Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EC authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2016-09-19
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 19.9.2016  COM(2016) 598 final 2016/0277 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EC authorising the Italian Republic to apply measures 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 30 March 2016, the Italian Republic requested 
authorisation to continue to apply a derogation measure concerning the right of deduction of 
VAT borne on certain types of means of transport. In accordance with Article 395(2) of the 
VAT  Directive,  the  Commission  informed  the  other  Member  States  by  letter  dated  22  June 
2016  of  the  request  made  by  the  Italian  Republic.  By  letter  dated  23  June  2016,  the 
Commission notified the Italian Republic that it had all the information necessary to consider 
the request. 

1. 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article 168 and 168a of the VAT Directive provides that a taxable person is entitled to deduct 
the VAT charged on purchases made for the purposes of his taxed transactions. At the same 
time, Article 26(1)(a) of the VAT Directive stipulates that the use of goods, forming part of 
the assets  of a business, for private purposes  is to  be  considered as  a supply  of services  for 
consideration  if  the  VAT  on  these  goods  was  wholly  or  partly  deductible.  As  a  result,  the 
system  ensures  that  final  consumption  is  taxed  when  the  corresponding  input  VAT  was 
initially deducted. 

In relation to motor vehicles, it is sometimes difficult and burdensome for the taxable persons 
to  identify  and  register  the  split  between  business  and  private  use  and  for  the  tax 
administration  to  verify  the  effective  division  of  use.  This  would  be  the  case  even  if  Italy 
would make use of the option provided for in Article 168a(2) 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 addition, because of the number of mixed use vehicles, tax evasion 
could become considerable. 

In order to simplify VAT collection and to combat tax evasion, the Italian Republic requested 
and  obtained  in  2007  from  the  Council  an  individual  derogation  allowing  it  to  restrict,  in  a 
compulsory  way,  until  31  December  2010,  the  right  of  deduction  to  40%  in  relation  to 
motorised  road  vehicles  (other  than  agricultural  or  forestry  tractors,  normally  used  for 
carrying  persons  or  goods  by  road  with  a  maximum  authorised  mass  not  exceeding  3  500 
kilograms and having not more than eight seats in addition to the driver's seat)1. However, it 
should be pointed out that certain categories of vehicles were specifically excluded from this 
restriction, such as vehicles forming part of stock-in-trade, for instruction by driving schools, 
used for hire or leasing, used by sales representatives and taxis. At the same time, businesses 
would be relieved from accounting from tax on the private use. This decision was extended by 

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Council  Decision  2007/441/EC  of  18  June  2007  authorising  the  Italian  Republic  to  apply  measures 
derogating  from  Articles  26(1)  and  168  of  Directive  2006/112/EC  on  the  common  system  of  value 
added tax (OJ L 165, 27.6.2007, p. 33). 

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Council  Decision  2010/748/EU2  up  to  31  December  2013  and  by  Council  implementing 
Decision 2013/679/EU3 up to 31 December 2016. 

In  accordance  with  Article  6  of  the  above-mentioned  Decision,  the  Italian  Republic  has 
presented  a  report  covering  the  application  of  the  Decision  which  includes  a  review  of  the 
percentage restriction.  

It appears from information provided by the Italian Republic in that report that, in particular 
given the very  high number of small enterprises in  the Italian Republic (99% or  5,2 million 
taxable persons are to be considered as micro-entities, essentially consisting of individuals or 
with  only  one  employee),  the  limitation  to  40%  would  still  correspond  to  the  actual 
circumstances and therefore be 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 2019 and to request the Italian Republic to present a new report if 
a new extension request is envisaged beyond that end date.  

• 

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  deduct4,  such  derogation  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level.  

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. 

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4 

Council Implementing Decision 2010/748/EC of 29 November 2010 amending Decision 2007/441/EC 
authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council 
Directive 2006/112/EC on the common system of value added tax (OJ L 318, 4.12.2010, p. 45). 
Council Implementing Decision 2013/679/EU of 15 November 2013 amending Decision 2007/441/EC 
authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council 
Directive 2006/112/EC on the common system of value added tax (OJ L 316, 27.11.2013, p. 37). 
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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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 Italy 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 significantly reducing administrative burden 
for both businesses and administrations. The solution has been identified by Italy 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. 

