Proposal for a COUNCIL DECISION authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2012-07-24
Institutions: European Commission
Subjects: Lithuania, VAT, derogation from EU law, financial solvency, tax evasion, tax relief, wood product

EUROPEAN COMMISSION 

Brussels, 24.7.2012  
COM(2012) 409 final 

2012/0200 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising the Republic of Lithuania to extend the application of a measure derogating 
from Article 193 of Directive 2006/112/EC on the common system of value added tax 

EN 

   EN 

 
 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Grounds for and objectives of the proposal 

Pursuant  to  Article  395  of  Council  Directive  2006/112/EC  of  28  November  2006  on  the 
common  system  of  value  added  tax  (1)  (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  that  Directive  in  order  to  simplify  the  procedure  for 
collecting the tax or to prevent certain types of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  8  February  2012,  the  Republic  of  Lithuania 
(hereafter 'Lithuania') requested authorisation to continue to apply a measure derogating from 
Article 193 of the VAT Directive.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letter dated 4 April 2012 of the request made by Lithuania. By letter dated 
11 April 2012, the Commission notified Lithuania that it had all the information it considered 
necessary for appraisal of the request. 

General context 

The  Lithuanian  government  asks  to  extend  the  current  application  of  a  reverse  charge 
mechanism  in  relation  to  supplies  of  timber  and  supplies  by  taxable  persons  under  judicial 
insolvency or restructuring procedures. 

As  regards  the  supplies  of  timber,  Lithuania  was  confronted  with  a  considerable  number  of 
traders  that  failed  to  comply  with  their  obligations.  Businesses  in  this  sector  are  frequently 
small resellers and intermediaries, which often disappear without paying to the tax authorities 
the tax they charged on their supplies but leaving their customers in receipt of a valid invoice 
for VAT deduction. 

Taxable  persons  under  judicial  insolvency  or  restructuring  procedures  often  did  not  pay  the 
VAT  they  had  received  from  their  customers  to  the  tax  authorities.  However,  the  purchaser 
could, as a compliant trader, still deduct the VAT incurred. 

Under the reverse charge mechanism, by derogating from a general rule provided in Article 
193 of the VAT Directive, the customer (in case he is a taxable person) becomes liable for the 
payment of the VAT on domestic transactions.  

This derogating measure had initially been granted by Council Decision 2006/388/EC of 15 
May  2006  (2)  (it  also  included  supplies  of  ferrous  waste  and  scrap  and  construction  work, 
which  are  now  covered  by  Article  199  of  the  VAT  Directive).  The  application  of  the 
derogating  measure  for  supplies  of  timber  and  supplies  by  taxable  persons  under  judicial 

1 
2 

OJ L 347, 11.12.2006, p. 1. 
OJ L 150, 3.6.2006, p. 13–14  

EN 

2 

   EN 

                                                 
insolvency  or  restructuring  procedures  was  extended  by  Council  Implementing  Decision 
2010/99/EU of 16 February 2010(3). 

The  Commission  understands  that  the  situation,  on  which  the  initial  derogation  was  based, 
continues  to  exist.  Lithuania  claims  that,  based  on  the  results  of  tax  investigations,  the 
derogation proved to be effective both for supplies of timber and supplies by taxable persons 
under  judicial  insolvency  or  restructuring  procedures.  The  derogation  should  therefore  be 
granted for another limited period. 

In case Lithuania would consider another extension of the derogating measure beyond 2015, 
an  evaluation  report  should  be  submitted  to  the  Commission  together  with  that  extension 
request no later than 1 April 2015. 

Existing provisions in the area of the proposal 

Similar derogations in relation to Article 193 of the VAT Directive have been granted to other 
Member States. 

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 proposal for  a  Council  Decision aims at simplifying the procedure for charging the tax 
and  at  combating  possible  VAT  evasion  or  avoidance  and  has  therefore  a  potential  positive 
economic impact. 

