Proposal for a COUNCIL IMPLEMENTING DECISION authorising Poland to introduce measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2013-11-27
Institutions: European Commission
Subjects: Poland, VAT, derogation from EU law, intra-EU trade, motor vehicle, tax harmonisation, tax reform, tax relief

EUROPEAN 
COMMISSION 

Brussels, 27.11.2013  
COM(2013) 831 final 

2013/0411 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Poland to introduce measures derogating from Articles 26(1)(a) and 168 of 
Directive 2006/112/EC on the common system of value added tax 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Grounds and objectives of the proposal 

Pursuant to paragraph 1 of Article 395 of Directive 2006/112/EC of 28 November 2006 on the 
common system of value added tax, the Council, acting unanimously on a proposal from the 
Commission, may authorise any Member State to apply special measures derogating from the 
Directive in order to simplify the procedure for charging the tax or to prevent certain types of 
tax evasion or avoidance. 

By letter registered with the Commission on 18 June 2013, Poland requested an authorisation 
to introduce measures derogating from paragraph 1 point (a) of Article 26 and Article 168 of 
Directive  2006/112/EC  in  order  to  limit  to  50%  the  right  of  deduction  with  respect  to  the 
purchase, hire, rent or lease of certain types of motor vehicles which are not exclusively used 
for  business  purposes  and  the  purchase  of  goods  and  services  related  to  those  vehicles, 
including the purchase of fuel. 

In  accordance  with  paragraph 2  of  Article 395  of  Directive  2006/112/EC,  the  Commission 
informed  the  other  Member  States  by  letter  dated  10  October  2013  of  the  request  made  by 
Poland. By letter dated 14 October 2013, the Commission notified Poland that it had all the 
information necessary to consider the request. 

General context 

Article 168 of Directive 2006/112/EC provides that a taxable person is entitled to deduct the 
VAT  charged  on  purchases  made  for  the  purpose  of  his  taxed  transactions.  Paragraph 1 
point (a) of Article 26 of that Directive requires the use of goods forming part of the assets of 
a business for non-business purposes to be a supply of services for a consideration if the VAT 
on the purchase of those goods was eligible for deduction.  

In the case of motor vehicles, this system can be difficult to apply for a number of reasons, 
notably  because  it  is  difficult  to  identify  accurately  the  split  between  business  and  non-
business use. Where records are kept, they add an additional burden to both the business and 
the  administration  in  maintaining  and  checking  them.  The  number  of  vehicles  concerned 
means that even small-scale individual evasion has the capacity to grow into significant sums. 

As an alternative to the system set out in the Directive, Poland has requested that it is allowed 
to limit the initial deduction to a set percentage and in turn relieve businesses from accounting 
for VAT on the private use. This has the benefit of simplifying the system for all concerned 
and  ensuring  that  a  percentage  of  the  tax,  which  might  have  otherwise  been  evaded,  is 
collected. 

The percentage restriction requested is 50%. This is based on Poland's own assessment and, 
under the terms of the proposal, would be reviewed upon any request by Poland for extension 
beyond 2016. 
Poland is currently authorised on the basis of Council Implementing Decision 2010/581/EU1 
to  restrict  to  60  %  the  right  to  deduct  VAT  on  the  purchase,  intra-Community  acquisition, 
import, hire or lease of certain motor vehicles other than passenger cars, up to a maximum of 
PLN 6 000. That Decision shall expire on 31 December 2013. 

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Council Implementing Decision of 27 September 2010 authorising the Republic of Poland to introduce 
a  special  measure  derogating  from  Article  26(1)(a)  and  Article  168  of  Directive  2006/112/EC  on  the 
common system of value added tax, OJ L 256, 30.9.2010, p. 24 

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The  new  restriction  to  the  right  of  deduction  will  apply  as  from  1 January 2014  to  motor 
vehicles  used  by  a  taxable  person  not  exclusively  for  business  purposes.  However,  certain 
types  of  motor  vehicles  would  be  excluded  from  that  restriction  and  would  therefore  be 
subject to the normal rules, namely any vehicle with more than 9 seats (including the driver's) 
and  with  a  total  maximum  weight  of  more  than  3 500 kilograms.  This  mainly  restricts  the 
field of application to passenger cars, vans, pick-ups and motorbikes. 

The restriction also applies to VAT charged on any expenditure, including purchase of fuel, 
related to motor vehicles covered by this special measure, provided that the expenditure is not 
entirely related to the taxable persons’ business, which is e.g. the case with the installation of 
taximeters. 

Derogations  are  normally  granted  for  a  limited  time  as  to  allow  an  assessment  whether  the 
special  measure  is  appropriate  and  effective.  Any  extension  should  therefore  be  limited  in 
time in order to assess whether the conditions, on which the derogation is based, would still 
be  valid.  Poland  has  requested  authorisation  to  apply  the  special  measure  subject  to  this 
proposal until 31 December 2018.  

It is however common practice to grant a three year period in similar cases (see e.g. Council 
Implementing Decisions 2012/232/EU2 and 2013/191/EU3). Therefore, it is proposed that this 
decision  shall  expire  by  the  end  of  2016  and  to  request  Poland  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. 

