Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Croatia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-06-08
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Croatia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 8.6.2017  COM(2017) 293 final 2017/0124 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Croatia to introduce 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/EC  of  28 November 2006  on  the  common 
system  of  value  added  tax1  (‘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  20  December  2016,  Croatia  requested  an 
authorisation to apply, as of 1 January 2018 to 31 December 2020, a measure derogating from 
Article  287  of  the  VAT  Directive,  allowing  Croatia  to  exempt  from  VAT  taxable  persons 
whose annual turnover is not higher than EUR 45 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letter dated 13 March 2017 of the request made by Croatia. By letter dated 
14 March 2017, the Commission notified Croatia 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  or  her  supplies  and,  consequently,  he  or  she  cannot  deduct 
VAT on the inputs. 

Under Article 287(19) of the VAT Directive, Croatia may exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at 
the conversion rate on the day of its accession (230 000 kuna). Croatia asked for the increase 
of this threshold to the equivalent in national currency of EUR 45 000, namely 300 000 kuna.  

Raising  the  threshold  is  expected  to  reduce  administrative  burden  and  tax  compliance  costs 
for  enterprises,  as  they  will  be  relieved  from  a  number  of  tax  obligations  such  as  filing  of 
VAT returns or keeping VAT records. It is also anticipated that the increase of the threshold 
will simplify the collection of the tax and reduce the workload for national tax administration.  

According  to  Croatia,  the  increase  of  the  threshold  will  have  no  important  impact  on  state 
revenues. Croatia estimates that the increase of the threshold will lead to the reduction of state 
budget revenues of approximately 0.22% of the total state budget revenues.  

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

Croatia  requested  the  application  of  the  threshold  of  the  equivalent  in  national  currency  of 
EUR 45 000 as from 1 January 2018 until 31 December 2020.  

Consistency with existing policy provisions in the policy area 

• 
Similar derogations have been granted to other Member States. Luxembourg2 was granted a 
threshold  of  EUR  40  000,  Belgium3  was  granted  a  threshold  of  EUR  25 000,  Poland4  a 

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OJ L 347, 11.12.2006, p. 1.  
Council Implementing Decision (EU) 2017/319 of 21 February 2017 amending Implementing Decision 
2013/677/EU 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 47, 24.2.2017, p. 7-8).  

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threshold  of  EUR  40 000,  Lithuania5  a  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 by Croatia up to the equivalent 
in national currency of EUR 45 000 as from 1 January 2018 until 31 December 2020 or until 
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  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. 

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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  2016/2090//EU  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  (EU)  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/EU  of  8  November  2016  amending  Implementing 
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 (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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2. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive.  

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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. 

• 

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. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Croatia 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 increases the threshold of annual turnover 
below which taxable persons may be exempted from VAT. It therefore extends the scope of 
the  simplification  measure  which  removes  many  of  the  VAT  obligations  for  businesses 
operating  with  an  annual  turnover  no  higher  than  the  equivalent  in  the  national  currency  of 
EUR 45 000.  

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.  This  will  have  a 
potential positive impact on the reduction of administrative burden for around 9 000 taxable 
persons representing around 5.8% of taxable persons currently registered for VAT in Croatia, 
and subsequently on tax administration.  

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The  budgetary  impact  in  terms  of  VAT  revenue  for  Croatia  is  estimated  at  not  more  than 
0.22% of total VAT revenue. 

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Croatia  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) 1553/89. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause. 

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2017/0124 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Croatia to introduce 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 tax13, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Under  Article  287(19)  of  Directive  2006/112/EC,  Croatia  may  exempt  from  VAT 
taxable  persons  whose  annual  turnover  is  no  higher  than  the  equivalent  in  national 
currency of EUR 35 000 at the conversion rate on the day of its accession. 

By letter registered with the Commission on 20 December 2016, Croatia requested an 
authorisation to introduce a special measure derogating from Article 287 of Directive 
2006/112/EC, allowing it to exempt from VAT taxable persons whose annual turnover 
is  no  higher  than  EUR 45 000  as  of  1  January  2018.  Croatia  has  requested  that  the 
corresponding  threshold,  which  is  established  at  EUR  35  000  pursuant  to  Article 
287(19), be increased to EUR 45 000. 

A  higher  threshold  for  the  special  scheme  for  small  enterprises  is  a  simplification 
measure, as it may significantly reduce the VAT obligations of small enterprises. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States by letter dated 13 March 2017 of the request made 
by Croatia. The Commission notified Croatia by letter dated 14 March 2017 that it had 
all the information necessary to consider the request. 

From  the  information  provided  by Croatia,  potentially  around  9  000 taxpayers  could 
make  use  of  the  measure  in  order  to  reduce  their  VAT  obligations  referred  to  in 
Chapter 2 of Title  XI of Directive 2006/112/EC. It would also reduce the burden on 
the tax administration and simplify the collection of the tax.  

Given  that  this  derogating  measure  will  result  in  reduced  VAT  obligations  for  small 
enterprises,  Croatia  should  be  authorised  to  apply  the  measure  for  a  limited  period. 
Taxable persons should still be able to opt for the normal VAT arrangements. 

As  Articles  281  to  294  of  Directive  2006/112/EC  governing  the  special  scheme  for 
small  enterprises are subject to  review, it is  possible that a directive amending those 
provisions of Directive 2006/112/EC will enter into force before the period of validity 
of the derogation expires. 

13 

OJ L 347, 11.12.2006, p. 1. 

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(8) 

(9) 

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

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added  tax,  because  Croatia  will  carry  out  a  compensation  calculation  in  accordance 
with Article 6 of Council Regulation (EEC EURATOM) 1553/89, 

HAS ADOPTED THIS DECISION:  

By way of derogation from Article 287(19) of Directive 2006/112/EC, Croatia is authorised to 
exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in 
national currency of EUR 45 000 at the conversion rate on the day of its accession. 

Article 1 

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, 
whichever date is the earlier. 

Article 2 

This Decision is addressed to the Republic of Croatia. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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