COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2017-01-19
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Slovakia, VAT, cattle, derogation from EU law, live animal, meat product, poultry, supply, swine, taxpayer

EUROPEAN 
COMMISSION 

Brussels, 19.1.2017  
COM(2017) 24 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 395 of Council Directive 2006/112/EC 

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   EN 

 
 
 
 
  
 
1. 

BACKGROUND 

By letter registered  with  the Commission  on 22 February 2016, Slovakia requested 
an  authorisation  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  4  November  2016  of  the  request 
made  by  Slovakia.  By  letter  dated  7  November  2016,  the  Commission  notified 
Slovakia  that  it  had  all  the  information  it  considered  necessary  for  appraisal  of  the 
request. 

Pursuant to Article 395 of Council Directive 2006/112/EC of 28 November 2006 on 
the  common  system  of  value  added  tax  (the  VAT  Directive),  the  Council,  acting 
unanimously on a proposal from the Commission, may authorise any Member State 
to introduce special measures for derogation from the provisions of this Directive, in 
order to simplify the procedure for collecting VAT or to prevent certain forms of tax 
evasion  or  avoidance.  As  this  procedure  provides  for  derogations  from  the  general 
principles of VAT, in accordance with the consistent rulings of the Court of Justice 
of  the  European  Union,  such  derogations  should  be  proportionate  and  limited  in 
scope. 

As  a  general  rule,  the  person  liable  for  the  payment  of  VAT  to  the  tax  authorities 
under  Article  193  of  the  VAT  Directive  is  the  taxable  person  supplying  the  goods. 
The purpose of the derogation requested by Slovakia is to place that liability on the 
taxable  person  to  whom  the  supplies  are  made  (the  so-called  reverse  charge 
mechanism),  in  the  case  of  particular  products,  notably  as  regards  certain  meat 
products, live bovine animals, swine and poultry. These particular goods covered by 
the Slovak request are listed in detail under point 3. 

According to Slovakia, a number of businesses within these trade sectors engage in 
tax  evasion  by  not  paying  VAT  to  the  tax  authorities  after  selling  the  products. 
However,  their  customers,  insofar  as  they  are  taxable  persons  with  a  right  of 
deduction, being in receipt of a valid invoice, remain entitled to a tax deduction. 

Therefore,  Slovakia  would  want  to  apply  the  reverse  charge  mechanism,  thus 
eliminating the possible fraud insofar as, in the absence of VAT being charged, the 
potential  missing  trader  would  not  be  able  to  keep  the  VAT  received  from  his 
customer. The taxable recipient, insofar as being a taxable person with a full right of 
deduction, would declare and deduct the VAT in the same return. This would have 
the effect of preventing this type of fraud and, therefore, further losses. 

2. 

REVERSE CHARGE 

The  person  liable  for  the  payment  of  VAT  pursuant  to  Article  193  of  the  VAT 
Directive is the taxable person supplying the goods or services. The purpose of the 
reverse charge mechanism is to shift that liability onto the taxable person to whom 
the supplies are made. 

Missing  trader  occurs  when  traders  evade  paying  VAT  to  the  tax  authorities  after 
selling  their  products.  In  the  most  aggressive  cases  of  such  tax  evasion,  the  same 
goods or services are, via a "carousel" scheme (which involves the goods or services 
being  traded  between  Member  States),  supplied  several  times  without  payment  of 
VAT to the tax authorities. By designating the person to whom the goods or services 
are supplied as the person liable for the payment of VAT in such cases, the reverse 
charge mechanism has particularly been found to eliminate the opportunity to engage 
in that form of tax evasion. 

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3. 

THE REQUEST 

Slovakia requests, under Article 395 of the VAT Directive, that the Council, acting 
upon a proposal of the Commission, authorises Slovakia to apply a special measure 
derogating from Article 193 of the VAT Directive as regards the application of the 
reverse charge mechanism in relation to supplies of the following goods: 

CN code1 

ex 0201 

ex 0202 

ex 0203 

ex 0207 

ex 0102 

ex 0103 

ex 0105 

Product 

Meat of bovine animals, fresh or chilled – just meat from 
domestic bovine animals 

Meat  of  bovine  animals,  frozen  –  just  meat  from  domestic 
bovine animals 

Meat  of  swine,  fresh,  chilled  or  frozen  –  just  meat  from 
domestic swine 

Meat and edible offal, of the poultry of heading 0105, fresh, 
chilled or frozen – just meat and edible offal of the domestic 
poultry 

Live bovine animals – just live domestic bovine animals 

Live swine – just live domestic swine 

Live  poultry,  that  is  to  say,  fowls  of  the  species  Gallus 
domesticus,  ducks,  geese,  turkeys  and  guinea  fowls  –  just 
live domestic poultry 

4. 

THE COMMISSION'S VIEW 

When  the  Commission  receives  requests  in  accordance  with  Article  395,  these  are 
examined  to  ensure  that  the  basic  conditions  for  their  granting  are  fulfilled  i.e. 
whether  the  proposed  specific  measure  simplifies  procedures  for  taxable  persons 
and/or  the  tax  administration  or  whether  the  proposal  prevents  certain  types  of  tax 
evasion  or  avoidance.  In  this  context,  the  Commission  has  always  taken  a  limited, 
cautious approach to ensure that derogations do not undermine the operation of the 
general VAT system, are limited in scope, necessary and proportionate. 

Any derogation from the system of fractionated payment can therefore not be more 
than  a  last  resort  and  emergency  measure  and  must  offer  guarantees  as  to  the 
necessity and exceptional nature of the derogation granted.  

Against  this  background,  it  should  be  recalled  that  it  has  been  the  Commission's 
policy  to  consider  derogations  on  the  reverse  charge  mechanism  only  when,  at  the 

1 

Combined nomenclature code established by Regulation (EEC) No 2658/87 

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same time, the goods at stake cannot reach the final consumption, a weak taxpayer is 
replaced  by  a  reliable  one,  there  is  no  risk  of  fraud  to  the  retail  level  or  to  other 
Member States that do not use the mechanism. 

In the  first  place,  it  is  the  Commission's view that the type of the various goods in 
question,  as  listed,  are  of  a  nature  which  should  make  auditing  possible  through 
conventional means without the need to implement the reverse charge mechanism. In 
this context, reference is made to a previous request for the pig-farming and animal 
fodder industry which contained certain products that are also covered by this request 
(COM(2013)148  of  19.3.2013  (in  response  to  a  request  from  Hungary))  (for 
comparable  Communications  see  e.g.  COM(2014)229  of  22.4.2014  ('sugar' 
(Hungary)), COM(2014) 623 of 10.10.2014 ('precious stones' (Estonia)). 

Further,  at  least  some  of  the  listed  products  could  be  intended  for  private 
consumption,  and  transferring  the  whole  VAT  liability  to  the  last  link  of  the  chain 
would  therefore  increase  the  risks.  As  previously  noted  in  relation  to  goods  in  the 
agricultural sector, a shift of fraud to other Member States exists. 

As  to  the  concrete  situation,  it  would  appear,  from  the  information  provided  by 
Slovakia,  that  one  of  the  main  problems  is  related  to  the  fact  that  untrustworthy 
persons  (straw  men)  are  nominated  in  prominent  functions  within  fraudulent 
companies  from  whom  it  would  be  impossible  to  obtain  relevant  cooperation  or 
which are even difficult to contact. It would however not appear that the application 
of the reverse charge mechanism would be the most appropriate measure to deal with 
this problem. 

5. 

CONCLUSION 

On the basis of the above-mentioned elements, the Commission objects to the request 
made by Slovakia. 

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