Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EU authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2013-08-30
Institutions: European Commission
Subjects: Italy, VAT, derogation from EU law, motor car, purchase, tax exemption













EUR-Lex - 52013PC0610 - EN











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52013PC0610

Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EU authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council Directive 2006/112/EC on the common system of value added tax /* COM/2013/0610 final - 2013/0298 (NLE) */









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
(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 the provisions of that Directive in order to simplify the
procedure for collecting VAT or to prevent certain forms of tax evasion or
avoidance.
By letter registered with the Commission on
2 April 2013, the Italian Republic requested authorisation to continue to apply
a derogation measure concerning the right of deduction of VAT borne on certain
types of means of transport. In accordance with Article 395(2) of Directive
2006/112/EC, the Commission informed the other Member States by letter dated 10
June 2013 of the request made by the Italian Republic. By letter dated 14 June
2013, the Commission notified the Italian Republic that it had all the
information necessary to consider the request.
General context
Article 168 and 168a of the VAT Directive
provides that a taxable person is entitled to deduct the VAT charged on
purchases made for the purposes of his taxed transactions. At the same time,
Article 26(1)(a) of the VAT Directive stipulates that the use of goods, forming
part of the assets of a business, for private purposes is to be considered as a
supply of services for consideration if the VAT on these goods was wholly or
partly deductible. As a result, the system ensures that final consumption is
taxed when the corresponding input VAT was initially deducted.
In relation to motor vehicles, it is
sometimes difficult and burdensome for the taxable persons to identify and
register the split between business and private use and for the tax
administration to verify the effective division of use. This would be the case even if Italy would make use of the option
provided for in Article 168a(2) of the VAT Directive to limit the deduction on
expenditure related to company cars to the proportion of the taxable person's
effective business use. In addition, because of the
number of mixed use vehicles, tax evasion could become considerable.
In order to simplify VAT collection and to
combat tax evasion, in 2007 the Italian Republic requested and obtained from
the Council an individual derogation allowing it to restrict, until 31 December
2010, the right of deduction to 40% in relation to motorised road vehicles
(other than agricultural or forestry tractors, normally used for carrying
persons or goods by road with a maximum authorised mass not exceeding 3 500
kilograms and having not more than eight seats in addition to the driver's
seat)[1].
However, it should be pointed out that certain categories of vehicles were specifically
excluded from this restriction, such as vehicles forming part of
stock-in-trade, for instruction by driving schools, used for hire or leasing,
used by sales representatives and taxis. At the same time, businesses would be
relieved from accounting from tax on the private use. This decision was
extended by Council Decision 2010/748/EU[2]
of 29 November 2010 up to 31 December 2013.
In accordance with Article 6 of the
above-mentioned Decision, the Italian Republic have presented a report covering
the application of the Decision which includes a review of the percentage
restriction. 
It appears from information provided by the
Italian Republic in that report that, in particular given the very high number
of small enterprises in the Italian Republic, the limitation to 40% would still
correspond to the actual circumstances and therefore be appropriate.
However, any extension should be limited in
time in order to assess whether the conditions on which the derogation is based
would still be valid. Therefore, it is proposed to extend the derogation until
the end of 2016 and to request the Italian Republic to present a new report if
a new extension request would be envisaged beyond that end date. The Decision
would in any case expire if EU rules governing restrictions on the right of
deduction in this area come into force before that end date.
Existing provisions in the area of the
proposal
Article 176 of the VAT Directive stipulates
that the Council shall determine the expenditure of which the VAT is not
deductible. Until such time, Member States are authorised to maintain
exclusions which were in place on 1 January 1979. Therefore, there are a number
of "standstill" provisions restricting the right of deduction in
relation to motor vehicles. Furthermore, similar deduction restrictions have
also been granted to other Member States on the basis of Article 395 of the VAT
Directive.
In 2004, the Commission made a proposal[3] which contains rules on which
forms 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.
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 counter VAT evasion
and to simplify the procedure for charging tax and has, therefore, a positive
impact.
Because of the narrow scope of the derogation
and its limited application in time, the impact will in any case be limited.
3.           LEGAL ELEMENTS OF THE
PROPOSAL
Summary of the proposed action
Authorisation for the Italian Republic to
