COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2013-05-29
Institutions: European Commission
Subjects: United Kingdom, VAT, automatic game, derogation from EU law, micro-computer, mobile phone, tax evasion

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 317 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 3 April 2013, the United Kingdom 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 14 May 2013 of the request made 
by the United Kingdom. By letter dated 15 May 2013, the Commission notified the 
United Kingdom that it had all the information it considered necessary for appraisal 
of the request. 

The  United  Kingdom  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  April  20071.  This  measure  was 
limited  in  time,  and  had  an  expiry  date  of  30  April  2009.  This  expiry  date  was 
subsequently extended to 30 April 20112. 

Following this extension, Germany, Italy and Austria requested a similar derogation 
concerning  mobile  telephones  and  integrated  circuit  devices  since  these  Member 
States were also confronted with fraud in these sectors. This resulted in a Decision 
authorising these three Member States to apply the requested derogation. At the same 
time, the derogation measure for the United Kingdom was extended again, having for 
effect that the authorisations for all the Member States concerned would expire at the 
same day, namely on 31 December 20133. 

Finally,  also  the  Netherlands  requested  in  October  2012  a  similar  derogation  for, 
amongst other items, mobile phones and integrated circuit devices but accepted that 

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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) 
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) 

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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  United  Kingdom  was  not 
intended to be a long term measure which would indefinitely be extended. 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 

The  United  Kingdom  requests,  under  Article  395  of  the  VAT  Directive,  that  the 
Council, acting upon a proposal of the Commission, authorises the United Kingdom 
again  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 
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 

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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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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 was never intended to be a long term 
solution  but  gave  the  United  Kingdom  the  opportunity  to  put  in  place  other 
conventional  anti-fraud  measures  in  this  sector.  The  Commission  understands  that 
the UK has put in place certain measures, such as enhanced investigation techniques, 
extended audits and pre-registration checks, which could be applied at the time the 
derogation comes to an end. 

Moreover, the multiple requests for derogation in the aftermath of the granting of the 
derogation  to  the  United  Kingdom  are  also  clearly  indicating  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 the United Kingdom. 

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Such as proposed via COM(2012)428 of 31.7.2012 

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