The  proposal  aims  at  authorising  Italy  to  continue  restricting  the  right  to  deduct  for  certain 
vehicles  and  related  expenditure  over  2017-2019,  as  was  granted  until  2016  by  Decision 
2007/441.  Italy  calculates,  in  line  with  Article  6(4)  of  Council  Regulation  No  1553/89,  a 
corresponding "compensation for cars and related expenditure" and should therefore continue 
to do so until 2019. 

5. 

OTHER ELEMENTS 

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

In  case  Italy  considers  another  extension  of  the  derogating  measure  beyond  2019,  a  new 
evaluation report should be submitted to the Commission together with the extension request 
2019.
no 

April 

later 

than 

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2016/0277 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2007/441/EC authorising the Italian Republic to apply measures 
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 tax5, and in particular Article 395 thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

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Council Decision 2007/441/EC6 authorises Italy to limit the right of deduction of value 
added tax (VAT) charged on expenditure on motorised road vehicles not wholly used 
for  business  purposes  to  40%.  Decision  2007/441/EC  also  provides  that  the  use  for 
private  purposes  of  those  vehicles  which  had  been  subject  to  a  right  of  deduction 
restriction  under  that  Decision  was  not  to  be  considered  as  a  supply  for  a 
consideration. In addition, Decision 2007/441/EC contains definitions of the vehicles 
and expenditure included in the scope of the decision, and a list of vehicles which are 
explicitly  excluded  from  it.  Decision  2007/441/EC  was  amended  by  Council 
Implementing  Decision  2010/748/EC7  and  subsequently  by  Council  Implementing 
Decision 2013/679/EU8 which set the expiry date at 31 December 2016. 

By  letter  registered  with  the  Commission  on  31  March  2016,  Italy  requested  the 
authorisation  to  extend  the  measure,  derogating  from  Articles  26(1)(a)  and  168  of 
Directive  2006/112/EC,  in  order  to  continue  to  restrict  the  right  of  deduction  in 
relation to expenditure on certain motorised road vehicles not wholly used for business 
purposes. 

In  accordance  with  Article  6  of  Council  Decision  2007/441/EC,  as  amended,  Italy 
submitted a report to the Commission covering the application of the Decision which 
included a review of the percentage restriction. The information provided by Italy still 
shows  that  a  restriction  of  the  right  of  deduction  to  40%  corresponds  to  the  actual 
circumstances  as  regards  the  ratio  of  business  to  non-business  use  of  the  vehicles 

OJ L 347, 11.12.2006, p. 1. 
Council  Decision  2007/441/EC  of  18  June  2007  authorising  the  Italian  Republic  to  apply  measures 
derogating from Articles 26(1)(a) and 168 of Council Directive 2006/112/EC on the common system of 
value added tax (OJ L 165, 27.6.2007, p. 33). 
Council Implementing Decision 2010/748/EC of 29 November 2010 amending Decision 2007/441/EC 
authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council 
Directive 2006/112/EC on the common system of value added tax (OJ L 318, 4.12.2010, p. 45). 
Council Implementing Decision 2013/679/EU of 15 November 2013 amending Decision 2007/441/EC 
authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Council 
Directive 2006/112/EC on the common system of value added tax (OJ L 316, 27.11.2013, p. 37). 

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concerned.  Italy  should  therefore  be  authorised  to  apply  the  measure  for  a  further 
limited period, until 31 December 2019. 

The  Commission  informed  the  other  Member  States  by  letter  dated  22  June  2016  of 
the request made by Italy. By letter dated 23 June 2016, the Commission notified Italy 
that it had all the information necessary to consider the request. 

In the event that Italy requires a further extension beyond 2019, a report together with 
the  extension  request  should  be  submitted  to  the  Commission  no  later  than  1  April 
2019. 

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added tax. 

(4) 

(5) 

(6) 

(7) 

Decision 2007/441/EC should therefore be amended accordingly,  

HAS ADOPTED THIS DECISION:  

In Decision 2007/441/EC Articles 6 and 7 are replaced by the following: 

Article 1 

'Article 6 

Any request for the extension of the measures provided for in this Decision shall be submitted 
to the Commission by 1 April 2019. 

Any  request  for  the  extension  of  those  measures  shall  be  accompanied  by  a  report  which 
includes a review of the percentage restriction applied on the right to deduct VAT charged on 
expenditure on motorised road vehicles not wholly used for business purposes.'; 

This Decision shall expire on 31 December 2019.'. 

Article 7 

This Decision is addressed to the Italian Republic. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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