Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-09-25
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Romania, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 25.9.2017  COM(2017) 543 final 2017/0233 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 26(1)(a) and Article 168 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  derogating  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 5 April 2017, Romania requested an extension of 
the derogation from Article 168 of the VAT Directive in order to continue to restrict the right 
to deduct the input VAT on expenditure connected with motor vehicles. In accordance with 
Article 395(2) of the VAT Directive, the Commission informed the other Member States by 
letter dated 28 June 2017 of the request made by Romania. By letter dated 29 June 2017, the 
Commission  notified  Romania  that  it  had  all  the  information  it  considered  necessary  for 
appraisal of the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Articles 168 VAT Directive provides that a taxable person is entitled to deduct VAT charged 
on  purchases  made  for  the  purpose  of  taxed  transactions.  Article  26(1)(a)  of  the  same 
Directive  requires  the  use  of  goods  forming  part  of  the  assets  of  a  business  for  private 
purposes to be a supply of services for consideration if the VAT on the goods was eligible for 
deduction.  This  system  allows  for  the  recovery  of  initially  deducted  VAT  in  relation  to  the 
private use.  

In  the  case  of  passenger  cars,  this  system  is  difficult  to  apply,  in  particular  because  it  is 
difficult to identify the split between private and business use. Where records are kept, they 
add  an  additional  burden  to  both  the  business  and  the  administration  in  maintaining  and 
checking them.  

is  currently  authorised  on 

Romania 
the  basis  of  Council  Implementing  Decision 
2012/232/EU2 to restrict to 50 % the right to deduct VAT on the purchase, intra-Community 
acquisition,  importation,  hire  or  leasing  of  motorised  road  vehicles  as  well  as  expenditure 
related thereto. Some categories of vehicles were specifically excluded from this restriction, 
such as vehicles used exclusively for emergency, security or courier services, vehicles used by 
agents and taxis, vehicles used for instruction by driving schools, used for hire or leasing or 
used  as  commodities  for  trading  purposes.  At  the  same  time,  businesses  would  be  relieved 
from  accounting  from  tax  on  the  private  use.  The  period  of  validity  of  this  decision  was 
extended by Council Implementing Decision (EU) 2015/1563 until 31 December 2017.  

Romania  has  requested  to  prolong  the  authorisation  to  limit  the  initial  deduction  to  a  set 
percentage  and  in  turn  to  relieve  the  business  from  accounting  for  tax  on  the  private  use. 
Romania informed the Commission that the grounds for the prolongation of the measure are 
largely the same as described in the initial request. In accordance with Article 4(2) of Council 
Implementing Decision 2012/232/EU Romania has presented a report on the deduction limit 

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OJ L 347, 11.12.2006, p. 1. 
Council Implementing Decision 2012/232/EU of 26 April 2012 authorising Romania to apply measures 
derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of 
value added tax (OJ L 117, 1.5. 2012, p. 7).   
Council Implementing Decision (EU) 2015/156 of 27 January 2015 extending the period of validity of 
Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 
26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax (OJ L 26, 
31.1.2015, p. 27). 

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applied  by  Romania.  Romania  submits  that  the  measure  fulfilled  its  role  and  that  if  the 
measure were not prolonged, the tax evasion recorded in this area before the introduction of 
the measure would most probably re-appear. It also appears from the information provided by 
Romania that the limitation of 50% still corresponds to the actual circumstances and that this 
limit therefore should still be regarded as appropriate.  

The  derogation  should  be  limited  in  time  to  31  December  2020,  so  that  it  can  be  assessed 
whether the 50% restriction is still a correct reflection of the overall apportionment between 
business  and  private  use.  Any  extension  request  should  be  accompanied  by  a  report  which 
includes a review of the percentage applied and should be sent to the Commission with that 
request by 31 March 2020.  

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to the right of deduction have been granted to other Member 
States.  

Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on which the VAT is not deductible. Until such time, it authorises Member States to maintain 
exclusions  which  were  in  place  on  1  January  1979.  There  are  therefore  a  number  of  'stand 
still' provisions restricting the right to deduct VAT in relation to passenger cars.  

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  particular,  given  the 
potential for businesses to under declare their liability and the burdensome check of mileage 
data for tax authorities, the 50% restriction would  simplify the VAT collection in a specific 
sector. 

• 

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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3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

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

• 

Collection and use of expertise 

There was no need for external expertise.  

• 

Impact assessment 

The proposal is designed to counter VAT evasion and to simplify the procedure for charging 
tax and has, therefore, a potential positive impact for both businesses and administrations. The 
solution has been identified by Romania as a suitable measure and is comparable to other past 
and present derogations. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implication for the EU budget. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause; an automatic time limit which is set at 31 December 
2020. 

