COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2013-05-16
Institutions: European Commission
Subjects: Germany, VAT, computer equipment, derogation from EU law, tax evasion

EUROPEAN 
COMMISSION 

Brussels, 16.5.2013  
COM(2013) 283 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  Court  of  Justice  of  the 
European Union, such derogations should be limited in scope and proportionate. 

By letter registered with the Commission on 1 March 2013, Germany 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 25 April 2013 of the request made 
by Germany. By letter dated 26 April 2013, the Commission notified Germany that it 
had all the information it considered necessary for appraisal of the request. 

Germany  requests  to  be  authorised  to  continue  to  apply  the  reverse  charge 
mechanism  in  relation  to  mobile  phones  and  integrated  circuit  devices  for  which  it 
previously had obtained a derogation in November 20101.  

The  derogation  of  Germany,  for  which  an  extension  is  requested,  should  be  seen 
against the background of a derogation which was previously granted to the United 
Kingdom.  

In  April  2007,  the  United  Kingdom  was  granted  a  derogation  to  apply  the  reverse 
charge mechanism in relation to supplies of mobile telephones and integrated circuit 
devices2. This measure was limited in time, and had an expiry date of 30 April 2009. 
This expiry date was subsequently extended to 30 April 20113. 

Following  this  last  extension,  Germany  requested  a  similar  derogation  by  letter 
registered  with  the  Commission  on  23  December  2009.  Eventually,  this  resulted  in 
the  above-mentioned  derogation  granted  in  November  2010.  The  relevant  Council 
Implementing  Decision  authorised,  at  the  same  time,  Italy  and  Austria  to  apply  a 
similar  derogating  measure  concerning  mobile  telephones  and  integrated  circuit 
devices since these Member States were also confronted with fraud in these sectors. 
In  addition,  by  the  same  Decision  the  derogation  measure  for  the  United  Kingdom 
was  extended  again,  having  for  effect  that  the  authorisations  for  all  the  Member 

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Council  Implementing  Decision  2010/710/EU  of  22  November  2010  authorising  Germany,  Italy  and 
Austria  to  introduce  a  special  measure  derogating  from  Article  193  of  Directive  2006/112/EC  and 
amending  Decision  2007/250/EC  to  extend  the  period  of  validity  of  the  authorisation  granted  to  the 
United Kingdom (OJ L 309, 25.11.2010, p. 5) 
Council Decision 2007/250/EC of 16 April 2007 authorising the United Kingdom to introduce a special 
measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added 
tax (OJ L 109, 26.4.2007, p. 42) 
Council Decision 2009/439/EC of 5 May 2009 amending Decision 2007/250/EC authorising the United 
Kingdom to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the 
common system of value added tax (OJ L 148, 11.6.2009, p. 14) 

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States  concerned  would  expire  at  the  same  day,  namely  on  31  December  2013. 
Finally,  also  the  Netherlands  requested  in  October  2012  a  similar  derogation  for, 
amongst other items, mobile phones and integrated circuit devices but accepted that 
the derogation would also end on 31 December 2013, so as to enable an alternative 
and more harmonised VAT fraud policy in the future4. 

It should also be stressed that the derogation granted to Germany in November 2010 
was not intended to be a long term measure. It should indeed be recalled that during 
recent  Council  negotiations  of  similar  types  of  derogations,  a  number  of  Member 
States have expressed their concern, stressing 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. Moreover, those Member States have pointed out that the 
reverse  charge  mechanism  always  entails  a  risk  of  the  fraudulent  activities  being 
transferred  to  other  Member  States,  and  they  have  recalled  that  the  reverse  charge 
procedure shall not be used systematically to make up for inadequate surveillance by 
a Member State's tax authorities. 

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 

Germany requests, under Article 395 of the VAT Directive, that the Council, acting 
upon  a  proposal  of  the  Commission,  authorises  Germany  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 mobile phones and integrated circuit 
devices  such  as  microprocessors  and  central  processing  units  in  a  state  prior  to 
integration into end-users products. 

4. 

THE COMMISSION'S VIEW 

When the Commission receives requests in accordance with Article 395 of the VAT 
Directive,  these  are  examined  to  ensure  that  the  basic  conditions  for  their  granting 

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Council  Implementing  Decision  2013/116/EU  of  5  March  2013  authorising  the  Kingdom  of  the 
Netherlands to apply a measure derogating from Article 193 of Directive 2006/112/EC on the common 
system of value added tax (OJ L 64, 7.3.2013, p. 4) 

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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. 

As mentioned above, the derogating measure granted to Germany in November 2010 
was never intended to be a long term solution and was intended to allow Germany to 
put in place other conventional anti-fraud measures in this sector. In this context, an 
automated  evaluation  mechanism,  linked  to  specific  VAT  declaration  obligations, 
was  put  in  place.  As  a  result,  and  according  to  the  German  request,  the  fraud  has 
disappeared  or,  at  least,  moved  to  other  sectors  where  close  monitoring  would  be 
sufficient to manage the risk. Hence, there is no particular reason why, in the specific 
sector of mobile phones and integrated circuit devices, Germany should be entitled to 
apply  the  reverse  charge  mechanism  beyond the end of the period  for  which  it had 
been allowed to rely on this derogation from Article 193 of the VAT Directive, i.e. 
beyond 31 December 2013. 

Moreover, the multiple requests for derogation in the aftermath of the granting of the 
derogation to the United Kingdom also clearly indicate that fraud in these sectors has 
shifted  between  Member  States  (the  United  Kingdom,  Austria,  Germany,  Italy  and 
the  Netherlands).  It  is  therefore  now  clearly  established  that  the  first  derogating 
measure has had a negative impact on fraud in other Member States and therefore an 
adverse impact on the Internal Market as a whole. In addition, when a new Member 
State  is  affected  by  this  type  of  fraud  and  in  the  absence  of  any  quick  reaction 
mechanism5, it needs to wait several months under the current derogation procedure 
to be granted a similar derogation, which further increases the negative impact it has 
to bear. These side effects are much more important than originally assessed. 

At the same time, the fact that all these derogations end at the same date should allow 
for an EU wide solution to be agreed upon. 

5. 

CONCLUSION 

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

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Such as proposed via COM(2012)428 of 31.7.2012 

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