Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Poland to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-08-23
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Poland, VAT, basis of tax assessment, computer equipment, derogation from EU law, supply, tax offence

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   EUROPEAN COMMISSION  Brussels, 23.8.2017  COM(2017) 451 final 2017/0205 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Poland to introduce a special measure derogating from Article 193 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 tax (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 7 October 2016, Poland requested a derogation 
from  Article  193  of  the  VAT  Directive  in  order  to  apply  the  reverse  charge  mechanism  to 
hard  drives  such  as  solid-state  drives  (SSDs))  and  hard  disk  drives  (HDDs).  In  accordance 
with Article 395(2) of the VAT Directive, the Commission informed the other Member States 
by letters dated 12 and 13 July 2017 of the request made by Poland. By letter dated 13 July 
2017, the Commission notified Poland that it had all the information necessary to consider the 
request. 

1. 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

As  a  general  rule,  Article  193  of  the  VAT  Directive  stipulates  that  the  taxable  person 
supplying goods or services is normally liable to pay value added tax (VAT). 

Pursuant to Article 395 of the VAT Directive, Poland requests a derogation from Article 193 
of the VAT Directive to be authorised to apply the reverse charge mechanism to supplies of 
all  hard  drives  (including  SSDs  and  HDDs)  which  are  not  covered  by  Article  199a  of  the 
VAT  Directive.  Under  this  procedure,  the  taxable  person,  to  whom  the  supplies  are  made, 
becomes liable for the payment of  VAT. This taxable person, provided it has a full right of 
deduction,  would  simultaneously  declare  and  deduct  the  VAT  corresponding  to  the  supply, 
thus leading to no effective payment of VAT to the Treasury.  

Poland requests the derogation to prevent further spreading of the VAT fraud in the sector of 
hard  drives.  A  number  of  electronic  products  have  been  covered  in  Poland  by  the  reverse 
charge  mechanism  based  on  Article  199a  of  the  VAT  Directive  (smart  phones,  laptops, 
gaming consoles, etc. and recently processors). According to Poland, after the introduction of 
the reverse charge mechanism to supplies of the latter products, hard drives became another 
commodity in the category of electronic products used for VAT fraud. A growing practice of 
VAT  fraud  appeared  on  the  hard  drive  market  through  the  use  of  the  "missing  trader" 
mechanism (MTIC). The scale and scope of this practice has a direct, very negative impact on 
distributors not participating in the fraud and it leads to the decrease of VAT revenues.  

Based  on  the  information  submitted  by  Poland,  the  fraud  mechanism  consists  in  fraudulent 
operators  registering  entities  at  a  specified  address  and  for  a  period  of  time  submitting  tax 
returns.  These  entities  wait  for  a  right  moment  to  perform  a  few  large  domestic  sales, 
collecting the VAT from their customers and close their business without paying VAT due to 
the budget. It is impossible in the majority of cases to audit the entities given the problems in 
finding  their  actual  place  of  business  and  people  involved  in  the  activities  due  to  the 
phenomenon  of  virtual  offices,  the  frequent  changes  of  the  registered  office,  the  lack  of 
documents regarding the performed transactions, etc.  

Poland undertook a number of measures to tackle and prevent such types of fraud (reform of 
the tax administration to focus resources on fight against fraud, introduction of Single Audit 
File,  obligatory  monthly  VAT  returns,  introduction  of  administrative  sanctions,  etc.)  and 

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further reforms are being undertaken (e.g. voluntary system of split payment). However, until 
the measures bring effective results, Poland considers that additional support, in the form of a 
temporary  measure  such  as  the  introduction  of  the  domestic  reverse  charge  mechanism,  is 
necessary.  

It is proposed to grant the derogation from 1 January 2018 until 31 December 2020. As until 
the  expiry  of  the  derogation,  the  measures  undertaken  by  Poland  should  bring  the  expected 
results, Poland will not need any longer to derogate from Article 193 of the VAT Directive 
with regards to the supplies of hard drives. A renewal of the derogation should therefore not 
be necessary.  

