Proposal for a COUNCIL IMPLEMENTING DECISION extending the period of validity of Decision 2012/232/EU authorising Romania to apply measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2014-12-16
Institutions: European Commission
Subjects: Romania, VAT, derogation from EU law, motor car, motor vehicle, prevention of delinquency, tax avoidance, tax collection, vehicle rental













EUR-Lex - 52014PC0736 - EN











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52014PC0736

Proposal for a COUNCIL IMPLEMENTING DECISION extending the period of validity of Decision 2012/232/EU authorising Romania to apply measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax /* COM/2014/0736 final - 2014/0352 (NLE) */









EXPLANATORY MEMORANDUM
1.           CONTEXT 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
13 February 2014, Romania requested authorisation to continue to apply a
measure derogating from the overall principles governing the right of deduction
of input VAT in relation to certain motorised road vehicles. The request was
completed on 15 September 2014 with a report covering the application of
Decision 2012/232/EU. 
General context
Article 168 of the VAT Directive provides
that a taxable person is entitled to deduct VAT charged on purchases made for
the purpose of taxed transactions. Article 26(1)(a) of the same Directive
requires the use of goods forming part of the assets of a business for private
purposes to be a supply of services for consideration if the VAT on the goods
was eligible for deduction. This system allows for the recovery of initially
deducted VAT in relation to the private use. 
In the case of passenger cars, this system
is difficult to apply, in particular because it is difficult to identify the
split between private and business use. Where records are kept, they add an
additional burden to both the business and the administration in maintaining
and checking them, even in case Romania would make use of the option provided
for in Article 168a 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 order to simplify VAT collection and
combat tax evasion, in 2011 Romania requested an individual derogation allowing
it to restrict the right of deduction to 50% in relation to certain motorised
road vehicles. The derogation request was approved by the Council by Decision
2012/232/EU of 26 April 2012 and expires on 31 December 2014. Some categories
of vehicles were specifically excluded from this restriction, such as vehicles
used exclusively for emergency, security or courier services, vehicles used by
agents and taxis, vehicles used for instruction by driving schools, used for
hire or leasing or used as commodities for trading purposes. At the same time,
businesses would be relieved from accounting from tax on the private use.  
In accordance with the second subparagraph
of Article 4(2) of the above mentioned Decision, Romania has presented a report
covering the application of the Decision which included a review of the
percentage restriction. It appears from the information provided by Romania that they find that the limitation of 50% still corresponds to the actual
circumstances and that this limit therefore still should be regarded as
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 2017 and to request Romania to present a new report if a new
extension request would be envisaged beyond that date. 
Existing provisions in the area of the
proposal
Article 176 of the VAT Directive 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 passenger cars. 
2.           RESULTS
OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
Consultation of interested parties
This proposal is based on a request made by
 Romania and concerns only this Member State.
Collection and use of expertise
There was no need for external expertise.
Impact assessment
The Decision proposal aims
in the first place at simplifying the collecting of VAT in relation to
passenger cars partly used for non-business purposes and has therefore a
potential positive impact. At the same time, tax evasion via incorrect record
keeping is countered. 
However, because of the
narrow scope of the derogation and the limited application in time, the impact
will in any case be limited. It will have no adverse impact on the Union's own resources accruing from VAT.
3.           LEGAL
ELEMENTS OF THE PROPOSAL
Authorisation for Romania to continue to
apply a derogating measure from the VAT Directive as to restrict to 50% the
right of a taxable person to deduct VAT on expenditure related to motorised
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 of the car. Any possible
request for extending the measure should be accompanied by the submission of a
report on the application of the derogation, including a review of the
percentage restriction. 
Legal basis
Article 395 of the VAT Directive. 
Subsidiarity principle
Considering the provision of the VAT
Directive on which the proposal is based, the proposal falls under the exclusive
competence of the Union. The subsidiarity principle therefore does not apply. 
Proportionality principle
The proposal complies
with the proportionality principle for the following reasons. 
The Decision concerns
an authorisation granted to a Member State upon 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,
i.e. to combat tax evasion and to simplify VAT Collection. 
Choice of
instruments
Under Article 395 of
the VAT Directive, derogation from the common VAT rules is only possible with
the authorisation of the Council acting unanimously on a proposal from the
Commission. Moreover, a Council Decision is the most suitable instrument since
it can be addressed to individual Member States. 
4.           BUDGETARY
IMPLICATION
The proposal has no implication for the
union budget. 
5.           OPTIONAL
ELEMENTS
The proposal includes a sunset clause. 
2014/0352 (NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
extending the period of validity of
Decision 2012/232/EU authorising Romania to apply measures derogating from
point (a) of Article 26(1) and Article 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
tax[1], and in
particular Article 395(1) thereof,
Having regard to the
proposal from the European Commission,
Whereas:
(1)       By letter registered at
the Commission on 13 February 2014, Romania requested authorisation to continue
to apply a measure derogating from Articles 26(1)(a) and 168 of Directive
2006/112/EC in order to restrict the right of deduction in relation to
expenditure on certain motorised road vehicles not wholly used for business
purposes. By letter registered at the Commission on 15 September 2014, Romania complemented its request with a report on the application of Council Decision
2012/232/EU.
(2)       In accordance with the
second subparagraph of Article 395(2) of Directive 2006/112/EC, by letter dated
12 November 2014, the Commission informed the other Member States of the
request made by Romania. By letter dated 13 November 2014, the Commission
notified Romania that it had all the information necessary to consider the
request.
(3)       Article 168 of Directive
2006/112/EC authorises a taxable person to deduct VAT charged on supplies of
goods and services received by that person where the goods and services in
question are used for the purposes of his taxed transactions. Point (a) of
Article 26(1) 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.
(4)       Decision 2012/232/EU authorised
Romania to apply a derogating measure pursuant to Article 395(1) of Directive
2006/112/EC in order to implement a measure to limit the right of deduction of
input VAT to 50% as regards purchase, intra-EU acquisition, importation, hire
and lease of motor vehicles, and VAT on expenditure related to such vehicles,
including fuel, when the vehicles are not used exclusively for business
purposes.
(5)       Decision 2012/232/EU is
due to expire on 31 December 2014.
(6)       In accordance with the
second subparagraph of Article 4(2) of Decision 2012/232/EU, Romania submitted a report to the Commission on the application of that Decision, including a review
of the percentage restriction applied on the right of deduction. As was the
case with respect to the previous derogation, Romania continues to maintain
that a rate of 50% is justifiable. 
(7)       It is considered that the
derogation would only have 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. Romania should therefore be authorised to continue to apply the measure for a limited
period, until 31 December 2017.
(8)       In the event Romania were
to request a further extension of the derogating measure beyond 2017, a new
report should be submitted to the Commission together with the extension
request no later than 31 March 2017, 
HAS ADOPTED THIS
DECISION: 
Article 1
Decision 2012/232/EU is amended as follows:
(1) Article 4 is replaced by the following:
"Article 4
This Decision shall
expire on 31 December 2017. 
Any request for the
extension of the measures provided for in this Decision shall be submitted to
the Commission by 31 March 2017. 
Such a 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."
Article 2
This Decision shall
apply from 1 January 2015. 
Article 3
This Decision is
addressed to Romania.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 347, 11.12.2006, p.1.