Proposal for a COUNCIL DECISION amending Decisions 2009/791/EC and 2009/1013/EU authorising Germany and Austria respectively to continue to apply a measure derogating from Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax
Date: 2012-08-31
Institutions: European Commission
Subjects: Austria, Germany, VAT, derogation from EU law, tax relief

EUROPEAN COMMISSION 

Brussels, 31.8.2012  
COM(2012) 475 final 

2012/0233 (NLE) 

Proposal for a 

COUNCIL DECISION 

amending Decisions 2009/791/EC and 2009/1013/EU authorising Germany and Austria 
respectively to continue to apply a measure derogating from Articles 168 and 168a 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,  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  5  January  2012  and  on  16  April  2012,  the 
Federal  Republic  of  Germany  and  the  Republic  of  Austria  respectively  requested  an 
authorisation  to  continue  applying  a  measure  derogating  from  Articles  168  and  168a  of 
Directive  2006/112/EC,  in  order  to  exclude  from  the  right  of  deduction  the  VAT  borne  on 
goods and services which are used for more than 90 % for non-business purposes. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission  informed  the 
other Member States by letter dated 4 April 2012 of the request made by the Federal Republic 
of Germany and by letter dated 20 April 2012 of the request made by the Republic of Austria. 
The Commission notified the Federal Republic of Germany by letter dated 11 April 2012 and 
the Republic of Austria by letter dated 23 April 2012 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 168a(1) of 
Directive 2006/112/EC provides that the VAT on expenditure related to immovable property 
forming part of the business assets of a taxable person and used both for business and non-
business  purposes  shall  be  deductible  only  up  to  the  proportion  of  the  property's  use  for 
purposes  of  the  taxable  person's  business.  Pursuant  to  Article  168a(2)  of  Directive 
2006/112/EC  Member  States  may  also  apply  this  rule  in  relation  to  expenditure  related  to 
other goods forming part of the business assets as they specify. The measure pursued by the 
Federal  Republic  of  Germany  and  the  Republic  of  Austria  however  deviates  from  those 
principles  as  it  entirely  excludes  from  the  right  of  deduction  the  VAT  borne  on  goods  and 
services  that  are  used  by  a  taxable  person  for  more  than  90%  for  private  or  non-business 
purposes. 

The  derogating  measure  of  the  Federal  Republic  of  Germany  had  initially  been  granted  by 
Council  Decision  2000/186/EC  of  28  February  20001  for  a  period  until  31  December  2002 
and  was  again  granted  by  Council  Decision  2003/354/EC  of  13  May  20032  until  30  June 
2004, by Council Decision 2004/817/EC of 19 November 20043 until 31 December 2009 and 
by Council Decision 2009/791/EC of 20 October 20094 until 31 December 2012. 

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OJ L 59, 4.3.2000, p. 12 
OJ L 123, 17.5.2003, p. 47 
OJ L 357, 2.12.2004, p. 33 
OJ L 283, 30.10.2009, p. 55 

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The  derogating  measure  of  the  Republic  of  Austria  had  initially  been  granted  by  Council 
Decision 2004/866/EC of 13 December 20045 for a period until 31 December 2009 and was 
again granted by Council Decision 2009/1013/EU of 22 December 20096 until 31 December 
2012. 

In  their  current  requests,  the  Federal  Republic  of  Germany  and  the  Republic  of  Austria 
informed  the  Commission  that  they  have  been  applying  this  special  measure  until  now, 
making  the  experience  that  they  are  very  useful in terms of simplifying the VAT collection 
and preventing tax evasion and avoidance. 

Derogations are in general granted for a limited time as to allow an assessment whether the 
special  measure  is  appropriate  and  effective.  In  this  respect,  based  on  the  information 
provided by the Federal Republic of Germany and the Republic of Austria, the Commission 
understands  that  the  90%/10%  apportionment  between  business  and  non-business  use  still 
represents a sound basis to sort out transactions in respect of which the business use can be 
considered  as  negligible.  As  a  consequence,  the  special  measure  in  question  provides  a 
facilitation to both tax administrations and businesses as there is no need for any monitoring 
of the subsequent use of the goods and services to which the exclusion from deduction applied 
at the time of their acquisition, particularly with respect to a possible taxation of a private use 
pursuant  to  Articles  16  or  26  of  Directive  2006/112/EC  or  adjustments  to  deduction  as 
required under Articles 184 – 192 of that Directive. The amount of tax due at the level of final 
consumption is only affected to a negligible extent. An extension of the derogating measure is 
therefore appropriate. 