The impact will in any case be limited because of the narrow scope of the derogation. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

The Decision authorises Lithuania to continue to apply a measure derogating from Article 193 
of the VAT Directive as regards the use of a reverse charge mechanism in case of supplies of 

3 

OJ L 45, 20.2.2010, p. 10–11  

EN 

3 

   EN 

                                                 
timber  and  in  case  of  supplies  of  goods  and  services  by  businesses  under  an  insolvency  or 
restructuring procedure subject to judicial oversight. 

Legal basis 

Article 395 of the VAT Directive. 

Subsidiarity principle 

In accordance with Article 395 of the VAT Directive, a Member State wishing to introduce 
measures derogating from the said Directive must obtain an authorisation from the Council, 
which  will  take  the  form  of  a  Council  Decision.  Therefore,  the  proposal  complies  with  the 
subsidiarity principle. 

Proportionality principle 

The proposal complies with the proportionality principle for the following reasons. 

This 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 

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.  Moreover,  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 EU budget. 

5. 

OPTIONAL ELEMENTS  

Review/revision/sunset clause 

The proposal includes a sunset clause. 

EN 

4 

   EN 

2012/0200 (NLE) 

Proposal for a 

COUNCIL DECISION 

authorising the Republic of Lithuania to extend the application of a 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,  and  in  particular 
Article 291(2) thereof, 

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax (4), 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  8  February  2012,  the  Republic  of 
Lithuania (hereafter 'Lithuania') requested authorisation to continue to apply a measure 
derogating from the provisions of Directive 2006/112/EC governing the person liable 
for the payment of the value added tax (VAT) to tax authorities. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States of the request made by Lithuania in a letter dated 4 
April 2012. By a letter dated 11 April 2012, the Commission notified Lithuania that it 
had all the information that it considered necessary to consider the request. 

Council Decision 2006/388/EC of 15 May 2006 authorising the Republic of Lithuania 
to apply a measure derogating from Article 21 of the Sixth Directive 77/388/EEC on 
the  harmonisation  of  the  laws  of  the  Member  States  relating  to  turnover  taxes  (5) 
authorized  Lithuania  inter  alia  to  make  the  recipient  liable  for  the  VAT  due  on  the 
supply  of  goods  and  services  in  the  case  of  insolvency  procedures  or  restructuring 
procedures subject to judicial oversight and supply of timber.  

Council  Implementing  Decision  2010/99/EU  of  16  February  2010  authorising  the 
Republic of Lithuania to extend the application of a measure derogating from Article 
193 of Directive 2006/112/EC on the common system of value added tax (6) extended 
the application of the mentioned derogating measure. 

4 
5 
6 

OJ L 347, 11.12.2006, p. 1. 
OJ L 150, 3.6.2006, p. 13–14  
OJ L 45, 20.2.2010, p. 10–11  

EN 

5 

   EN 

                                                 
(5) 

(6) 

(7) 

(8) 

The  tax  investigations  and  the  analysis  carried  out  by  the  Lithuanian  tax  authorities 
revealed the effectiveness of the derogating measure in question. 

The  Commission  understands  that  the  legal  and  factual  situation  which  justified  the 
current  application  of  the  derogating  measure  in  question  has  not  changed  and 
continues  to  exist.  Lithuania  should  therefore  be  authorised  to  apply  the  measure 
during a further limited period. 

In case Lithuania would consider another extension of the derogating measure beyond 
2015, an evaluation report should be submitted to the Commission together with that 
extension request no later than 1 April 2015. 

The derogation will not adversely affect the European Union's own resources accruing 
from VAT,  

HAS ADOPTED THIS DECISION:  

Article 2 of Decision 2010/99/EU is replaced by the following: 

Article 1 

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

'Article 2 

It shall apply from 1 January 2013 until 31 December 2015. Any request for the extension of 
the measure provided for in this Decision shall be submitted to the Commission no later than 
1 April 2015 and shall be accompanied by a report which includes a review of the application 
of this measure.'  

Article 2 

This Decision is addressed to the Republic of Lithuania. 

Done at Brussels,  

For the Council 
The President 

EN 

6 

   EN