Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/884/EC authorising the United Kingdom to continue to apply a measure derogating from Articles 26(1)(a), 168 and 169 of Directive 2006/112/EC on the common system of value added tax
Date: 2013-09-17
Institutions: European Commission
Subjects: United Kingdom, VAT, derogation from EU law, hire purchase, motor car, tax exemption













EUR-Lex - 52013PC0633 - EN











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52013PC0633

Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/884/EC authorising the United Kingdom to continue to apply a measure derogating from Articles 26(1)(a), 168 and 169 of Directive 2006/112/EC on the common system of value added tax /* COM/2013/0633 final - 2013/0312 (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
derogating 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
Secretariat-General of the Commission on 2 April 2013, the United Kingdom
requested authorisation to continue to apply a derogation measure concerning
the right of deduction of VAT borne on the hire or lease of motor cars also
used for private purposes and granted, for the last time, by Council Decision
2011/37/EU[1].
In accordance with Article 395(2) of Directive 2006/112/EC, the Commission
informed the other Member States by letter dated 19 June 2013 of the request
made by the United Kingdom. By letter dated 20 June 2013, the Commission
notified the United Kingdom that it had all the information necessary to
consider the request.
General context
The above-mentioned Decision authorised the
  United Kingdom to apply a restriction of the right of deduction to 50% of the
input VAT incurred on the hire or lease of cars used by taxable persons for
both business and private use. At the same time, the private use by taxable
persons of such leased or hired cars was not to be considered as supplies of
services for consideration. 
This derogation removes the need for the
hirer or the lessee to keep detailed private mileage records for each of these
cars and to account for the VAT on the private use. The option provided for in
Article 168a(2) of the VAT Directive does not foresee partial deduction at a
flat rate and could be applicable only for input VAT on cars forming part of
the business assets of the taxable person; therefore, a derogation is an
appropriate measure to achieve the requested simplification. 
The derogation is therefore essentially to
be considered as a simplification measure and is due to expire on 31 December
2013. 
Derogations are normally granted for a
limited time as to allow an assessment whether the special measure is
appropriate and effective. The report provided by the United Kingdom suggests that the 50% apportionment between business and private use (or any other
non-business use within the meaning of Article 26(1)(a) of Directive
2006/112/EC) currently still reflects the overall business and private use of
leased and hired cars by taxable persons in the United Kingdom. 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 derogation is
based, would still be valid. The United Kingdom requested to extend the
derogation until 31 December 2018. It is however common practice to grant a
three year period in similar cases (see, in that regard, Council Implementing
Decisions 2012/232/EU[2]
and 2013/191/EU[3]).
Therefore, it is proposed to extend the derogation until the end of 2016 and to
request the United Kingdom to present a report by 1 April 2016 including a
review of the percentage restriction applied in case a further extension would
be envisaged beyond 2016. The Decision would in any case expire in case EU
rules governing restrictions on the right of deduction would 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. 
In 2004, the Commission made a proposal
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.
2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
Decision aims at extending in time a
simplification measure which removes the need for the taxable person to keep
records and to account for VAT on private mileage travelled in cars operated by
a business and has therefore a potential positive economic impact. However,
because of the narrow scope and the limited application in time, the impact
will in any case be limited.
3.           LEGAL ELEMENTS OF THE
PROPOSAL
The implementing Decision is based on
Article 395 of the VAT Directive 2006/112/EC of 28 November 2006 on the common
system of value added tax.
The proposal falls under the exclusive
competence of the EU institutions. The subsidiarity principle therefore does
not apply.
The implementing Decision concerns an
authorisation granted to a Member State upon its own request and does not
constitute any obligation. The proposal therefore complies with the proportionality
principle.
Given the limited scope of the derogation,
the special measure is proportionate to the aim pursued.
4.           BUDGETARY IMPLICATION
The proposal has no implication for the Union's budget.