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 proposal 
falls under the exclusive competence of the Union. The subsidiarity principle therefore 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 prevent certain forms of tax evasion or avoidance in a specific sector.  

• 

Choice of the instrument 

Under  Article  395  of  the  VAT  Directive,  derogation  from  the  common  VAT  rules  is  only 
possible  with  the  authorisation  of  the  Council  acting  unanimously  on  a  proposal  from  the 
Commission.  Moreover,  a  Council  Decision  is  the  most  suitable  instrument  since  it  can  be 
addressed to individual Member States. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

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

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The  proposal  for  Implementing  Decision  aims  at  preventing  certain  forms  of  tax  evasion  or 
avoidance in the sector of hard drives. The reverse charge mechanism should help Poland to 
stop  further  spreading  of  the  fraud  and  to  prevent  VAT  fraud  in  hard  drives'  sector. 
Consequently, the derogating measure will have a potential positive impact.  

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

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4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication for the EU budget.  

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause set at 31 December 2020. 

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2017/0205 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Poland to introduce a special measure derogating from 
Article 193 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 tax1, and in particular Article 395 thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Article 193 of Directive 2006/112/EC provides that the taxable person  supplying the 
goods or services is, as a general rule, liable for the payment of value added tax (VAT) 
to the tax authorities. 

By letter registered with the Commission on 7 October 2016, Poland has requested a 
derogation  from  Article  193  of  Directive  2006/112/EC  in  order  to  apply  the  reverse 
charge mechanism to supplies of hard drives such as solid-state drives and hard disk 
drives.  

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed the other Member States by letters dated 12 and 13 July 2017 of the request 
made by Poland. By letter dated 13 July 2017, the Commission notified Poland that it 
had all the information necessary to consider the request. 

Hard drives, which are not covered by Article 199a of Directive 2006/112/EC, became 
another  commodity  in  the  category  of  electronic  products  used  for  VAT  fraud  in 
Poland.  According  to  Poland,  an  increase  of  VAT  fraud  appeared  on  the  hard  drive 
market  through  the  use  of  the  "missing  trader"  mechanism..  The  scale  and  scope  of 
this practice has a direct, very negative impact on distributors not participating in the 
fraud and it leads to the decrease of VAT revenues. 

Poland  undertook  a  number  of  measures  to  tackle  and  prevent  the  VAT  fraud. 
However,  until  the  measures  bring  effective  results,  Poland  considers  that  additional 
support,  in  the  form  of  a  temporary  measure  such  as  the  introduction  of  the  reverse 
charge mechanism, is necessary. 

Poland  should  therefore  be  authorised  to  apply  the  reverse  charge  mechanism  to 
supplies of hard drives such as solid-state drives and hard disk drives from 1 January 
2018. The derogation should be limited in time until 31 December 2020.  

Until the expiry of the derogation the measures undertaken by Poland should prevent 
further spreading of the VAT fraud in the sector of hard drives and thus Poland will 
not  need  to  derogate  any  more  from  Article  193  of  Directive  2006/112/EC  with 

1 

OJ 347, 11.12.2006, p.1. 

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regards  to  these  supplies.  Poland  should  therefore  not  seek  the  renewal  of  the 
derogation.  

(8) 

The derogation has no impact on the Union's own resources accruing from VAT, 

HAS ADOPTED THIS DECISION:  

By  way  of  derogation  from  Article  193  of  Directive  2006/112/EC,  Poland  is  authorised  to 
designate the recipient as the person liable to pay VAT in the case of supplies of hard drives 
such as solid-state drives and hard disk drives.  

Article 1 

This Decision shall apply from 1 January 2018 and shall expire on 31 December 2020. 

Article 2 

This Decision is addressed to the Republic of Poland. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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