However, any extension should be limited in time in order to assess whether the conditions, 
on which the derogations are based, would still be valid. Therefore, it is proposed to extend 
the derogations until the end of 2015 and to request the Federal Republic of Germany and the 
Republic of Austria to present, together with the extension request, a report by 1 April 2015 at 
the latest including a review of the applied apportionment between business and non-business 
use  on  which  the  exclusion  from  deduction  is  based  in  case  a  further  extension  would  be 
envisaged beyond 2015. The Decision would, however, in any case expire when Union rules, 
adopted by the Council after this Decision takes effect, establishing restrictions on the right of 
deduction shall or may be applied by Member States. 

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  2004,  the  Commission  made  a  proposal7,  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. 

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OJ L 371, 18.12.2004, p. 47 
OJ L 348, 29.12.2009, p. 21 
COM(2004) 728 final 
http://eur-lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0728en01.pdf 

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Consistency with 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  is  designed  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  the  Federal  Republic  of  Germany  and  the  Republic  of  Austria  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 the Federal Republic of Germany and the Republic of Austria 
to  continue  to  apply  a  measure  derogating  from  Articles  168  and  168a  of  Directive 
2006/112/EC  so  as  to  exclude  from  the  right  of  deduction  the  VAT  borne  on  goods  and 
services which are used by the taxable person for more than 90% for non-business purposes. 

The apportionment rate and the necessity for the derogating measure are to be reviewed and 
reported  on  by  the  Federal  Republic  of  Germany  and  the  Republic  of  Austria  upon  any 
request for an extension. The Decision will expire on the earlier of the date specified in the 
Decision or the date as from which Union rules adopted by the Council governing restrictions 
on the right of deduction are to be applied or may be applied by Member States. 

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 reasons: 

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

Given  the  narrow  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 reasons: 

Under  Article  395  of  Council  Directive  2006/112/EC,  a  derogation  from  the  common  VAT 
rules  is  only  possible  upon  authorization  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 will not adversely affect the Union's own resources from VAT. 

5. 

OPTIONAL ELEMENTS 

The proposal includes a review clause and a sunset clause. 

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2012/0233 (NLE) 

Proposal for a 

COUNCIL DECISION 

amending Decisions 2009/791/EC and 2009/1013/EU authorising Germany and Austria 
respectively to continue to apply a measure derogating from Articles 168 and 168a 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 tax8, 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  5  January  2012,  Germany  requested 
authorisation  to  continue  to  apply  a  special  measure  that  was  previously  granted  by 
Council  Decision  2009/791/EC9,  derogating  from  the  provisions  of  Directive 
2006/112/EC governing the right of deduction. 

By  letter  registered  with  the  Commission  on  16  April  2012,  Austria  requested 
authorisation  to  continue  to  apply  a  special  measure  that  was  previously  granted  by 
Council  Decision  2009/1013/EU10,  derogating  from  the  provisions  of  Directive 
2006/112/EC governing the right of deduction. 

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  4 
April  2012,  of  the  request  made  by  Germany.  By  letter  dated  11  April  2012,  the 
Commission notified Germany that it had all the information necessary to consider the 
request. 

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 20 
April  2012,  of  the  request  made  by  Austria.  By  letter  dated  23  April  2012,  the 
Commission notified Austria that it had all the information necessary to consider the 
request. 

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OJ 347, 11.12.2006, p.1. 
OJ L 283, 30.10.2009, p. 55 
OJ L 348, 29.12.2009, p. 21 

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(5) 

(6) 

(7) 

The derogating measure pursued by both Member States is intended to exclude VAT 
borne on goods and services completely from the right of deduction where those goods 
and services are used by the taxable person for more than 90% for private purposes or 
for purposes of his employees, or for non-business purposes in general. 

The special measure derogates from Articles 168 and 168a of Directive 2006/112/EC 
which  govern  taxable  persons`  right  to  deduct  VAT  charged  on  goods  and  services 
supplied  to  them  for  the  purposes  of  their  taxed  transactions.  The  objective  of  the 
special  measure  is  to  simplify  the  procedure  for  charging  and  collecting  VAT.  The 
amount  of  tax  due  at  the  level  of  final  consumption  is  only  affected  to  a  negligible 
extent. 

