Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax
Date: 2015-11-10
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Lithuania, VAT, delivery, derogation from EU law, industrial restructuring, liquidation, provision of services, supply, wood product

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 10.11.2015  COM(2015) 558 final 2015/0258 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Pursuant  to  Article  395  of  Council  Directive  2006/112/EC  of  28  November  2006  on  the 
common  system  of  value  added  tax1  (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  that  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  1  April  of  2015,  the  Republic  of  Lithuania 
(hereafter 'Lithuania') requested authorisation to continue to apply a measure derogating from 
Article 193 of the VAT Directive. In accordance with Article 395(2) of the VAT Directive, 
the Commission informed the other Member States by letter dated 18 May 2015 of the request 
made by Lithuania. By letter dated 20 May 2015, the Commission notified Lithuania that it 
had all the information it considered necessary for appraisal of the request. 

The Lithuanian government asks to extend the validity of the current application of a reverse 
charge  mechanism  in  relation  to  supplies  of  timber  and  supplies  by  taxable  persons  under 
judicial insolvency or restructuring procedures. 

As  regards  the  supplies  of  timber,  Lithuania  was  confronted  with  a  considerable  number  of 
traders  that  failed  to  comply  with  their  obligations.  Businesses  in  this  sector  are  frequently 
small resellers and intermediaries, which often disappear without paying to the tax authorities 
the tax they charged on their supplies but leaving their customers in receipt of a valid invoice 
for VAT deduction. 

Taxable  persons  under  judicial  insolvency  or  restructuring  procedures  often  did  not  pay  the 
VAT they have received from their customers to the tax authorities. However, the purchaser 
can, as a compliant trader, still deduct the VAT incurred. 

Under the reverse charge mechanism, by derogating from a general rule provided in Article 
193  of  the  VAT  Directive,  the  customer  becomes  liable  for  the  payment  of  the  VAT  on 
domestic transactions.  

This derogating measure had initially been granted by Council Decision 2006/388/EC of 15 
May 20062, which also included supplies of ferrous waste and scrap and construction work. 
The  application  of  the  derogating  measure  for  supply  of  timber  and  supplies  by  taxable 
persons  under  judicial  insolvency  or  restructuring  procedures  was  extended  by  Council 
Implementing Decision 2010/99/EU of 16 February 20103. A last extension of the derogating 
measure has been granted by Council Implementing Decision 2012/704/EU of 13 November 
20124. 

From  the  report  submitted  by  the  Lithuanian  Tax  Authorities,  together  with  the  request  to 
continue to apply the derogating measure, the Commission understands that the situation, on 
which the initial derogation was based, continues to exist. Lithuania claims that, based on the 
results of tax investigations, the derogation proved to be effective both for supply of timber 
and supplies by taxable persons under judicial insolvency or restructuring procedures.  

1 
2 
3 
4 

OJ L 347, 11.12.2006, p. 1. 
OJ L 150, 3.6.2006, p. 13. 
OJ L 45, 20.2.2010, p. 10. 
OJ L 319, 16.11.2012, p. 7. 

EN 

2 

   EN 

                                                 
In these particular cases, the reverse charge mechanism shifts the liability for the payment of 
the  VAT,  as  well  as  the  corresponding  obligations,  from  smaller  or  less  reliable  taxable 
suppliers  to  larger  and  more  reliable  taxable  customers.  This  supports  the  tax  authorities 
which are confronted with difficulties of VAT collection in these specific sectors. 

The derogation should therefore be granted for another limited period. 

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to Article 193 of the VAT Directive have been granted to other 
Member States. 

• 

Consistency with other Union policies 

Not applicable. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

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 

The proposal complies with the proportionality principle for the following reasons. 

This Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Furthermore, the measure is targeted and restricted to a limited number of taxable suppliers in 
relation to which the VAT collection has proven to be problematic. Given the limited scope of 
the derogation, the special measure is proportionate to the aim pursued. 

• 

Choice of the instrument 

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  Implementing  Decision  is  the  most  suitable  instrument 
since it can be addressed to individual Member States.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

Not relevant. 

