COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2013-02-28
Institutions: European Commission
Subjects: Romania, VAT, agricultural product, derogation from EU law, tax evasion

EUROPEAN 
COMMISSION 

Brussels, 28.2.2013  
COM(2013) 105 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 395 of Council Directive 2006/112/EC 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 395 of Council Directive 2006/112/EC 

1. 

BACKGROUND 

In accordance with Article 395 of Council Directive 2006/112/EC of 28 November 
2006  on  the  common  system  of  value  added  tax  (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 charging the tax or to prevent certain types of tax evasion 
or avoidance. As this procedure provides for derogations from the general principles 
of  VAT,  in  accordance  with  the  consistent  rulings  from  the  European  Court  of 
Justice, such derogations should be limited in scope and proportionate. 

By  letter  registered  with  the  Commission  on  23  October  2012,  Romania  has 
requested to be authorised to continue a measure derogating from Article 193 of the 
VAT Directive. In accordance with Article 395(2) of that Directive, the Commission 
informed  the  other  Member  States  by  letter  dated  18  January  2013  of  the  request 
made  by  Romania.  By  letter  dated  22  January  2013,  the  Commission  notified 
Romania  that  it  had  all  the  information  it  considered  necessary  for  appraisal  of  the 
request. 

Romania  requests  to  be  authorised  to  continue  to  apply  the  reverse  charge 
mechanism in relation to certain cereals and oilseeds for which it previously obtained 
a derogation1. 

This derogation was granted by the Council under very specific circumstances, under 
which Romania committed itself to implement, during the application period of the 
said  derogation,  a  series  of  reforms  which  would  make  it  possible  to  revert  to  the 
normal system after this transitional period of time. 

This  approach  was  notably  justified  by  the  risk  of  fraud  moving  to  other  Member 
States in a sector whose economic importance is quite substantial in several Member 
States. 

It should be recalled that, during Council negotiations on the aforesaid derogation, a 
number  of  Member  States  expressed  their  concerns  that  any  derogation  from  the 
system of fractionated payment cannot be more than a last resort and an emergency 
measure in proven cases of fraud, and must offer guarantees as to the necessity and 
exceptional  nature  of  the  derogation  granted,  the  duration  of  the  measure  and  the 
specific nature of the products concerned. Those Member States furthermore pointed 
out  that  the  reverse  charge  mechanism  always  entails  a  risk  of  the  fraud  being 
transferred  to  other  Member  States  and  recalled  that  the  reverse  charge  procedure 
should  not  be  used  systematically  to  compensate  for  inadequate  surveillance  by  a 
Member State's tax authorities. In the specific case of Romania, they understood that 
the  sector  concerned  was  upstream  in  the  chain  of  production  and  noted  that  the 
Romanian authorities had undertaken not to request a renewal of the derogation and 

1 

Council  implementing  Decision  2011/363/EU  of  20  June  2011  authorising  Romania  to  introduce  a 
special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 163, 23.6.2011, p. 26) 

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above all to implement structural measures to remedy the situation before the end of 
the two-year application period of the derogation. 

Romania explicitly and unequivocally confirmed its acceptance of these conditions. 

This  engagement  was  in  particular  mentioned  in  the  first  recital  of  the  Council 
implementing  Decision  2011/363/EU  of  20  June  2011  where  it  is  stated  that 
Romania "has said that it will not seek renewal of this authorisation". 

Although  Romania  accepted  this  non-renewable  application  period  of  2  years,  a 
request for extension was sent. 

2. 

REVERSE CHARGE 

The  person  liable  for  the  payment  of  VAT  pursuant  to  Article  193  of  the  VAT 
Directive is the taxable person supplying the goods or services. The purpose of the 
reverse charge mechanism is to shift that liability onto the taxable person to whom 
the supplies are made. 

