Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Poland to continue to apply a measure derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2016-08-05
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Poland, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 5.8.2016  COM(2016) 497 final 2016/0245 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Poland to continue to apply a measure derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 

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  8  February  2016,  Poland  has  requested  an 
extension  of  the  derogation  from  Article  168  of  the  VAT  Directive  in  order  to  continue  to 
restrict the right to deduct the input tax on expenditure connected with certain motor vehicles. 
In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  6 June 2016  of  the  request  made  by  Poland.  By  letter  dated 
8 June 2016,  the  Commission  notified  Poland  that  it  had  all  the  information  necessary  to 
consider the request.  

1. 

CONTEXT OF THE PROPOSAL 

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 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. 

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 2019. 
Poland is currently authorised on the basis of Council Implementing Decision 2013/805/EU1 
to  restrict  to  50  %  the  right  to  deduct  VAT  on  the  purchase,  intra-Community  acquisition, 
import, hire or lease or other agreements of similar nature concerning certain motor vehicles 
other  than  passenger  cars,  up  to  a  maximum  of  PLN 6 000.  That  Decision  shall  expire  on 
31 December 2016. 

Poland informs that the grounds for this application for a derogation have not changed and are 
similar  to  those  described  in  the  previous  request.  The  application  for  a  derogation  is  a 
continuation of the arrangements provided for in the aforementioned Council Decision.  

The  restriction  would  apply  only  to  motor  vehicles  which  are  not  used  exclusively  for 
business purposes and to expenditure related to those vehicles. 

This derogation also involves partially restricting the right to deduct to 50% of input tax on 
purchases  of  fuel  for  the  motor  vehicles  caught  by  the  derogation  and  on  other  operating 
expenditure, including the repair and maintenance of those vehicles, and on the expenditure 

1 

Council Implementing Decision 2013/805/EU of 17 December 2013 authorising the Republic of Poland 
to introduce 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 (OJ L 353, 28.12.2013, p. 51) 

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on  supplies  or  services  provided  in  connection  with  those  vehicles  and  their  use,  including 
expenditure  for  alterations  or  assembly  of  parts  in  those  vehicles  (with  the  exception  of 
expenditure for alterations or assembly of parts in those vehicles which are used exclusively 
for business purposes, for example, assembly of a taximeter). 

Poland indicates that motor vehicles caught by this derogation can, by virtue of their design, 
also easily be used for non-business purposes. 

Certain  types  of  motor  vehicles  are  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 3500 kilograms. This mainly restricts the field 
of  application  to  passenger  cars,  vans,  pick-ups  and  motorbikes.  The  derogation  would  also 
not  affect  vehicles  exclusively  intended  for  resale  or  to  be  made  available  for  use  for 
consideration  under  a  hire,  rental  or  leasing  contract  or  other  contracts  of  similar  nature  or 
vehicles designed for the carriage of at least ten persons including the driver. 

Poland has requested that it is allowed to continue to limit until 31 December 2019 the initial 
deduction to a set percentage and in turn relieve businesses from accounting for VAT on the 
private  use.  This  derogation  removes  the  need  to  keep  detailed  private  mileage  records  for 
each car and to account for the VAT on the private use. The derogation is therefore essentially 
to be considered as a simplification measure. 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. 

On the basis of the information provided by Poland, it appears that the average business use of 
mixed-use company cars is still around 50%. The requested extension therefore appears to be 
justified.  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.  

It is therefore proposed that the request will be granted until 31 December 2019 and to request 
Poland  to  present  a  report  by  1  April  2019  including  a  review  of  the  percentage  restriction 
applied in case a further extension would be envisaged beyond 2019. 

The derogation would not, except to a negligible extent, affect the overall amount of the tax 
revenue of the Member State collected at the stage of the final consumption. 

• 

Consistency with existing policy provisions in the policy area 

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. 

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be  subject  to  a  restriction  on  the  right  to  deduct2,  such  derogation  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level.  

2 

COM (2004) 728 final - Proposal for a Council Directive amending Directive 77/388/EEC with a view 
to simplifying value added tax obligations (OJ C 24, 29.1.2005, p.10) withdrawn on 21 May 2014 (OJ 
C 153 21. 05. 2014, p. 3)  

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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  European  Union.  The  subsidiarity  principle 
therefore does not apply. 

• 

Proportionality 

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  prevent  certain  forms  of  tax  evasion  of  avoidance  and  to  simplify  the  VAT 
collection in a specific sector. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Other means would not be adequate for the following reason: 

Under  Article  395  of  Council  Directive  2006/112/EC,  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. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

 This proposal is based on a request made by Poland and concerns only this Member State.  

• 

Collection and use of expertise 

There was no need for external expertise.  

• 

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. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implication for the EU budget. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause; an automatic time limit which is set at 31 December 
2019. 

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In case Poland would consider another extension of the derogating measure beyond 2019, a 
new  evaluation  report  should  be  submitted  to  the  Commission  together  with  the  extension 
request no later than 1 April 2019. 

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2016/0245 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Poland to continue to apply a measure 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 tax3, and in particular Article 395 thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

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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. 
Implementing  Decision  2013/805/EU4  authorised  Poland  until  31  December  2016  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. 

By  letter  registered  with  the  Commission  on  8  February  2016,  Poland  requested 
authorisation to continue to apply 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  6 June 2016.  By  letter  dated  8 June 2016,  the  Commission 
notified Poland that it had all the information necessary to consider the request. 

In accordance with the second subparagraph of Article 3 (2) of Decision 2013/805/EU, 
Poland submitted, together with the extension request, a report to the Commission on 
the  application  of  that  Decision,  including  a  review  of  the  percentage  restriction 

OJ L 347, 11.12.2006 , p. 1.  
Council Implementing Decision 2013/805/EU of 17 December 2013 authorising the Republic of Poland 
to  introduce  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 (OJ L 353, 28.12.2013, p. 51). 

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applied  on  the  right  of  deduction.  Based  on  currently  available  information,  Poland 
believes  that  a  rate  of  50%  is  still  justifiable.  At  the  same  time,  to  avoid  double 
taxation, the requirement for accounting for VAT on the non-business 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. 

Certain types of motor vehicles are 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. 

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. 

The extension of these derogating measures should be limited in time to allow for an 
evaluation  of  their  effectiveness  and  of  the  appropriate  percentage;  Poland  should 
therefore be authorised to continue to apply the measure for a limited period, until 31 
December 2019. 

(6) 

(7) 

(8) 

(9)  Where Poland considers a further extension of the derogating measures beyond 2019 
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 2019. 

(10)  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.  

(11) 

Implementing Decision 2013/805/EU should be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Implementing Decision 2013/805/EU is amended as follows: 

Article 3 is replaced by the following: 

Article 1 

1. This Decision shall expire on 31 December 2019. 

"Article 3 

2. Any request for the extension of the measures provided for in this Decision shall be 
submitted to the Commission by 1 April 2019. Such request shall be accompanied by a report 
including a review of the percentage restriction applied on the right to deduct VAT on the 
basis of this Decision." 

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This Decision shall apply from 1 January 2017.  

Article 2 

This Decision is addressed to the Republic of Poland. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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