In case Romania would consider another extension of the derogating measure beyond 2020, a 
report  including  a  review  of  the  percentage  limit  should  be  submitted  to  the  Commission 
together with the extension request no later than 31 March 2020. 

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2017/0233 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2012/232/EU authorising Romania to apply measures 
derogating from Article 26(1)(a) and Article 168 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) 

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Article  168  of  Directive  2006/112/EC  establishes  a  taxable  person's  right  to  deduct 
value added tax (VAT) charged on supplies of goods and services received by him for 
the  purposes  of  his  taxed  transactions.  Article  26(1)(a)  of  that  Directive  contains  a 
requirement  to  account  for  VAT  when  a  business  asset  is  put  to  use  for  private 
purposes of the taxable person or his staff or, more generally, for purposes other than 
those of his business. 
Council  Implementing  Decision  2012/232/EU2  authorised  Romania,  until  31 
December 2014, to apply derogating measures pursuant to Article 395(1) of Directive 
2006/112/EC in order to implement a measure to limit the right of deduction of input 
VAT to 50% as regards purchase, intra-Community acquisition, importation, hire and 
lease  of  motor  vehicles, and  VAT  on  expenditure  related  to  such  vehicles,  including 
fuel, when the vehicles are not used exclusively for business purposes. The period of 
validity  of  Council  Implementing  Decision  2012/232/EU  was  extended  by  Council 
Implementing Decision (EU) 2015/1563 until 31 December 2017.  

By  letter  registered  with  the  Commission  on  5  April  2017,  Romania  requested 
authorisation  to  continue  to  apply  a  measure  derogating  from  Article  26(1)(a)  and 
Article  168  of  Directive  2006/112/EC  in  order  to  restrict  the  right  of  deduction  in 
relation to expenditure on certain motorised road vehicles not wholly used for business 
purposes.  

OJ L 347, 11.12.2006, p. 1.  
Council Implementing Decision 2012/232/EU of 26 April 2012 authorising Romania to apply measures 
derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of 
value added tax (OJ L 117, 1.5. 2012, p. 7).  
Council Implementing Decision (EU) 2015/156 of 27 January 2015 extending the period of validity of 
Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Articles 
26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax (OJ L 26, 
31.1.2015, p. 27). 

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(4) 

(5) 

(6) 

In  accordance  with  the  second  subparagraph  of  Article  395(2)  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letter  dated  28 
June  2017  of  the  request  made  by  Romania.  By  letter  dated  29  June  2017,  the 
Commission  notified Romania that  it had  all the information  it considered necessary 
for appraisal of the request. 

In  accordance  with  Article  4(2)  of  Council  Implementing  Decision  2012/232/EU 
Romania  submitted,  together  with  the  extension  request,  a  report to  the  Commission 
on  the  application  of  that  Council  Implementing  Decision.  Based  on  currently 
available  information,  Romania  submits  that  the  limit  of  50%  is  still  justifiable  and 
remains appropriate.  

The extension of these derogating measures should be limited in time to allow for an 
evaluation  of  their  effectiveness  and  of  the  appropriate  percentage.  Romania  should 
therefore be authorised to continue to apply the measures for a limited period, until 31 
December 2020. 

(7)  Where  Romania  considers  that  an  extension  of  the  authorisation  beyond  2020  is 
necessary, it should submit to the Commission a report which includes a review of the 
percentage limit applied together with the request for an extension by 31 March 2020. 

(8) 

(9) 

The derogation will only have a negligible effect on the overall amount of tax revenue 
collected  at  the  stage  of  final  consumption  and  will  have  no  adverse  impact  on  the 
Union’s own resources accruing from VAT. 

Council  Implementing  Decision  2012/232/EU  should, 
accordingly, 

therefore,  be  amended 

HAS ADOPTED THIS DECISION:  

Article 4 of Council Implementing Decision 2012/232/EU is replaced by the following: 

Article 1 

'Article 4 

1. 

2. 

1.  This  Decision  shall  expire  on  the  date  of  entry  into  force  of  Union  rules 
determining  the  expenditure  relating  to  motorised  road  vehicles  that  is  not  eligible 
for full deduction of VAT, or on 31 December 2020, whichever is the earlier. 

2. Any request for the extension of the measures provided for in this Decision shall 
be submitted to the Commission by 31 March 2020.  

Such  request  shall  be  accompanied  by  a  report  which  includes  a  review  of  the 
percentage  restriction  applied  on  the  right  to  deduct  VAT  on  the  basis  of  this 
Decision.' 

This Decision shall apply from 1 January 2018.  

Article 2 

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This Decision is addressed to Romania. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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