Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Estonia to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-02-07
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Estonia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 7.2.2017  COM(2017) 61 final 2017/0018 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Estonia to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 
Pursuant to Article 395(1) of Directive 2006/112/EC1 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 
derogating  from  the  Directive  in  order  to  simplify  the  procedure  for  charging  the  tax  or  to 
prevent certain types of tax evasion or avoidance. 

By letter registered with the Commission on 18 May 2016, Estonia requested an authorisation 
to apply, as of 1 January 2018, a measure derogating from Article 287 of the VAT Directive, 
allowing  Estonia  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher 
than EUR 40 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  4  October  2016  of  the  request  made  by  Estonia.  The 
Commission  notified  Estonia  by  letter  dated  5  October  2016  that  it  had  all  the  information 
necessary to consider the request. 

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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 inputs. 

Under Article 287(8) of the VAT Directive, Estonia may exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 16 000 at 
the conversion rate on the day of its accession. Estonia joined the euro on 1 January 2011. 

By raising the threshold for a person to be identified for VAT purposes from EUR 16 000 to 
EUR 40 000,  it  is  anticipated  that  the  administrative  burdens  on  businesses  eligible  for  the 
scheme,  and  in  particular  on  micro-enterprises,  will  reduce  as  a  result  of  the  measure,  by 
releasing them from many of the VAT obligations under the normal VAT arrangements, such 
as keeping VAT records or submitting VAT returns. 

Moreover, there will also be a reduction in the workload for the tax authorities. 

According to the Estonian authorities, the measure will have no significant impact on the total 
amount of VAT revenue collected at the final consumption stage. 

Persons  whose  turnover  does  not  exceed  the  threshold  will  still  have  the  option  to  be 
registered for VAT purposes. 

Consistency with existing policy provisions in the policy area 

• 
Similar  derogations  have  been  granted  to  other  Member  States.  Belgium2  and  Luxemburg3 
were  granted  a  threshold  of  EUR  25 000,  Poland4  a  threshold  of  EUR  40 000,  Lithuania5  a 

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OJ 347, 11.12.2006, p.1. 
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). 

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threshold  of  EUR  45 000,  Latvia6  and  Slovenia7  a  threshold  of  EUR 50 000,  Italy8  and 
Romania9 a threshold of EUR 65 000. 

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  Directive  on  a 
special  scheme  for  small  enterprises  are  currently  subject  to  review.  As  announced  in  the 
VAT  Action  Plan10,  and  the  2017  Commission  Work  Programme11,  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  allow  for  the  raising  of  the  threshold  up  to  EUR 40 000  as  of  1 
January  2018  until  the  earliest  of  31  December  2020  or  the  entry  into  force  of  a  Directive 
amending the provisions of the VAT Directive on a special scheme for small enterprises.  

• 

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  Europe12" 
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. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

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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). 
Council  Implementing  Decision  (EU)  2016/2090  of  21  November  2016  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 324, 30.11.2016, p. 7).  
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  2015/2089/EU  of  10  November  2015  amending  Implementing 
Decision  2013/54/EU  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  302, 
19.11.2015, p.107). 
Council Implementing Decision (EU) 2016/1988 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. 11). 
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). 
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. 
Commission  Work  Programme  2017  -  Delivering  a  Europe  that  protects,  empowers  and  defends, 
Strasbourg, 25.10.2016, COM(2016)710 final 
COM(2008) 394 of 25 June 2008. 

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• 

Subsidiarity (for non-exclusive competence)  

Considering  the  provision  of  the  VAT  Directive  on  which  the  proposal  is  based,  the 
subsidiarity principle does not apply. 

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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. 

Other  means  would  not  be  adequate  because  under  Article  395  of  the  VAT  Directive, 
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 
thus the most suitable instrument since it can be addressed to an individual Member State. 

3. 

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RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

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

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Collection and use of expertise 

There was no need for external expertise. 

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Impact assessment 

The proposal for a Council Implementing Decision aims at increasing the current exemption 
threshold  as  a  simplification  measure  which  removes  many  of  the  VAT  obligations  for 
businesses  operating  with  an  annual  turnover  no  higher  than  EUR 40 000.  It  will  therefore 
have  a  potential  positive  impact  on  the  reduction  of  administrative  burden  for  a  number  of 
taxable persons and, subsequently, on the tax administration. 

In 2015, there were 15 119 persons identified for VAT purposes with an annual turnover in 
the  range  EUR 16 001-40 000  (which  amounts  to  19.4 %  of  the  total  number  of  persons 
identified  for  VAT  purposes)  and  which  become,  in  addition,  eligible  for  VAT  exemption 
under  the  derogation.  According  to  the  Estonian  authorities,  around  3 000  taxable  persons 
within this group (3.8 % of the total number of current taxable persons) mainly sell items to 
final consumers. Nevertheless, the measure will have no significant impact on the total VAT 
revenue  collected  at  the  final  consumption  stage.  It  is  estimated  that  the  annual  state  VAT 
revenue might fall by EUR 6.6 million, which amounts to 0.39 % of the total VAT revenue. 

Persons whose taxable turnover does not exceed the threshold will not have to register to be 
identified  for  VAT  purposes,  and  thus  the  administrative  burden  on  them  will  reduce  as  a 
result of the measure, since they will not need to keep VAT records or submit a VAT return. 
There will also be a reduction in the workload for the tax authorities. 

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4. 

BUDGETARY IMPLICATIONS 

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

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause. 

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OJ L 155, 7.6.1989, p. 9–13. 

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2017/0018 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Estonia to apply a special measure derogating from Article 
287 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) 

(6) 

(7) 

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15 

By  letter  registered  with  the  Commission  on  18  May  2016,  Estonia  requested  an 
authorisation  to  apply  a  measure  derogating  from  Article  287  of  Directive 
2006/112/EC,  allowing  Estonia  to  exempt  from  VAT  taxable  persons  whose  annual 
turnover is no higher than EUR 40 000 as of 1 January 2018. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States by letter dated 4 October 2016 of the request made 
by  Estonia.  The  Commission  notified  Estonia  by  letter  dated  5  October  2016  that  it 
had all the information necessary to consider the request. 

Under  Article  287(8)  of  Directive  2006/112/EC,  Estonia  may  exempt  from  VAT 
taxable  persons  whose  annual  turnover  is  no  higher  than  the  equivalent  in  national 
currency of EUR 16 000 at the conversion rate on the day of its accession. 

The derogation requested is in line with the objectives of Commission Communication 
"Think small first" – a "Small Business Act" for Europe" 25 June 2008)15. 

Given that this derogating measure will result in reduced VAT obligations for smaller 
businesses,  Estonia  should  be  authorised  to  apply  the  measure  for  a  limited  period, 
until  31  December  2020.  Taxable  persons  should  still  be  able  to  opt  for  the  normal 
VAT arrangements. 

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  the  above-mentioned 
date. 

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

OJ L 347, 11.12.2006, p. 1. 
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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(8) 

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

HAS ADOPTED THIS DECISION:  

By way of derogation from point 8 of Article 287 of Directive 2006/112/EC, the Republic of 
Estonia  is  authorised  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no 
higher than EUR 40 000. 

Article 1 

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

Article 2 

This Decision shall apply from 1 January 2018 until 31 December 2020, 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 date is earlier. 

This Decision is addressed to the Republic of Estonia. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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