According to the information provided by Germany and Austria, the legal and factual 
situation which justified the current application of the special measure concerned has 
not  changed  and  continues  to  exist.  Germany  and  Austria  should  therefore  be 
authorised  to  continue  applying  this  special  measure  during  a  further  period,  but 
limited in time until 31 December 2015 at the latest in order to allow for a review of 
the necessity and effectiveness of the derogating measure and the apportionment rate 
between business and non-business use it is based on. 

(8)  Where Germany or Austria considers a further extension beyond 2015 to be necessary, 
a  report  on  the  application  of  the  measure,  which  includes  a  review  of  the 
apportionment rate applied, should be submitted to the Commission together with the 
extension request no later than 31 March 2015 in order to reserve sufficient time for 
the  Commission  to  examine  the  request  and,  in  case  the  Commission  would  come 
forward with a proposal, for the Council to adopt it. 

(9) 

On  29  October  2004,  the  Commission  adopted  a  proposal11  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.  The  derogating  measure  provided  for  in  this  Decision  should 
expire  on  the  date  as  from  which  Member  States  shall  or  may  apply  the  rules  laid 
down  in  such  amending  Directive  adopted  by  the  Council  after  this  Decision  takes 
effect, if that date is earlier than the date of expiry provided for in this Decision. 

(10)  The  derogations  will  only  have  a  negligible  effect  on  the  overall  amount  of  tax 
collected  at  the  stage  of  final  consumption  and  will  not  adversely  affect  the  Union's 
own resources accruing from value added tax. 

(11)  Decision  2009/791/EC  and  Decision  2009/1013/EU  should  therefore  be  amended 

accordingly. 

HAS ADOPTED THIS DECISION:  

Articles 1 and 2 of Decision 2009/791/EC are replaced by the following: 

Article 1 

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

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'Article 1 

By way of derogation from Article 168 and Article 168a of Directive 2006/112/EC, Germany 
is  authorised  to  exclude  VAT  borne  on  goods  and  services  from  the  right  to  deduct  VAT 
when the goods and services in question are used more than 90 % for the private purposes of a 
taxable person or of his employees, or, more generally, for non-business purposes. 

Article 2 

1. 

2. 

This  Decision  shall  expire  on  the  date  as  from  which  Member  States  shall  or  may 
apply  Union  rules  governing  restrictions  on  a  taxable  person's  right  of  deduction 
adopted  by  the  Council  after  this  Decision  takes  effect,  or  on  31  December  2015, 
whichever is the earlier. 

Any  request  for  the  extension  of  the  special  measure  provided  for  in  this  Decision 
shall  be  submitted  to  the  Commission  by  31  March  2015  at  the  latest. 

Such  request  shall  be  accompanied  by  a  report  which  includes  a  review  of  the 
apportionment rate applied on the right to deduct VAT on the basis of this Decision.'. 

Article 2 

Articles 1 and 2 of Decision 2009/1013/EU are replaced by the following: 

'Article 1 

By way of derogation from Article 168 and Article 168a of Directive 2006/112/EC, Austria is 
authorised  to  exclude  VAT  borne  on  goods  and  services  from  the  right  to  deduct  when  the 
goods and services in question are used more than 90 % for the private purposes of a taxable 
person or of his employees, or, more generally, for non-business purposes. 

Article 2 

1. 

2. 

This  Decision  shall  expire  on  the  date  as  from  which  Member  States  shall  or  may 
apply  Union  rules  governing  restrictions  on  a  taxable  person's  right  of  deduction 
adopted  by  the  Council  after  this  Decision  takes  effect,  or  on  31  December  2015, 
whichever is the earlier. 

Any  request  for  the  extension  of  the  special  measure  provided  for  in  this  Decision 
shall  be  submitted  to  the  Commission  by  31  March  2015  at  the  latest. 

Such  request  shall  be  accompanied  by  a  report  which  includes  a  review  of  the 
apportionment rate applied on the right to deduct VAT on the basis of this Decision.'. 

This Decision shall apply as from 1 January 2013. 

Article 3 

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Article 4 

This Decision is addressed to the Federal Republic of Germany and the Republic of Austria. 

Done at Brussels,  

For the Council 
The President 

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