Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Kingdom of the Netherlands to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-10-03
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Netherlands, VAT, derogation from EU law, provision of services, taxpayer, telecommunications

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   EUROPEAN COMMISSION  Brussels, 3.10.2017  COM(2017) 561 final 2017/0243 (NLE)   Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Kingdom of the Netherlands 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  11  July  2017,  the  Netherlands  requested  a 
derogation  from  Article  193  of  the  VAT  Directive  in  order  to  apply  the  reverse  charge 
mechanism  to  supplies of telecommunication services. In accordance with  Article 395(2) of 
the  VAT  Directive,  the  Commission  informed  the  other  Member  States  by  letter  dated  5 
September 2017 of the request made by the Netherlands. By letter dated 6 September 2017, 
the Commission notified the Netherlands that it had all the information necessary to consider 
the request. 

1. 

• 

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  199a  of  the  VAT  Directive  Member  States  may  provide  that  the  person 
liable for payment of VAT on supplies listed in this Article is the taxable person to whom the 
supply  is  made  (the  reverse  charge  mechanism).  Under  the  reverse  charge  procedure,  the 
taxable person, to whom the supplies are made, becomes liable for the payment of VAT. This 
taxable person, provided he  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. Telecommunication services are included in point (g) of Article 199a.  

The Netherlands do not make use of the option of Article 199a (g) of the VAT Directive and 
do not apply the reverse charge mechanism to telecommunication services. However, due to 
the recently discovered fraud in the sector of telecommunication services in the Netherlands, 
the  latter  Member  State  would  like  to  introduce  the  reverse  charge  mechanism  to  domestic 
supplies of telecommunication services.  

Following Article 199a of the VAT Directive, the reverse charge mechanism may be applied 
until 31 December 2018 and for a minimum period of two years. As the condition of two year 
period is not fulfilled, the Netherlands cannot apply the reverse charge mechanism based on 
this Article.  

Consequently, the Netherlands requests a derogation from Article 193 of the VAT Directive 
to be authorised to apply the reverse charge mechanism to the supplies of telecommunication 
services based on Article 395 of the VAT Directive.  

The  aim  of  the  requested  derogation  is  to  prevent  the  VAT  fraud  in  the  sector  of 
telecommunication  services.  Although  the  supplies  of  telecommunication  services  are 
susceptible  to  fraud  and  are  being  closely  monitored  by  the  Netherlands,  they  recently 
discovered fraudulent schemes of trade in call minutes involving a number of missing traders 
and buffer companies, including traders established in third countries. These schemes result in 
a significant loss of VAT revenue.  

Based  on  the  information  submitted  by  the  Netherlands,  the  conventional  methods  of  fraud 
detection and prevention are not effective, as the services involved are supplied from outside 

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the EU and are not mentioned in any register or listing. The payments are made via payment 
platforms  at  bank  accounts  outside  the  EU  making  the  transactions  more  difficult  to  detect 
and  making  it  impossible  to  obtain  information  from  banks.  The  Netherlands  point  out  that 
without a reverse charge for the services concerned the tax loss will increase exponentially.  

Telecommunication  services  are  considered  to  be  susceptible  to  fraud  and  are  included  in 
Article  199a  (g)  of  the  VAT  Directive.  If  the  condition  regarding  the  minimum  period  of 
application  was  fulfilled,  the  Netherlands  would  be  able  to  rely  on  the  latter  Article  for  the 
application of the reverse charge mechanism.  

It  is  proposed  to  grant  the  derogation  for  the  period  of  validity  of  Article  199a  of the  VAT 
Directive. The derogation is thus proposed until 31 December 2018, i.e. the date of expiry of 
Article 199a of the VAT Directive.  

• 

Consistency with existing policy provisions in the policy area 

Based  on  Article  199a  (g)  of  the  VAT  Directive  the  reverse  charge  mechanism  may  be 
applied to the supplies of telecommunication services. A few Member States apply the reverse 
charge  relying  on  this  provision1.  If  the  condition  of  the  minimum  period  of  two  years  was 
fulfilled,  the  Netherlands  could  apply  the  reverse  charge  mechanism  to  telecommunication 
services without requesting a derogation based on Article 395 of the VAT Directive.  

