COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2015-10-28
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Austria, Bulgaria, Czechia, Slovakia, VAT, derogation from EU law, goods and services, tax evasion

EUROPEAN 
COMMISSION 

Brussels, 28.10.2015  
COM(2015) 538 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 395 of Council Directive 2006/112/EC 

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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, such derogations should be proportionate and limited in scope. 

By letter registered at the Commission on 18 June 2015, the Republic of Austria, the 
Republic of Bulgaria, the Czech Republic and the Slovak Republic have requested to 
be  authorised  to  introduce  a  measure  derogating  from  Article  193  of  the  VAT 
Directive. In accordance with the second paragraph of Article 395 of that Directive, 
the Commission informed the other Member States by letter dated 2 July 2015 of the 
request  made  by  these  four  Member  States.  By  letter  dated  7  July  2015,  the 
Commission  notified  the  Republic  of  Austria,  the  Republic  of  Bulgaria,  the  Czech 
Republic  and  the  Slovak  Republic  that  it  had  all  the  information  it  considered 
necessary for appraisal of the request. 

These  Member  States  request  to  be  authorised  to  derogate  from  Article  193  of  the 
VAT  Directive  as  regards  the  person  liable  for  the  payment  of  the  VAT  to  the  tax 
authorities and to apply the so-called ‘reverse charge mechanism’. 

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. 

3. 

THE REQUEST 

The  Republic  of  Austria,  the  Republic  of  Bulgaria,  the  Czech  Republic  and  the 
Slovak Republic request, under Article 395 of the VAT Directive, that the Council, 
acting  upon  a  proposal  of  the  Commission,  would  authorise  a  special  measure 
derogating from Article 193 of the VAT Directive as regards the application of the 
reverse  charge  mechanism  in  relation  to  all  supplies  of  goods  or  services  above 
€10.000 with a view of combating fraud. 

This would authorise the Member States concerned to impose the application of the 
reverse  charge  mechanism  to  any  sector,  to  any  individual  type  of  good  or  service 
they  would  choose,  possibly  to  the  whole  national  economy.  This  would 
fundamentally  alter  the  current  fractionated  payment  mechanism,  one  of  the 
fundamental principles on which the current VAT system is based. 

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. 

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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. 

Apart from the question whether the requested measure would indeed be an effective 
way to combat carousel and other types of fraud or to reduce the VAT gap in general, 
and apart from the de-harmonization such a totally optional system would create, it is 
clear that such a far-reaching measure goes beyond the scope of a derogation under 
Article  395  of  the  VAT  Directive.  The  Commission  has  already  pointed  out  that  a 
global and undistinctive application of the reverse charge mechanism to, in this case, 
potentially  all  goods  and  services  can  no  longer  be  regarded  as  a  special  measure 
within the meaning of the above-mentioned article1. 

It is necessary to demonstrate that the application of the reverse charge mechanism is 
justified  by  a  particular  fraud  problem  and  that  it  does  not  go  beyond  what  is 
necessary to combat that fraud situation, which necessarily implies that the measure 
has to be targeted. It excludes, in any case, that such a measure would be applicable 
to large parts or even the whole economy and to different production and distribution 
stages. 

This follows from the jurisprudence of the European Court of Justice that has ruled 
that measures, taken in application of Article 395 of the VAT Directive in order to 
simplify the procedure for collecting VAT or to prevent certain forms of tax evasion 
or avoidance, have to be necessary and appropriate for realising the specific objective 
which  they  pursue  and  have  as  little  effect  as  possible  on  the  objectives  and 
principles of the VAT Directive2. 

Given  the  overall  scope  of  the  requested  measure,  the  fundamental  principle  of  the 
fractionated payment on which the harmonised VAT system is based, would clearly 
be affected. 

It is also the Commission's view that any substantial change to the principles of the 
VAT system should be decided at EU level in the context of the reform of the VAT 
system, and not through stand-alone national solutions. 

5. 

CONCLUSION 

On the basis of the above-mentioned elements, the Commission objects to the request 
made by the Republic of Austria, the Republic of Bulgaria, the Czech Republic and 
the Slovak Republic. 

1 See in this context COM(2015)214 

2 See for example case C-489/09, Vandoorne NV, par. 27 

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