Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2013/678/EU authorising the Italian Republic to continue to apply a special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax
Date: 2016-10-07
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, derogation from EU law, small business, tax exemption

EUROPEAN 
COMMISSION 

Brussels, 7.10.2016  
COM(2016) 644 final 

2016/0314 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2013/678/EU authorising the Italian Republic to continue to apply a 
special measure derogating from Article 285 of Directive 2006/112/EC on the common 
system of value added tax 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Pursuant to Article 395(1) of 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  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  5  April  2016,  the  Italian  Republic  requested 
authorisation to continue to exempt from VAT taxable persons below a turnover threshold of 
EUR  65  000.  In  accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission 
informed  the  other  Member  States  by  letter dated  21  June  2016  of  the  request  made  by  the 
Italian Republic. By letter dated 22 June 2016, the Commission notified the Italian Republic 
that it had all the information necessary to consider the request. 

Consistency with existing policy provisions in the policy area 

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to 
apply  special  schemes  for  small  enterprises,  including  the  possibility  of  exempting  taxable 
persons below  a certain  annual turnover. This exemption implies that a taxable person does 
not  have  to  charge  VAT  on  his  supplies  and,  consequently,  he  cannot  deduct  VAT  on  his 
inputs. 

This measure was first introduced in accordance with the provisions of Article 14 of Council 
Directive 67/228/EEC2. However, those Member States which did not make use of the option 
provided  for  under  that  provision  could  subsequently,  according  to  Article  24(2)(b)  of 
Directive 77/388/EEC3 now recast as the first paragraph of Article 285 of the VAT Directive, 
only exempt taxable persons from VAT whose annual turnover is no higher than EUR 5 000. 
The  Italian  Republic  did  not  make  use  of  the  option  provided  by  Article  14  of  Council 
Directive 67/228/EEC. 

Because  of  a  significant  number  of  taxable  persons  with  a  very  low  annual  turnover,  the 
Italian  Republic  requested  a  derogation  in  2007  in  order  to  simplify  VAT  obligations  for 
small  businesses  and  to  ease  the  collection  of  the  tax  for  the  national  tax  administration  by 
exempting  taxable  persons  whose  annual  turnover  is  no  higher  than  EUR  30  000.  This 
derogation  was  authorised  by  Council  Decision  2008/737/EC4  until  31  December  2010,  
subsequently extended by Council Decision 2010/688/EU5 until 31 December 2013 and then 

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OJ L 347, 11.12.2006, p. 1. 
Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member 
States concerning turnover taxes - Structure and procedures for application of the common system of 
value added tax (OJ 71, 14.4.1967, p. 1303). 
Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member 
States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ 
L 145, 13.6.1977, p. 1). 
Council  Decision  2008/737/EC  of  15  September  2008  authorising  the  Italian  Republic  to  apply  a 
measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added 
tax (OJ L 249, 18.9.2008, p. 13). 
Council  Implementing  Decision  2010/688/EU  of  15  October  2010  authorising  the  Italian  Republic  to 
continue  to  apply  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 294, 12.11.2010, p.12).  

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until 31 December 2016 by Council Decision 2013/678/EU6 which, in addition, increased the 
maximum  authorised  exemption  threshold  to  EUR  65  000  of  annual  turnover.  The  Italian 
Republic  has  now  requested  that  the  measure,  which  is  optional  for  taxable  persons,  be 
extended until 31 December 2019. The Italian Republic has also requested the Commission to 
consider an extension until 31 December 2022.  

From information provided by the Italian Republic it appears that the impact of the measure 
on tax revenue collected at the final consumption stage will be negligible. 

Derogations  are  normally  granted  for  a  limited  time  as  to  allow  an  assessment  whether  the 
special measure is appropriate and effective. Moreover, it should be noted that the provisions 
of Articles 281 to 294 of Directive 2006/112/EC on special scheme for small enterprises are 
currently  subject  to  review.  As  announced  in  the  VAT  Action  Plan7,  the  Commission's 
proposal in the form of a comprehensive simplification package is due to be presented by the 
end of 2017. 

It  is  therefore  proposed  to  extend  the  derogation  for  another  period  until  the  earliest  of  31 
December  2019  or  the  entry  into  force  of  a  Directive  amending  the  provisions  of  Directive 
2006/112/EC  on  special  scheme  for  small  enterprises.  Due  to  the  ongoing  review,  the 
extension  of  the  derogation  until  31  December  2022  should  not  be  considered.  Taxable 
persons should continue to be able to opt for the normal VAT arrangements. 

Consistency with other Union policies 

The  derogation  requested  is  in  line  with  the  objectives  of  the  Commission  Communication 
“Think Small First” – A “Small Business Act” for Europe8, which calls on the Member States 
to take account of the special features of SMEs when designing legislation and, therefore, to 
simplify the existing regulatory environment. Moreover, no problems have been identified in 
the application of the measure, nor in monitoring of the businesses it covers. 