continue to apply a derogating measure from the VAT Directive as to restrict to
40% the right of a taxable person to deduct VAT on expenditure related to
motorised road vehicles when the vehicle is not used exclusively for business
purposes. When the right of deduction has been limited, the taxable person is
relieved from the obligation to account for VAT on the private use. Any
possible request for extending the measure should be accompanied by the
submission of a report on the application of the derogation.
Legal basis
Article 395 of the VAT Directive
2006/112/EC of 28 November 2006 on the common system of value added tax.
4.           BUDGETARY IMPLICATION
This proposal has no impact for the Union
budget.
5.           OPTIONAL ELEMENTS
Review/revision/sunset clause
The
proposal includes a review clause and a sunset clause.
2013/0298 (NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
amending Decision 2007/441/EU authorising
the Italian Republic to apply measures derogating from Articles 26(1)(a) and
168 of Council 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 on 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)       In a letter registered by
the Commission on 2 April 2013 Italy requested authorisation to extend a
measure derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC in
order to continue to restrict the right of deduction in relation to expenditure
on certain motorised road vehicles not wholly used for business purposes.
(2)       The Commission informed
the other Member States of the request made by Italy by letter dated 10 June
2013. By letter dated 14 June 2013 the Commission notified Italy that it had all the information necessary to consider the request.
(3)       Council Decision
2007/441/EC of 18 June 2007[5]
authorising the Italian Republic to apply measures derogating from Articles
26(1)(a) and 168 of Council Directive 2006/112/EC on the common system of value
added tax authorises Italy to limit the right of deduction of value added tax
(VAT) charged on expenditure on motorised road vehicles not wholly used for
business purposes to 40%. Decision 2007/441/EC also provides that the use for
private purposes of those vehicles which had been subject to a right of
deduction restriction under that Decision was not to be considered as a supply
for a consideration. In addition, Decision 2007/441/EC contains definitions of
the vehicles and expenditure included in the scope of the decision, and a list
of vehicles which are explicitly excluded from the scope of that Decision. Decision
2007/441/EC was amended by Council Decision 2010/748/EC of 29 November 2010[6], setting the expiry date to 31
December 2013.
(4)       In accordance with Article
6 of Council Decision 2007/441/EC, as amended by Council Decision 2010/748/EC, Italy submitted a report to the Commission covering the application of the Decision which
included a review of the percentage restriction. The information provided by Italy still shows that a restriction of the right of deduction to 40% corresponds to the
actual circumstances as regards the ratio of business to non-business use of
the vehicles concerned. Italy should therefore be authorised to apply the
measure for a further limited period, until 31 December 2016.
(5)       In the event Italy were to request a further extension beyond 2016, a new report should be submitted to
the Commission together with the extension request by 1 April 2016.
(6)       On 29 October 2004 the
Commission adopted a proposal for a Council Directive amending Directive 77/388/EEC
with a view to simplifying the value added tax obligations[7]. The derogating measures
provided for in this Decision should expire on the entry into force of such an
amending Directive, if that date is earlier than the date of expiry provided
for in this Decision.
(7)       The derogation has no
impact on the Union's own resources accruing from value added tax.
(8)       Decision 2007/441/EC should
therefore be amended accordingly,
HAS ADOPTED THIS DECISION: 
Article 1
Decision 2007/441/EC is amended as follows:
(1)        Article 6 is replaced by the
following:
"Article 6
Any request for the extension of the
measures provided for in this Decision shall be submitted to the Commission by
1 April 2016.
Any request for extension of those measures
shall be accompanied by a report which includes a review of the percentage
restriction applied on the right to deduct VAT charged on expenditure on
motorised road vehicles not wholly used for business purposes."
(2)        Article 7 is replaced by the
following:
"Article 7
This Decision shall expire on the date of
entry into force of Union rules determining the expenditure relating to
motorised road vehicles which is not eligible for a full deduction of value
added tax, and on 31 December 2016 at the latest."
Article 2
This Decision shall take effect on the day
of its notification.
This Decision shall apply from 1 January
2014.
Article 3
This
Decision is addressed to the Italian Republic.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               Council Decision 2007/441/EC of 18 June 2007
authorising the Italian Republic to apply measures derogating from Articles
26(1) and 168 of Directive 2006/112/EC on the common system of value added tax
(OJ L 165, 27.6.2007, p. 33).
[2]               OJ L 318, 04.12.2010, p. 45-46.
[3]               COM(2004) 728final (OJ C 24, 29.1.2005, p. 10).
[4]               OJ L 347, 11.12.2006, p.1
[5]               OJ L 165, 27.6.2007, p. 33 
[6]               OJ L 318, 4.12.2010, p. 45-46
[7]               COM (2004) 728 final (OJ C 24, 29.1.2005, p.10)