Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Latvia to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2017-11-10
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Latvia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 10.11.2017  COM(2017) 659 final 2017/0296 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Republic of Latvia 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/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 3 July 2017, Latvia requested an authorisation to 
continue  the  application  of  the  measure  derogating  from  Article  287  of  the  VAT  Directive 
allowing the exemption from VAT of taxable persons with an annual turnover not exceeding a 
specific  threshold.  After  a  reassessment  of  the  application  of  the  previous  threshold,  Latvia 
requests to decrease the exemption threshold from EUR 50 000 to EUR 40 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  13  September  2017of  the  request  made  by  Latvia.  By  letter 
dated  14  September  2017,  the  Commission  notified  Latvia  that  it  had  all  the  information 
necessary to consider the request. 

1. 

• 

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(10) of the VAT Directive, Latvia may exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 17 200 at 
the conversion rate on the day of its accession. By virtue of Council Implementing Decision 
2010/584/EU2  Latvia  was  authorised  to  apply  a  higher  threshold  and  thus  to  exempt  from 
VAT taxable persons with an annual turnover not exceeding EUR 50 000. This measure was 
extended by Council Implementing Decision 2014/796/EU3, which expires on 31 December 
2017. Latvia requests to extend the measure  as of 1 January 2018 and, at the same time, to 
decrease the exemption threshold from EUR 50 000 to EUR 40 000.  

From the information provided by Latvia,  lowering the VAT threshold from EUR 50 000 to 
EUR 40 000  would  result  in  an  increase  of  around  650  registered  VAT  taxable  persons, 
mainly  in  the  sectors  of  providing  legal  and  accounting  services,  retail  trade  operators 
excluding  cars  and  motorcycles  and  taxpayers  engaged  in  crop  and  animal  production, 
hunting and related service activities. 

The input tax of VAT payers whose annual turnover was no greater than EUR 40 000 in 2015 
generally  exceeded  the  VAT  payable  into  the  national  budget,  so  the  cost  to  the  State  of 
collecting  VAT  from  these  persons  would  exceed  the  expected  amount  of  revenue  to  be 
received. 

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OJ L 347, 11.12.2006, p. 1. 
Council Implementing Decision 2010/584/EU of 27 September 2010 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 256, 30.9.2010, p. 29). 
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).  

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Moreover, as Latvia's current threshold of EUR 50 000 is rather higher than in all benchmark 
countries,  in  particular  compared  to  neighbouring  countries  (EUR 45 000  in  Lithuania  and 
EUR 40 000 in Estonia) the VAT thresholds have been re-evaluated. Gains from reducing tax 
administration  and  compliance  costs  were  carefully  assessed  against  the  competitive 
distortions stemming  from the difference in treatment among taxpayers on both sides of the 
VAT threshold.  

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

Considering  that  Latvia  has  been  authorised  to  exempt  from  VAT  taxable  persons  with  an 
annual turnover not exceeding a threshold of EUR 50 000 for seven years and that it has re-
evaluated the situation, a lower threshold seems to be acceptable.  It is therefore proposed to 
allow  Latvia  to  lower  the  exemption  threshold  for  SMEs  from  EUR 50 000  to  EUR 40 000 
until  the  earliest  of  31  December  2020  or  the  entry  into  force  of  a  Directive  on  the  annual 
turnover thresholds below which taxable persons may be exempt from VAT. 

Consistency with existing policy provisions in the policy area 

• 
Similar  derogations  have  been  granted  to  other  Member  States.  Belgium4  was  granted  a 
threshold of EUR 25 000, Luxembourg5 was granted a threshold of EUR 30 000, Poland6 and 
Estonia7  a  threshold  of  EUR 40 000,  Lithuania8  a  threshold  of  EUR 45 000,  Slovenia9  a 
threshold of EUR 50 000 and Italy10 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  Plan11,  and  the  2017  Commission  Work  Programme12,  the  Commission's 

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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 (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).  
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 (EU) 2017/563 of 21 March 2017 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 (OJ L 80, 25.3.2017, p. 33). 
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  (EU)  2015/2089  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  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). 
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. 

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proposal in the form of a comprehensive simplification package is due to be presented by the 
end of 2017. 

It is therefore proposed to extend the measure 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"13 
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. 

• 

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 
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 Latvia and concerns only this Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

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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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• 

Impact assessment 

The  proposal  for  a  Council  Implementing  Decision  authorises  Latvia  to  continue  to  exempt 
from  VAT  taxable  persons  whose  annual  turnover  does  not  exceed  EUR 40 000.  Persons 
whose  taxable  turnover  does  not  exceed  the  threshold  do  not  have  to  register  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.  

According  to  Latvia,  the  EUR 40 000  threshold  will  not  have  any  substantial  impact  on  the 
collection of VAT revenues. On the contrary, an analysis of the VAT declarations submitted 
by  economic  operators  with  an  annual  turnover  of  between  EUR 40 000  and  EUR 50 000 
shows that introducing a EUR 40 000 threshold for VAT registration will increase total VAT 
revenue by EUR 5.9 million. 

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Latvia  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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2017/0296 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Republic of Latvia 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 tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

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Under  Article  287(10)  of  Directive  2006/112/EC,  Latvia  may  exempt  from  value 
added  tax  (VAT)  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent in national currency of EUR 17 200 at the conversion rate on the day of its 
accession. 
By virtue of Council Implementing Decision 2010/584/EU2, Latvia was authorised, as 
a derogating measure, to exempt taxable persons whose annual turnover was no higher 
than  EUR 50 000  until  31  December  2013.  This  measure  was  extended  by  Council 
Implementing Decision 2014/796/EU3 and expires on 31 December 2017. 

By  letter  registered  with  the  Commission  on  3  July  2017,  Latvia  requested 
authorisation for a measure derogating from Article 287(10) of Directive 2006/112/EC 
in  order  to  continue  derogating  from  Article  287(10)  of  Directive  2006/112/EC  and 
also to decrease the exemption threshold to EUR 40 000. Through that measure, those 
taxable persons would be exempt  from certain or  all  of the obligations in  relation to 
VAT referred to in Chapters 2 to 6 of Title XI of Directive 2006/112/EC. 

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

Given that the decreased threshold should result in reduced VAT obligations and thus 
a  reduction  in  the  administrative  costs  for  small  enterprises,  Latvia  should  be 
authorised to apply the measure for a limited period. Taxable persons  should still be 
able to opt for the normal VAT arrangements. 

OJ 347, 11.12.2006, p.1. 
Council Implementing Decision 2010/584/EU of 27 September 2010 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 256, 30.9.2010, p. 29). 
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).   

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(6) 

(7) 

(8) 

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 therefore enter into force before the period 
of validity of the derogation expires. 

Based  on  information  provided  by  Latvia,  the  decreased  threshold  will  only  have  a 
negligible impact on the overall amount of tax revenue collected at the final stage of 
consumption. 

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added tax because Latvia will carry out a compensation calculation in accordance with 
Article 6 of Council Regulation (EEC EURATOM) 1553/894, 

HAS ADOPTED THIS DECISION:  

By way of derogation from Article 287(10) of Directive 2006/112/EC, the Republic of Latvia 
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  Articles  281  to  294  of  Directive  2006/112/EC  governing  the 
special scheme for small enterprises, whichever date is earlier.  

This Decision is addressed to the Republic of Latvia.  

Done at Brussels, 

Article 3 

For the Council 
The President 

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Council  Regulation  (EEC,  Euratom)  No  1553/89  of  29  May  1989  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 
9). 

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