Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2013/677/EU authorising Luxembourg to apply a measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-01-06
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Luxembourg, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 6.1.2017  COM(2016) 833 final 2016/0417 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2013/677/EU authorising Luxembourg to apply a measure derogating from Article 285 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 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  26 September 2016,  Luxembourg  requested  an 
authorisation  to  continue  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is 
below a certain threshold and to increase this threshold up from EUR 25 000 to EUR 30 000. 
In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letters dated 4 October 2016 of the request made by Luxembourg. By letter 
dated  5 October 2016,  the  Commission  notified  Luxembourg  that  it  had  all  the  information 
necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

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 or she cannot deduct the VAT 
on his or her 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/EEC 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 
or the equivalent in national currency. Pursuant to the second paragraph of Article 285 of the 
VAT Directive , those Member States may also grant graduated tax relief to taxable persons 
whose annual turnover exceeds the ceiling fixed by them for its application. 

Until  the  end  of  2012,  Luxembourg  exempted  from  VAT  taxable  persons  whose  annual 
turnover  was  no  higher  than  EUR 10 000.  Furthermore,  Luxembourg  informed  the 
Commission that it made use of the option pursuant to the second paragraph of Article 285 of 
Directive  2006/112/EC  by  granting  graduated  tax  relief  to  taxable  persons  whose  annual 
turnover was between EUR 10 000 and EUR 25 000. 

The  application  of  the  increased  exemption  threshold  was  appropriate  to  simplify  the  VAT 
system for small enterprises by significantly reducing the burdens on those businesses eligible 
for the scheme by releasing them from many of the VAT obligations under the normal VAT 
arrangements  So  Luxembourg  requested  and  obtained  a  derogation  to  apply  a  turnover 
threshold of EUR 25 000 as regards the exemption scheme for small businesses whilst at the 
same time abolishing the application of the graduated tax relief.  

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2 

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). 

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This derogation was authorised by Council Decision 2013/677/EU3 until 31 December 2016. 

In  order to  maintain  its  value  in  real terms  and,  therefore, the  full  benefit  of  its  simplifying 
effect in time, Luxembourg is also seeking permission to revise the current threshold upwards 
in accordance with an indexing system. 

Therefore, Luxembourg has now requested that the measure be extended as of 1 January 2017 
and in addition, that the maximum authorised exemption threshold would be increased up to 
EUR 30 000 of annual turnover.  

According to the Luxembourg authorities, in line with Article 395(1) second subparagraph of 
the  VAT  Directive,  the special  measure  pursued  would  only  have  a  negligible  effect  on the 
overall  amount  of  VAT  revenue  collected  at  the  stage  of  final  consumption  (not  more  than 
0.12%). Via this demand, Luxembourg wants to simplify the burden on business as well as to 
stimulate the development of such small businesses. At the same time, Luxembourg wants to 
reduce  the  burden  on  the  tax  administration,  by  limiting  the  need  to  control  small  taxable 
persons,  which  is  relatively  costly  in  comparison  to  the  amount  of  VAT  at  stake,  and  to 
strengthen  its  control  activities  towards  larger  taxable  persons.  That  is  in  accordance  with 
Article 395(1) first subparagraph of the VAT Directive which states that Member States may 
be  authorised  to  introduce  special  measures  for  derogation  from  the  provisions  of  the  VAT 
Directive in order to simplify the procedure for collecting VAT.  

In  this  context,  it  is  to  be  noted  that  the  measure  is  and  will  remain  optional  for  taxable 
persons. 

Luxembourg did not mention a deadline for this derogation. However, derogations from the 
VAT  Directive  should  always  be  limited  in  time  so  that  their  effects  can  be  assessed. 
Moreover,  the  provisions  of  Articles  281  to  294  of  the  VAT  on  special  scheme  for  small 
enterprises  are  currently  subject  to  review.  As  announced  in  the  VAT  Action  Plan4,  the 
Commission's  proposal  in  the  form  of  a  comprehensive  simplification  package,  including  a 
Directive,  amending  the  provisions  of  the  VAT  Directive  on  a  special  scheme  for  small 
enterprises, 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  the  VAT 
Directive  on  a  special  scheme  for  small  enterprises.  It  is  within  the  discretion  of  the 
Luxembourgish authorities to decide to what extent and whether or not to use an indexation 
system, in respect of the derogation applying up to EUR 30 000. 

Consistency with existing policy provisions in the policy area 

• 
Similar  derogations  have  been  granted  to  other  Member  States.  Belgium5  was  granted  a 
threshold of EUR 25 000, Poland6 a threshold of EUR 30 000, Lithuania7 a threshold of EUR 

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Council  Implementing  Decision  2013/677/EU  of  15  November  2013  authorising  Luxembourg  to 
introduce  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. 33). 
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. 
Council  Implementing  Decision  (EU)  2015/2348  of  10  December  2015  amending  Implementing 
Decision 2013/53/EU authorising the Kingdom of Belgium  to introduce a special measure derogating 
from  Article  285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  330, 
16.12.2015, p. 51). 
Council  Implementing  Decision  2015/1173/EU  of  14  July  2015  amending  Decision  2009/790/EC 
authorising  the  Republic  of  Poland  to  apply  a  measure  derogating  from  Article  287  of  Directive 
2006/112/EC on the common system of value added tax (OJ L 189, 17.7.2015, p. 36). 

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45 000, Latvia8 and Slovenia9 a threshold of EUR 50 000, Italy10 and Romania11 a threshold 
of EUR 65 000. 