5.           OPTIONAL ELEMENTS 
The proposal includes a sunset clause.
2013/0312 (NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
amending Decision 2007/884/EC authorising
the United Kingdom to continue to apply a measure derogating from Articles
26(1)(a), 168 and 169 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 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, the United Kingdom requested authorisation to
extend a derogating measure in order to continue to restrict the right of
deduction of value added tax (VAT) by the hirer or lessee on charges for the
hire or lease of a car where the car is not used entirely for business
purposes. 
(2)       The Commission informed
the other Member States of the request made by the United Kingdom by letter
dated 19 June 2013. By letter dated 20 June 2013, the Commission notified the United Kingdom that it had all the information necessary to consider the request.
(3)       Council Decision
2007/884/EC[5],
amended by Council Implementing Decision 2011/37/EU[6] authorised the United Kingdom to restrict to 50% the right of the hirer or lessee to deduct input VAT on
charges for the hire or lease of a car where the car was not used entirely for
business purposes. The United Kingdom was also allowed not to treat as supplies
of services for consideration the private use of a car hired or leased by a
taxable person for his business purposes. That simplification measure removed
the need for the hirer or the lessee to keep records of private mileage
travelled in business cars and to account for tax on the actual private mileage
of each car.
(4)       According to the report
provided by the United Kingdom, the restriction to 50% still corresponds to the
actual circumstances as regards the business and the non-business use by the
hirer or lessee of the vehicles concerned. It is therefore appropriate that the
  United Kingdom be authorised to apply the measure until 31 December 2016.
(5)       Where the United Kingdom considers that a further extension beyond 2016 would be necessary, it should
submit a report which includes a review of the percentage applied together with
an extension request to the Commission no later than 1 April 2016.
(6)       On 29 October 2004, the
Commission adopted a Proposal for a Council Directive amending Directive 77/388/EEC[7], which includes the
harmonisation of the categories of expenses for which exclusions of the right
of deduction may apply. Council Directive 77/388/EEC[8] has been replaced by Directive 2006/112/EC.
Under the proposal adopted by the Commission on 29 October 2004, exclusions on
the right to deduct may be applied to motorised road vehicles. The derogating
measures provided for in this Decision should expire on the date of the entry
into force of such Directive following the proposal adopted by the Commission
on 29 October 2004, if that date is earlier than 31 December 2016.
(7)       The derogation will have
only a negligible effect on the overall amount of tax revenue collected at the
stage of final consumption and will have no adverse impact on the Union's own resources accruing from VAT.
(8)       Decision 2007/884/EC
should therefore be amended accordingly,
HAS ADOPTED THIS DECISION: 
Article 1
Article 3 is replaced by the following: 
"Article
3
This Decision shall expire on the date of
entry into force of Union rules determining the expenditure relating to
motorised road vehicles that is not eligible for full deduction of VAT, or on
31 December 2016, whichever is the earlier. 
Any request for extension of the measures provided
for in this Decision shall be accompanied by a report, submitted to the
Commission by 1 April 2016, which includes a review of the percentage
restriction applied on the right to deduct VAT on the hire or lease of cars not
entirely used for business purposes."
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 United Kingdom of Great Britain and Northern
Ireland.
Done at Brussels, 
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 19, 22.1.2011, p. 19.
[2]               OJ L 117, 1.5.2012, p. 7.
[3]               OJ L 113, 25.4.2013, p. 11.
[4]               OJ L 347, 11.12.2006, p. 1.
[5]               Council Decision 2007/884/EC authorising the United Kingdom to continue to apply a measure derogating from Articles 26(1)(a), 168 and
169 of Directive 2006/112/EC on the common system of value added tax (OJ L 346,
29.12.2007, p. 21)
[6]               Council Implementing Decision of 18 January 2011
amending Decision 2007/884/EC authorising the United Kingdom to continue to
apply a measure derogating from Articles 26(1)(a), 168 and 169 of Directive
2006/112/EC on the common system of value added tax (OJ L 19, 22.1.2011, p. 11)
[7]               COM(2004) 728 final
[8]               Council Directive 77/388/EEC of 17 May 1977 on the
harmonization of the laws of the Member States relating to turnover taxes -
Common system of value added tax: uniform basis of assessment (OJ L 145,
13.6.1977, p. 1)