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 
subsidiarity principle 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 simplify VAT obligations for small businesses and to ease the collection of the 
tax for the national tax administration.  

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Council Implementing Decision 2013/678/EU of 15 November 2013 authorising the Italian Republic to 
continue  to  apply  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 316, 27.11.2013, p. 35). 
Communication from the Commission to the European Parliament, the Council and the European and 
Social  Committee  on  an  action  plan  on  VAT,  Towards  a  single  EU  VAT  area  –  Time  to  decide, 
Brussels, 7.4.2016, COM(2016)148 final. 
COM(2008) 394 of 25 June 2008. 

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• 

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 

Not relevant. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The decision aims at continuing a simplification measure providing for exemption from VAT 
for businesses operating below an annual turnover of EUR 65 000. This significantly reduces 
administrative burden for SMEs and tax authorities. On the other hand, less VAT would be 
paid. It should also be noted that the simplified regime is optional. 

Because of the narrow scope of the derogation, and its limited application in time, the impact 
will in any case be limited.   

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  budget  of  the  Union  because  Italy  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC, 
EURATOM) 1553/899. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause. 

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Council  Regulation  (EEC,  Euratom)  No  1553/89  of  29  May  1989  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 
9). 

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2016/0314 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2013/678/EU authorising the Italian Republic to continue to apply a 
special measure derogating from Article 285 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 tax10, and in particular Article 395 thereof,  

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

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By Council Decision 2008/737/EC11, Italy was authorised, as a derogating measure, to 
exempt taxable persons whose annual turnover is no higher than EUR 30 000 until 31 
December  2010.  The  application  of  this  derogation  was  subsequently  extended  until 
31 December 2013 by Council Decision 2010/688/EU12 and until 31 December 2016 
by  Council  Decision  2013/678/EU13  which,  in  addition,  increased  the  maximum 
authorised exemption threshold to EUR 65 000 of annual turnover. 

In  a  letter  registered  with  the  Commission  on  5  April  2016  Italy  requested 
authorisation for a measure derogating from Article 285 of Directive 2006/112/EC in 
order to continue to exempt certain taxable persons whose annual turnover falls below 
EUR  65  000.  Through  that  measure,  those  taxable  persons  would  be  exempt  from 
value added tax (VAT). 

The  Commission  informed  the  other  Member  States  by  letter  dated  21  June  2016  of 
the request made by Italy. By letter dated 22 June 2016 the Commission notified Italy 
that it had all the information necessary to consider the request. 

A  special  scheme  for  small  enterprises  is  already  available  to  Member  States  under 
Title XII of Directive 2006/112/EC. The extended measure derogates from Article 285 
of that Directive in its application to Italy only insofar as the annual turnover threshold 
for the scheme is higher than the EUR 5 000 threshold. 

OJ L 347, 11.12.2006, p. 1. 
Council  Decision  2008/737/EC  of  15  September  2008  authorising  the  Italian  Republic  to  apply  a 
measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added 
tax (OJ L 249, 18.9.2008, p. 13).  
Council  Implementing  Decision  2010/688/EU  of  15  October  2010  authorising  the  Italian  Republic  to 
continue  to  apply  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 294, 12.11.2010, p.12).  
Council Implementing Decision 2013/678/EU of 15 November 2013 authorising the Italian Republic to 
continue  to  apply  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 316, 27.11.2013, p. 35). 

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(5) 

(6) 

(7) 

(8) 

(9) 

The derogation requested is in line with the objectives of Commission Communication 
"Think small first" – a "Small Business Act" for Europe" of 25 June 200814. 

Given  that  this  derogating  measure  has  resulted  in  reduced  VAT  obligations  for 
smaller  businesses,  Italy  should  be  authorised  to  apply  the  measure  for  a  further 
limited  period.  Taxable  persons  should  still  be  able  to  opt  for  the  normal  VAT 
arrangements. 

Derogations are normally granted for a limited time as to allow an assessment whether 
the special measure is appropriate and effective. Moreover, the provisions of Articles 
281  to  294  of  Directive  2006/112/EC  on  a  special  scheme  for  small  enterprises  are 
subject to review. The derogation requested should, therefore, be limited in time and 
accompanied by a sunset clause. 

From  information  provided  by  Italy,  the  increased  threshold  will  have  a  negligible 
impact  on  the  overall  amount  of  tax  revenue  collected  at  the  final  stage  of 
consumption. 

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

HAS ADOPTED THIS DECISION:  

In Decision 2013/678/EU Article 2 is replaced by the following  

Article 1 

This Decision shall take effect on the day of its notification. 

“Article 2 

This  Decision  shall  apply  from  1  January  2017  until  the  entry  into  force  of  a  Directive 
amending the provisions of Articles 281 to 294 of Directive 2006/112/EC on special scheme 
for small enterprises, or until 31 December 2019, whichever is the earlier.” 

This Decision is addressed to the Italian Republic. 

Done at Brussels, 

Article 2 

For the Council 
The President 

14 

Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 final.  

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