Existing provisions in the area of the proposal 

Article 176  of  Directive  2006/112/EC  stipulates  that  the  Council  shall  determine  the 
expenditure on which the VAT is not deductible. Until such time, it authorises Member States 
to maintain exclusions, which were in place on 1 January 1979. There are therefore a number 
of "stand still" provisions restricting the right to deduct in relation to motor vehicles. 

In 2004, the Commission made a proposal to - inter alia - establish rules on which categories 
of expenditure may be subject to a restriction on the right to deduct (COM(2004) 728 final4). 
The Council has not yet reached an agreement on that proposal. 

Consistency with other policies and objectives of the Union  

Not applicable. 

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. 

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4 

Council  Implementing  Decision  of  26  April  2012  authorising  Romania  to  apply  measures  derogating 
from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added 
tax, OJ L 117, 1.5.2012, p. 7 
Council  Implementing  Decision  of  22  April  2013  authorising  Latvia  to  introduce  a  special  measure 
derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the 
common system of value added tax, OJ L 113, 25.4.2013, p. 11 
http://eur-lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0728en01.pdf 

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Impact assessment 

The proposal is designed to counter VAT evasion and to simplify the procedure for charging 
tax and has, therefore, a potential positive impact for both businesses and administrations. The 
solution has been identified by Poland as a suitable measure and is comparable to other past 
and present derogations. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

The  proposal  aims  to  authorise  Poland  to  apply  a  measure  derogating  from  Article  168  of 
Directive  2006/112/EC  so  as  to  restrict  the  right  of  a  taxable  person  to  deduct  VAT  on  the 
purchase, hire, rent or lease of certain motorised road vehicles and expenditure related thereto 
when  the  vehicle  is  not  used  exclusively  for  business  purposes  and  the  expenditure  is  not 
entirely related to the taxable person’s business. Where the right to deduct has been limited, a 
derogation from point (a) of paragraph 1 of Article 26 of Directive 2006/112/EC will relieve 
the  taxable  person  from  accounting  for  tax  on  the  non-business  use  of  that  vehicle.  The 
measure  is  restricted  to  vehicles  under  a  certain  seating  capacity  and  under  a  certain  total 
weight. 

The  restriction  is  set  at  a  flat  rate  of  50%.  This  rate  and  the  necessity  for  the  derogating 
measures  are  to  be  reviewed  and  reported  on  by  Poland  upon  any  request  for  an  extension. 
The Decision will apply until the earlier of the date specified in the Decision or the date on 
which Union rules come into force governing restrictions on the right to deduct in this area. 

Legal basis 

Article 395 of Council Directive 2006/112/EC. 

Subsidiarity principle 

The proposal falls under the exclusive competence  of the  European Union. The subsidiarity 
principle therefore does not apply. 

Proportionality principle 

The  proposal  complies  with  the  proportionality  principle  as  this  Decision  concerns  an 
authorisation  granted  to  a  Member  State  on  its  own  request  and  does  not  constitute  any 
obligation. 

Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued. 

Choice of instruments 

Proposed instrument: Council Implementing Decision. 

Other means would not be adequate for the following reason(s): 

Under  Article 395  of  Council  Directive  2006/112/EC,  a  derogation  from  the  common  VAT 
rules  is  only  possible  upon  authorisation  of  the  Council  acting  unanimously  on  a  proposal 
from the Commission. A Council Implementing Decision is the most suitable instrument since 
it can be addressed to an individual Member State. 

4. 

BUDGETARY IMPLICATION 

The  proposal  will  not  adversely  affect  the  European  Union’s  own  resources  accruing  from 
VAT. 

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5. 

OPTIONAL ELEMENTS 

The proposal includes a review clause and a sunset clause. 

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2013/0411 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Poland to introduce measures derogating from Articles 26(1)(a) and 168 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 tax5, and in particular paragraph 1 of Article 395 thereof, 

Having regard to the proposal from the European Commission, 

Whereas:  

(1) 

(2) 

(3) 

(4) 

(5) 

By  letter  registered  with  the  Commission  on  18 June 2013,  Poland  requested 
authorisation to introduce special measures concerning certain motorised road vehicles 
and  expenditure  related  thereto,  derogating  from  those  provisions  laid  down  in 
Directive 2006/112/EC which govern a taxable person's right to deduct VAT paid on 
the purchase of goods and services and those which require tax to be accounted for on 
business assets used for non-business purposes. 

In accordance with the second subparagraph of paragraph 2 of Article 395 of Directive 
2006/112/EC, the Commission informed the other Member States of the request made 
by  Poland  by  letter  dated  10  October  2013.  By  letter  dated  14  October  2013,  the 
Commission notified Poland that it had all the information necessary to consider the 
request. 

Article 168  of  Directive  2006/112/EC  establishes  a  taxable  person's  right  to  deduct 
VAT charged on supplies of goods and services received by him for the purposes of 
his taxed transactions. Point (a) of paragraph 1 of Article 26 of that Directive contains 
a requirement to account for VAT when a business asset is put to use for the private 
purposes of the taxable person or his staff or, more generally, for purposes other than 
those of his business. 