The  proposed  measure  is,  therefore,  consistent  with  the  existing  provisions  of  the  VAT 
Directive.  

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. 

1 

See list of notifications of the VAT Committee: 
http://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/vat/key_docume
nts/vat_committee/notifications.pdf 

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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 the Netherlands 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 telecommunication. The reverse charge mechanism should help the 
Netherlands  to  stop  further  spreading  of  the  recently  discovered  VAT  fraud  and  to  prevent 
fraud  in  supplies  of  telecommunication  services.  Consequently,  the  derogating  measure  will 
have a potential positive impact.  

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

4. 

BUDGETARY IMPLICATIONS 

The proposal has no negative implication for the EU budget.  

5. 

OTHER ELEMENTS 

The 

proposal 

includes 

a 

sunset 

clause 

set 

at 

31  December 

2018.

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2017/0243 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Kingdom of the Netherlands 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 tax2, and in particular Article 395(1) 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. 

Pursuant  to Article 199a (g) of the VAT  Directive,  Member States  may provide  that 
the person liable for payment of VAT on supplies of telecommunication services is the 
taxable  person  to  whom  the  supply  is  made  (the  reverse  charge  mechanism).  The 
Netherlands do not make use of this option.  

Due to the recently discovered fraud in the sector of telecommunication services in the 
Netherlands,  the  latter  Member  State  would  like  to  introduce  the  reverse  charge 
mechanism to domestic supplies of telecommunication services.  

Following Article 199a of the VAT Directive, the reverse charge mechanism may be 
applied  until  31  December  2018  and  for  a  minimum  period  of  two  years.  As  the 
condition of two year period is not fulfilled, the Netherlands cannot apply the reverse 
charge mechanism based on Article 199a (g) of the VAT Directive.  

Consequently,  by  letter  registered  with  the  Commission  on  11  July  2017  the 
Netherlands  requested  a  derogation  from  Article  193  of  the  VAT  Directive  to  be 
the  supplies  of 
authorised 
telecommunication services based on Article 395 of the VAT Directive.  

reverse  charge  mechanism 

to  apply 

the 

to 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed  the  other  Member  States  by  letter  dated  5  September  2017  of  the  request 
made by the Netherlands. By letter dated 6 September 2017, the Commission notified 
the Netherlands that it had all the information necessary to consider the request. 

The  aim  of  the  requested  derogation  is  to  prevent  the  VAT  fraud  in  the  sector  of 
telecommunication services. Although the supplies of telecommunication services are 
susceptible  to  fraud  and  are  being  closely  monitored,  the  Netherlands  recently 
discovered fraudulent schemes of trade in call minutes involving a number of missing 

2 

OJ 347, 11.12.2006, p.1. 

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traders  and  buffer  companies.  These  schemes  result  in  the  significant  loss  of  tax 
revenue.  

(8) 

Based on the information submitted by the Netherlands, the conventional methods of 
fraud detection and prevention are not  effective, as  the services  involved come from 
outside  the  EU  and  are  not  mentioned  in  any  register  or  listing.  The  payments  are 
made via payment platforms at bank accounts outside the European Union making the 
transactions  more  difficult  to  detect  and  making  it  impossible  to  obtain  information 
from  banks.  The  Netherlands  point  out  that  without  a  reverse  charge  mechanism  for 
the services concerned the tax loss will increase exponentially.  

(9) 

The Netherlands should therefore be authorised to apply the reverse charge mechanism 
to supplies of telecommunication services for the period of validity of Article 199a of 
the VAT Directive. The derogation should be granted until 31 December 2018.  

(10)  The  derogation  has  no  adverse  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,  the  Netherlands  are 
authorised to designate the recipient of the supply as the person liable to pay VAT to the tax 
authorities in the case of supplies of telecommunication services.  

Article 1 

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

This Decision shall expire on 31 December 2018. 

Article 2 

This Decision is addressed to the Kingdom of the Netherlands. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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