 1 of this Decision applies. 

Article 4 

1. 

2. 

This Decision shall expire on the date of entry into force of Union rules determining 
the  expenditure  relating  to  motorised  road  vehicles  that  is  not  eligible  for  full 
deduction of VAT, or on 31 December 2014, whichever is the earlier. 

Any request for the extension of the measures provided for in this Decision shall be 
submitted to the Commission by 31 March 2014. 

Any request for extension of those measures shall be accompanied by a report which includes 
a review of the percentage restriction applied on the right to deduct VAT on the basis of this 
Decision. 

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Article 5 

This Decision is addressed to Romania. 

Done at Brussels, 17.2.2012 

For the Council 
The President 

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