Proposal for a COUNCIL DECISION authorising Hungary to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (only the Hungarian text is authentic)
Date: 2012-06-29
Institutions: European Commission
Subjects: Hungary, VAT, agricultural product, derogation from EU law, tax evasion

EUROPEAN COMMISSION 

Brussels, 29.6.2012  
COM(2012) 356 final 

2012/0173 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Hungary to introduce a special measure derogating from Article 193 of 
Directive 2006/112/EC on the common system of value added tax 

(only the Hungarian text is authentic) 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Pursuant  to  Article  395  of  Directive  2006/112/EC  of  28  November  2006  on  the 
common system of value added tax1 (hereafter: '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  value  added  tax  (VAT)  or  to  prevent 
certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  3  February  2012,  Hungary  requested, 
for  a  period  of  2  years,  to  be  authorised  to  introduce  a  measure  derogating  from 
Article  193  of  the  VAT  Directive  in  order  to  designate  the  taxable  recipient  of 
supplies of wheat and meslin, rye, barley, oats, maize, triticale, soya beans, rape or 
colza  seeds  and  sunflower  seeds  as  the  person  liable  to  pay  VAT  to  the  tax 
authorities instead of the supplier (the so-called 'reverse charge').  

In accordance with Article 395(2) of the VAT Directive, the Commission informed 
the  other  Member  States  by  letter  dated  26  April  2012  of  the  request  made  by 
Hungary. By letter dated 2 May 2012, the Commission notified Hungary that it had 
all the information necessary for appraisal of the request. 

Hungary  explained  that  it  has  been  confronted  with  several  types  of  tax  evasion 
which, in essence, involves the invoicing of supplies followed by the disappearance 
of  the  supplier  without  paying  tax  to  the  tax  authorities  but  leaving  the  taxable 
customer  in  receipt  of  a  valid  invoice  in  respect  of  which  he  can  claim  a  tax 
deduction.  Evasion  schemes  have  been  discovered  at  national  level  as  well  as  in 
relation to Intra-Community trade. 

On the basis of information provided by Hungary, about 20% of all VAT deducted or 
reclaimed  as  regards  the  above-mentioned  agricultural  products  would  be  of  a 
fraudulent nature and, calculated at year 2010 prices, result in an estimated VAT loss 
for the Treasury of HUF 13,5 billion. 

In  reaction,  Hungary  would  like  to  apply  a  reverse  charge  procedure,  thus 
eliminating the possible fraud insofar as, in the absence of VAT being charged, the 
potential  'missing'  trader  would  not  be  able  to  keep  the  VAT  received  from  his 
customer. The taxable recipient, insofar as being a taxable person with a full right of 
deduction, would declare and deduct the VAT in the same VAT return. This would 
have the effect of instantly preventing further significant revenue losses.  

At  the  same  time,  Hungary  should  establish  appropriate  control  measures  and 
reporting obligations for taxable persons who are engaged in supplies of agricultural 
products to which the derogation applies in order to ensure the proper functioning of 
the  measure  and  to  prevent  a  shift  of  evasion  to  other  stages  (e.g.  when  the  raw 
products are processed), agricultural products or sectors. The Commission should be 
notified of these measures. 

1 

OJ L 347, 11.12.2006, p. 1  

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During  the  2-years  application  period  of  the  measure,  Hungary  will  be  able  to 
introduce  conventional  and  more  definitive  control  measures  that  are  compatible 
with  the  VAT  Directive  and  designed  to  combat  this  type  of  VAT  evasion  after 
expiry of the authorisation. In fact, Hungary has committed itself not to seek renewal 
of the measure. 

The goods targeted by the derogating measure should be determined as accurately as 
possible as to avoid legal uncertainty and, therefore, the combined nomenclature laid 
down  in  Council  Regulation  (EEC)  No  2658/87  should  be  used.  The  measure  will 
only apply to unprocessed goods, which are normally not used in unaltered state for 
final consumption. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

There was no need for consultation or external expertise. 

The Decision proposal aims at combating VAT evasion in the agricultural market in 
Hungary and has therefore a potential positive impact. 

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

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The  Decision  authorises  Hungary  to  apply  a  derogating  measure  from  the  VAT 
Directive as regards the shifting of the VAT liability from the supplier to the taxable 
customer in relation to certain supplies of agricultural products. 

This Decision is based on Article 395 of the VAT Directive. 

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

This  Decision  concerns  an  authorisation  granted  to  a  Member  State  upon  its  own 
request and does not constitute any obligation. 

Given  the  strict  limitation  in  time  and  scope,  the  special  measure  appears  to  be 
proportionate to the aim pursued. 