Missing  trader  fraud  occurs  when  traders  evade  paying  VAT  to  the  tax  authorities 
after selling their products. Their customers, however, are entitled to a tax deduction 
as they are in possession of a valid invoice. In the most aggressive cases of such tax 
evasion the same goods or services are, via a "carousel" scheme (which involves the 
goods  or  services  being  traded  between  Member  States)  supplied  several  times 
without payment of VAT to the tax authorities. By designating the person to whom 
the  goods  or  services  are  supplied  as  the  person  liable  for  the  payment  of  VAT  in 
such  cases,  the  reverse  charge  mechanism  has  been  found  to  eliminate  the 
opportunity to engage in that form of tax evasion.  

3. 

THE REQUEST 

Romania requests, under Article 395 of the VAT Directive, that the Council, acting 
upon  a  proposal  of  the  Commission,  authorises  Romania  to  continue  the  special 
measure derogating from Article 193 of the VAT Directive as regards the application 
of the reverse charge mechanism in relation to wheat, spelt, rye, barley, maize, soya, 
beans, rape or colza seeds, sunflower seeds and sugar beet. 

The  reason  for  the  request  is  essentially  based  on  the  fact  that  Hungary  obtained  a 
similar derogation for agricultural products for also exactly 2 years2 (and under the 
same condition, explicitly accepted by Hungary, that a renewal would not be sought). 
However,  the  start  and  end  date  of  the  two  derogations  are  different:  from  1  June 
2011 until 31 May 2013 for Romania and from 1 July 2012 until 30 June 2014 for 
Hungary. According to Romania, there will be a risk of fraud moving to Romania, in 
particular  because  the  Hungarian  derogation  will  continue  to  be  applied  after  the 
Romanian  one  has  come  to  an  end.  Anti-fraud  measures  which  have  been  put  in 
place in this context would, in their view, not be sufficient to counter fraud after 31 
May 2013. 

2 

Council  implementing  Decision  2012/624/EU  of  4  October  2012  authorising  Hungary  to  introduce  a 
special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 274, 9.10.2012, p. 26) 

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4. 

THE COMMISSION'S VIEW 

When  the  Commission  receives  requests  in  accordance  with  Article  395,  these  are 
examined  to  ensure  that  the  basic  conditions  for  their  granting  are  fulfilled  i.e. 
whether  the  proposed  specific  measure  simplifies  procedures  for  taxable  persons 
and/or  the  tax  administration  or  whether  the  proposal  prevents  certain  types  of  tax 
evasion  or  avoidance.  In  this  context,  the  Commission  has  always  taken  a  limited, 
cautious approach to ensure that derogations do not undermine the operation of the 
general VAT system, are limited in scope, necessary and proportionate. 

In  the  first  place,  it  is  the  Commission's  view  that  the  type  of  goods  in  question  – 
cereals and oilseeds – are of a nature which should make auditing possible through 
conventional  control  means  without  the  need  to  implement  the  reverse  charge 
mechanism.  Therefore,  the  derogation  granted  to  Romania  was  granted  in 
exceptional  circumstances  in  order  to  give  time  to  Romania  to  implement  certain 
reforms to combat the fraud. 

Secondly,  the  measure  was  never  intended  to  be  a  long  term  solution  or  to 
compensate  for  inadequate  surveillance  of  taxable  persons  in  these  extremely 
valuable markets. The derogation was justified as part of a package of measures to be 
undertaken by Romania while, at the same time, being restricted to a limited period 
in  time,  and  with  the  agreed  condition  not  to  seek  renewal  of  the  derogation.  The 
very same conditions were included in the derogation granted to Hungary. 

In  addition,  indications  are  that  fraud  in  these  sectors  has  shifted  to,  in  particular, 
other  Member  States  in  South–East  Europe.  Against  this  background,  applying  the 
reverse  charge  for  a  longer  period  of  time  would  represent  a  fraud  risk  for  these 
Member States, a risk which cannot be underestimated given the importance of these 
sectors in the region. 

5. 

CONCLUSION 

On  the  basis  of  above-mentioned  elements,  the  Commission  objects  to  the  request 
made by Romania. 

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