COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2014-10-10
Institutions: European Commission
Subjects: Estonia, VAT, derogation from EU law, motor vehicle, tax reform, tax relief













EUR-Lex - 52014DC0623 - EN











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52014DC0623

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC /* COM/2014/0623 final */









COMMUNICATION FROM THE COMMISSION TO THE COUNCIL
in
accordance with Article 395 of Council Directive 2006/112/EC

1.                      
BACKGROUND

Pursuant to
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 introduce
special measures for derogation from the provisions of this Directive, in order
to simplify the procedure for collecting VAT or to prevent certain forms 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
European Court of Justice, such derogations should be proportionate and limited
in scope.
By letter registered
at the Commission on 14 January 2014, Estonia requested on the basis of Article
395 of the VAT Directive to be authorised to apply the reverse charge mechanism
to supplies of precious stones with the aim of preventing tax fraud. However,
since not enough information was provided regarding the fraud situation in the
sector, the Commission sent a letter on 13 March 2014 requesting additional
information in this respect. By letter registered at the Commission on 7 May
2014, Estonia provided further information in reply to this request.
In accordance
with the second paragraph of Article 395 of that Directive, the Commission
informed the other Member States by letter dated 10 June 2014 of the request
made by Estonia. By letter dated 12 June 2014, the Commission notified Estonia that it had all the information it considered necessary for appraisal of the
request.

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

Estonia
requests, under Article 395 of the VAT Directive, that the Council, acting upon
a proposal of the Commission, would authorise the application of a special
measure derogating from Article 193 of the VAT Directive as regards the
application of the reverse charge mechanism in relation to supplies of precious
stones.
On the basis of
information provided by Estonia, it appears that it is envisaged to apply the
reverse charge mechanism to supplies of precious metals from 1 July 2014 on the
basis of Article 199a(1)(j) of the VAT Directive, as inserted by the ‘Reverse
Charge Directive’[1].
The application of this mechanism to precious stones, which is not foreseen in
the VAT Directive, is expected by the Estonian authorities to complement this
measure.

4.                      
THE COMMISSION'S VIEW

When the
Commission receives requests in accordance with Article 395, 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 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.
The requested
measure is essentially linked to the fact that, as mentioned, the reverse
charge mechanism will be applied to precious metals as from 1 July 2014. As the
reverse charge mechanism always entails a certain risk that the fraud is
shifted towards other products, Estonia would want a similar measure for
precious stones as traders in precious metals and precious stones often seem to
be the same.
At this stage,
however, Estonia was not yet in a position to provide precise information about
the (possible) fraud situation regarding precious stones as checks are
currently still being carried out. These checks started in the second half of
2013 but no information is available for previous years. From what is
available, it appears that Estonia has detected one so-called carousel scheme
for precious stones involving another Member State. As regards the number of
transactions involving precious stones, Estonia reported that they vary between
three and nine per month between July 2013 and January 2014, but with an
increasing value.
As to possible
conventional measures to tackle the problem in the sector, Estonia did not demonstrate that particular measures had been applied, implemented or even foreseen
for the near future. It was only stated that, after the application period of
the requested derogation, it would be possible to control the sector via normal
control procedures, such as routine inspections and auditing.
On the basis of
these elements, it is the Commission’s view that the need for a derogation in
this field has not been established. In fact, the very limited number of
transactions carried out by only a few taxable persons, often already known and
identified for their activities in the sector of precious metals, should in
principle allow for an adequate follow-up and control of the sector via
conventional measures, as was foreseen after the application period of the
requested derogation. At the same time, and although reference was made to one
particular fraud case, it was not demonstrated that the overall existing or
potential fraud situation would require a specific derogating measure in the
meantime.

5.                      
CONCLUSION

On the basis of the
above-mentioned elements, the Commission objects to the request made by Estonia.
[1]              As inserted by Council
Directive 2013/43/EU of 22 July 2013 amending Directive 2006/112/EC on the
common system of value added tax, as regards an optional and temporary
application of the reverse charge mechanism in relation to supplies of certain
goods and services susceptible to fraud (OJ L 201, 26.7.2013, p. 4)