• 

Collection and use of expertise 

There was no need for external expertise. 

EN 

3 

   EN 

• 

Impact assessment 

The  Decision  proposal  aims  at  simplifying  the  procedure  for  charging  the  tax  and  at 
combating  possible  VAT  evasion  or  avoidance  and  has  therefore  a  potential  positive 
economic impact. 

Impact will in any case be limited because of the narrow scope of the derogation. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication for the Union budget. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal includes a sunset clause; an automatic time limit which is set at 31 December 
2018. 

In case Lithuania would consider another extension of the derogating measure beyond 2018, 
an  evaluation  report  should  be  submitted  to  the  Commission  together  with  the  extension 
request no later than 1 April 2018. 

EN 

4 

   EN 

2015/0258 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Lithuania to extend the application of a measure derogating 
from Article 193 of Council 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,  and  in  particular 
Article 291 (2) thereof, 

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax5, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

5 
6 

7 

8 

By letter registered with the Commission on 1 April 2015, the Republic of Lithuania 
(hereafter  'Lithuania')  requested  authorisation  to  continue  to  apply  a  measure 
derogating  from  the  provisions  of  Directive  2006/112/EC  which  govern  the  person 
liable for the payment of the value added tax (VAT) to tax authorities. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States of the request made by Lithuania in a letter dated 18 
May 2015. By a letter dated 20 May 2015, the Commission notified Lithuania that it 
had all the information necessary to consider the request. 
Council Decision 2006/388/EC6 authorized Lithuania inter alia to make the recipient 
liable for the VAT due on the supply of goods and services in the case of insolvency 
procedures or restructuring procedures subject to judicial oversight and on the supply 
of timber. 

The time period for the application of the derogating measure was extended twice by 
Council  Implementing  Decision  2010/99/EU  of  16  February  20107  and  Council 
Implementing Decision 2012/704/EU of 13 November 20128. 

OJ L 347, 11.12.2006, p. 1. 
Council  Decision  2006/388/EC  of  15  May  2006  authorising  the  Republic  of  Lithuania  to  apply  a 
measure derogating from Article 21 of the Sixth Directive 77/388/EEC on the harmonisation of the laws 
of the Member States relating to turnover taxes (OJ L 150, 3.6.2006, p. 13-14). 
Council Implementing Decision 2010/99/EU of 16 February 2010 authorising the Republic of Lithuania 
to  extend  the  application  of  a  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 45 20.2.2010, p. 10-11). 
Council Implementing Decision 2012/704/EU of 13 November 2012 amending Implementing Decision 
2010/99/EU  authorising  the  Republic  of  Lithuania  to  extend  the  application  of  a  measure  derogating 
from  Article  193  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  319 
16.11.2012, p. 7). 

EN 

5 

   EN 

                                                 
(5) 

(6) 

(7) 

(8) 

The  tax  investigations  and  the  appropriate  analysis  of  the  application  of  the 
mechanism  carried  out  by  the  Lithuanian  tax  authorities  have  revealed  the 
effectiveness of the derogating measure. 

The  Commission  understands  that  the  legal  and  factual  situation  which  has  justified 
the  application  of  the  derogating  measure  has  not  changed  and  continues  to  exist. 
Lithuania should therefore be authorised to apply the measure during a further limited 
period. 

If  Lithuania  were  to  require  a  further  extension  of  the  derogating  measure  beyond 
2018, an  evaluation report should be submitted to  the Commission  together  with the 
extension request no later than 31 March 2018. 

The  derogating  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 
accruing from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

In Article 2 of Implementing Decision 2010/99/EU, the second paragraph is replaced by the 
following:  

‘It shall apply until 31 December 2018. Any request for the extension of the measure provided 
for in this Decision shall be submitted to  the Commission no later than 31 March 2018 and 
shall be accompanied by a report which includes a review of the application of this measure.’ 

This decision is addressed to the Republic of Lithuania. 

Done at Brussels, 

Article 2 

For the Council 
The President 

EN 

6 

   EN