Under Article 395 of the VAT Directive, 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 implications for the Union budget. 

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5. 

ADDITIONAL INFORMATION 

The proposal includes a sunset clause. 

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2012/0173 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising Hungary to introduce a special measure derogating from Article 193 of 
Directive 2006/112/EC on the common system of value added tax 

(only the Hungarian text is authentic) 

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) 

By  letter  registered  at  the  Commission  on  3  February  2012,  Hungary  requested 
authorisation to derogate, for a period of 2 years, from the provisions of Article 193 of 
Directive 2006/112/EC governing the person liable for the payment of value added tax 
(VAT) to the tax authorities. In that letter, Hungary has mentioned that it will not seek 
renewal of that authorisation. 

In accordance with the second paragraph  of Article 395(2) of Directive 2006/12/EC, 
the  Commission  informed  the  other  Member  States  by  letter  dated  26  April  2012  of 
the request made by Hungary. By letter dated 2 May 2012, the Commission notified 
Hungary that it had all the information it considered necessary for the appraisal of the 
request. 

The  person  liable  for  payment  of  VAT  is,  as  a  general  rule,  the  taxable  person 
supplying  the  goods,  in  accordance  with  Article  193  of  Directive  2006/112/EC.  The 
purpose of the derogation requested by Hungary is to place that liability, for a limited 
period,  on  that  taxable  person  to  whom  supplies  of  certain  unprocessed  agricultural 
products in the sectors of cereals and oilseeds are made. 

(4)  Within those sectors, Hungary has noted that a number of traders engage in different 
forms of tax evasion, both domestically and in Intra-Community trade, by not paying 
the VAT to the tax authorities they have charged  on their  supplies.  Their  customers, 
insofar  as  they  are  taxable  persons  with  a  full  right  of  deduction,  remain  entitled  to 
deduct the VAT.  

2 

OJ L 347, 11.12.2006, p. 1. 

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(5) 

(6) 

(7) 

(8) 

(9) 

Designating the taxable person to whom the goods are supplied as liable for payment 
of VAT instead of the supplier, would be a temporary emergency measure that would 
remove  the  opportunity  to  engage  in  that  form  of  tax  evasion.  Application  of  that 
measure  for  2  years  should  give  Hungary  the  time  to  introduce  in  the  agricultural 
sector definitive measures compatible with Directive 2006/112/EC that would prevent 
and combat this form of tax evasion. 

To  prevent  tax  evasion  being  transferred  to  the  processing  stage  of  the  products,  to 
other  products  or  sectors,  Hungary  should  introduce  suitable  control  measures  and 
reporting obligations and notify the Commission thereof. 

In  order  to  ensure  that  the  derogation  measure  only  applies  to  certain  specific 
agricultural  products  and  to  guarantee  its  legal  certainty,  the  goods  covered  by  this 
measure  should  be  determined  by  using  the  combined  nomenclature  laid  down  in 
Council  Regulation  No  2658/87  of  23  July  1987  on  the  tariff  and  statistical 
nomenclature and on the Common Custom Tariff3. 

The measure is proportionate to the objectives pursued since it is limited in time and 
not  intended  to  apply  generally  but  only  to  a  number  of  carefully  specified  products 
that are normally not destined for final consumption in unaltered state, and in relation 
to which tax evasion has caused substantial loss of VAT revenue. 

The  special  measure  will  not  affect  the  overall  amount  of  VAT  revenue  collected  at 
the  stage  of  final  consumption  in  Hungary  and  will  have  no  adverse  impact  on  the 
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,  Hungary  is  hereby 
authorised to designate the taxable person to whom the following supplies of goods, as set out 
in the combined nomenclature established by Regulation (EEC) No 2658/87, are made, as the 
person liable for payment of VAT: 

3 

OJ L 256, 7.9.1987, p. 1. 

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CN code 

Product 

1001 

1002 

1003 

1004 

1005 

Wheat and meslin 

Rye 

Barley 

Oats 

Maize (corn) 

1008 60 00 

Triticale 

1201 

1205 

Soya beans, whether or not broken 

Rape or colza seeds, whether or not broken 

1206 00 

Sunflower seeds, whether or not broken 

Article 2 

The authorisation provided for in Article 1 is subject to Hungary introducing appropriate and 
effective  control  measures  and  reporting  obligations  with  respect  to  taxable  persons  that 
supply goods to which this Decision applies. 

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

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

Article 3 

Article 4 

This Decision is addressed to Hungary. 

Done at Brussels,  

For the Council 
The President 

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