The measure requested by Poland deviates from those provisions so as to restrict the 
right  to  deduct  VAT  on  the  purchase,  hire,  rent  or  lease  of  certain  motorised  road 
vehicles  and  expenditure  related  thereto  and  to  relieve  the  taxable  person  from 
accounting for VAT on the non-business use of vehicles covered by the restriction. 

The  non-business  use  of  motor  vehicles  is  difficult  to  identify  accurately  and  even 
where  it  is  possible,  the  mechanism  for  doing  so  is  often  burdensome.  Under  the 
requested  measures,  the  amount  of  VAT  on  expenditure  eligible  for  deduction 
concerning motor vehicles, which are not used entirely for business purposes should, 
with  some  exceptions,  be  set  at  a  flat  percentage  rate.  Based  on  currently  available 
information,  Poland  believes  that  a  rate  of  50%  is  justifiable.  At  the  same  time,  to 
avoid  double  taxation,  the  requirement  for  accounting  for  VAT  on  the  non-business 

5 

OJ L 347 11.12.2006, p.1. 

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(6) 

(7) 

use  of  a  motor  vehicle  should  be  suspended  where  it  has  been  subject  to  this 
restriction. These measures can be justified by the need to simplify the procedure for 
charging VAT and to prevent evasion through incorrect record keeping and false tax 
declaration. 

The  restriction  to  the  right  of  deduction  under  the  special  measures  should  apply  to 
VAT paid on the purchase, intra-Community acquisition, importation, hire or leasing 
of specified motorised road vehicles and on expenditure related thereto, including the 
purchase of fuel. 

Certain  types  of  motor  vehicles  should  be  excluded  from  the  scope  of  the  special 
measures as - due to their nature or the type of business they are used for - any non-
business  use  is  considered  as  negligible.  Therefore,  the  special  measures  should  not 
apply  to  vehicles  with  more  than  9 seats  (including  the  driver's)  and  with  a  total 
maximum weight of more than 3 500 kilograms. In addition, the restriction to the right 
of deduction shall not apply to VAT charged on any expenditure that is entirely related 
to the taxable person’s business. 

(8) 

These derogating measures should be limited in time to allow for an evaluation of their 
effectiveness and of the appropriate percentage, since the proposed percentage is based 
on initial findings regarding business use. 

(9)  Where Poland considers a further extension of the derogating measures beyond 2016 
is necessary, a report on the application of the measures in question, which includes a 
review  of  the  percentage  applied,  should  be  submitted  to  the  Commission  together 
with the extension request no later than 1 April 2016. 

(10)  On  29  October  2004,  the  Commission  adopted  a  proposal6  for  a  Council  Directive 
amending  Directive  77/388/EEC,  now  Directive  2006/112/EC  that  includes  the 
harmonisation  of  the  categories  of  expenses  for  which  exclusions  from  the  right  of 
deduction may apply. Under that proposal, exclusions from the right to deduct could 
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  an  amending 
Directive, if that date is earlier than the date of expiry provided for in this Decision. 

(11)  The  derogation  will  only  have  a  negligible  effect  on  the  overall  amount  of  tax 
collected at the stage of final consumption and will not adversely affect the European 
Union’s own resources accruing from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  168  of  Directive  2006/112/EC,  Poland  is  hereby 
authorised  to  limit  to  50%  the  right  to  deduct  the  VAT  on  the  purchase,  intra-Community 
acquisition,  importation,  hire  or  leasing  of  motorised  road  vehicles  as  well  as  the  VAT 
charged  on  expenditure  related  to  those  vehicles,  where  the  vehicle  is  not  entirely  used  for 
business purposes. 

The restriction set out in the first subparagraph shall not apply to motor vehicles with a total 
maximum weight of more than 3 500 kilograms or motor vehicles with more than nine seats 
including the driver's seat. 

6 

COM (2004) 728 final (OJ C 24, 29.1.2005, p.10) 

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The  restriction  set  out  in  the  first  subparagraph  shall  not  apply  to  VAT  charged  on  any 
expenditure that is entirely related to the taxable person’s business. 

Article 2 

By way of derogation from point (a) of paragraph 1 of Article 26 of Directive 2006/112/EC, 
Poland is authorised not to treat as a supply of services for consideration the private use by a 
taxable person or his staff or, more generally, for purposes other than those of his business, of 
a vehicle to which the restriction referred to in Article 1 of this Decision applies. 

Article 3 

1. This Decision shall take effect on the day of its notification. 

This Decision shall apply as of 1 January 2014. It 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. 

2.  Any  request  for  the  extension  of  the  measures  provided  for  in  this  Decision  shall  be 
submitted to the Commission no later than 1 April 2016. Such request shall be accompanied 
by a report which includes a review of the percentage restriction applied on the right to deduct 
VAT on the basis of this Decision. 

This Decision is addressed to the Republic of Poland. 

Done at Brussels, 

Article 4 

For the Council 
The President 

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