• 

Consistency with other Union policies 

The  measure  is  in  line  with  the  Union's  objectives  for  small  businesses,  as  laid  out  in 
Commission  Communication  "Think  small  first"  –  a  "Small  Business  Act"  for  Europe"12 
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. 

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. simplification for an additional number of small taxable persons and for the tax 
administration. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

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. 

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Council  Implementing  Decision  2014/795/EU  of  7  November  2014  extending  the  application  of 
Implementing  Decision  2011/335/EU  authorising  the  Republic  of  Lithuania  to  apply  a  measure 
derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ 
L 330, 15.11.2014, p. 44). 
Council Implementing Decision 2014/796/EU of 7 November 2014 authorising the Republic of Latvia 
to  apply a  measure  derogating  from  Article  287 of Directive  2006/112/EC on  the  common  system  of 
value added tax (OJ L 330, 15.11.2014, p. 46). 
Council Implementing Decision 2013/54/EU of 22 January 2013 authorising the Republic of Slovenia 
to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common 
system of value added tax (OJ L 22, 25.1.2013, p.15). 
Council Implementing Decision 2016/1988/EU of 8 November 2016 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 306, 15.11.2016, p. 1). 
Council  Implementing  Decision  2014/931/EU  of  16  December  2014  extending  the  application  of 
Implementing  Decision  2012/181/EU  authorising  Romania  to  introduce  a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  365, 
19.12.2014, p. 145). 
COM(2008) 394 of 25 June 2008. 

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3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

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

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The  proposal  for  a  Council  Implementing  Decision  aims  at  extending  a  simplification 
measure which removes many of the VAT obligations for businesses operating with an annual 
turnover  no  higher  than  EUR  30  000.  This  will  have  a  potential  positive  impact  on  the 
reduction  of  administrative  burden  for  an  additional  970  taxable  persons,  which  represents 
1.2%  of  the  taxable  persons  currently  registered  for  VAT  and,  subsequently,  on  the  tax 
administration. The budgetary impact in terms of VAT revenue for Luxembourg is estimated 
at not more than 0.12% of VAT revenue collected. 

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Luxembourg  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) 1553/8913. 

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OJ L 155, 7.6.1989, p. 9–13. 

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2016/0417 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2013/677/EU authorising Luxembourg to apply a 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 tax14, 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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16 

Under  Article 285  of  Directive  2006/112/EC,  Member  States,  which  have  not 
exercised  the  option  under  Article 14  of  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 tax15, may exempt from VAT taxable persons whose annual turnover is no 
higher  than  EUR 5 000  or  the  equivalent  in  national  currency.  They  may  also  grant 
graduated tax relief to taxable persons whose annual turnover exceeds the ceiling fixed 
by them for its application. 
By  Council  Decision  2013/677/EU16,  Luxembourg  was  authorised,  as  a  derogating 
measure,  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher 
than EUR 25 000 until 31 December 2016. 

By  letter  registered  with  the  Commission  on  26  September  2016,  Luxembourg 
requested  an  authorisation  for  a  measure  derogating  from  Article  285  of  Directive 
2006/112/EC in order to extend that exemption as of 1 January 2017 and, at the same 
time, to increase the threshold from EUR 25 000 to EUR 30 000.  

The Commission informed the other Member States by letters dated 4 October 2016 of 
the  request  made  by  Luxembourg.  By  letter  dated  5  October  2016,  the  Commission 
notified Luxembourg that it had all the information necessary to consider the request. 

From  the  information  provided  by  Luxembourg,  potentially  970  additional  taxable 
persons  could  make  use  of  this  measure  in  order  to  reduce  their  VAT  obligations 
referred to in Chapters 2 to 6 of Title XI of Directive 2006/112/EC. The burden on the 
tax  administration  to  collect  tax  and  audit  small  businesses  would  therefore  also  be 
decreased.  

OJ L 347, 11.12.2006, p.1. 
OJ 71, 14.4.1967, p. 1303/67 
Council  Implementing  Decision  2013/677/EU  of  15  November  2013  authorising  Luxembourg  to 
introduce  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. 33). 

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(6) 

(7) 

(8) 

(9) 

Given  that  the  derogation  granted  to  Luxembourg  will  result  in  reduced  VAT 
obligations for the small businesses, whilst the latter may still opt for the regular VAT 
arrangements in accordance with Article 290 of Directive 2006/112/EC, Luxembourg 
should be authorised to apply the increased threshold until 31 December 2019.  

Derogations are normally granted for a limited time as to allow an assessment whether 
the  special  measure  is  appropriate  and  effective.  The  derogation  requested  should, 
therefore,  be  limited  in  time  and  accompanied  by  a  sunset  clause.  Moreover,  the 
provisions  of  Articles  281  to  294  of  Directive 2006/112/EC  on  a  special  scheme  for 
small enterprises are subject to review and a directive, amending these provisions of 
the VAT Directive, might therefore enter into force before 31 December 2019. 

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

The derogation requested is in line with the objectives of Commission Communication 
"Think small first" – a "Small Business Act" for Europe" of 25 June 200817. 

(10)  The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  VAT 
because  Luxembourg  will  carry  out  a  compensation  calculation  in  accordance  with 
Article 6 of Council Regulation (EEC EURATOM) 1553/8918. 

(11)  Decision 2013/677/EU should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 and 2 of Decision 2013/677/EU are replaced by the following: 

Article 1 

By way of derogation from Article 285 of Directive 2006/112/EC, Luxembourg is authorised 
to exempt from VAT taxable persons whose annual turnover is no higher than EUR 30 000. 

'Article 1 

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

Article 2 

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

This Decision is addressed to the Grand Duchy of Luxembourg. 

Article 2 

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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.  
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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Done at Brussels, 

For the Council 
The President 

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