COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2018-01-03
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Romania, VAT, advertising, child care, derogation from EU law, means of agricultural production, medical centre, social facilities, subsidised housing, supply

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  EN 

   EUROPEAN COMMISSION  Brussels, 3.1.2018  COM(2017) 785 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC  
 
 
1. 

BACKGROUND 

By  letter  registered  with  the  Commission  on  26  April  2017,  Romania  requested 
based on Article 395 of the VAT Directive1 an authorisation to apply 0% VAT rate 
of  VAT  to  a  number  of  supplies  of  goods  and services.  In accordance  with  Article 
395(2) of the VAT Directive, the Commission informed the other Member States by 
letter  dated  4  October  2017  of  the  request  made  by  Romania.  By  letter  dated 
5 October 2017, the Commission notified Romania that it had all the information it 
considered necessary for appraisal of the request. 

Pursuant to Article 395 of the VAT Directive, the Council, acting unanimously on a 
proposal from the Commission, may authorise any Member State to introduce special 
measures for derogation from the provisions of this Directive, in order to simplify the 
procedure  for  collecting  VAT  or  to  prevent  certain  forms  of  tax  evasion  or 
avoidance. As this procedure provides for derogations from the general principles of 
VAT,  in  accordance  with  the  consistent  rulings  of  the  Court  of  Justice  of  the 
European Union, such derogations should be proportionate and limited in scope. 

Articles 96 to 99 of the VAT Directive provide for VAT rates applicable to supplies 
of  goods  and  services.  Romania  would  like  to  derogate  from  these  provisions  and 
apply  a  0%  VAT  rate  to  a  number  of  supplies  of  goods  and  services  to  which 
normally apply a standard or a reduced VAT rate. Romania requests the measure for 
the purpose of combating tax evasion.  

2. 

THE REQUEST 

Romania requests, under Article 395 of the VAT Directive that the Council, acting 
upon a proposal of the Commission, authorises Romania to apply a 0% VAT rate of 
VAT to the following supplies of goods and services: 

the  supply  of  housing  to  natural  persons,  including  the  land  on  which  that  housing 
was  built.  The  land  on  which  the  housing  was  built  also  includes  that  housing’s 
footprint;  

the supply of buildings, including the land on which they were built, intended to be 
used as care homes for the elderly and pensioners; 

the supply of buildings, including the land on which they were built, intended to be 
used as children’s homes or as recovery and rehabilitation centres for children with 
disabilities; 

the  supply  of  buildings,  including  the  land  on  which  they  were  built,  to  mayor’s 
offices  with  a  view  to  renting  them  out,  at  reduced  rents,  to  persons  or  families 
whose economic situation does not allow them to own or rent a home under market 
conditions; 

the  supply  of  fertilisers  and  pesticides  used  in  agriculture,  seeds  and  other 
agricultural  products  intended  for  sowing  or  planting,  as  well  as  the  provision  of 
services of a specific type used in the agricultural sector; 

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1  

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p. 1) 

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the provision of media advertising services 

Romania  submits  that  0%  VAT  rate  for  the  above  listed  supplies  of  goods  and 
services  is  requested  for  the  purpose  of  combating  tax  evasion.  According  to 
Romania it should also improve the competitiveness of producers compared  to that 
of black market actors and thus decrease shadow economy.  

Romania  also  points  out  in  its  request  to  additional  benefits  stemming  from  the 
application of the 0% VAT rate to the above supplies. It would thus respectively in 
case of supplies of housing increase employment, cause reduction of prices, increase 
people's access to housing. In case of supplies of agricultural goods generate positive 
results from a social point of view and raise living standard of the population. In case 
of supplies of advertising services it would increase the sustainable development of 
this sector.  

3. 

THE COMMISSION'S VIEW 

When the Commission receives requests in accordance with Article 395 of the VAT 
Directive,  these  are  examined  to  ensure  that  the  basic  conditions  for  their  granting 
are  fulfilled  i.e.  whether  the  proposed  specific  measure  simplifies  procedures  for 
taxable persons and/or the tax administration or whether it prevents certain types of 
tax evasion or avoidance. In this context, the Commission has always taken a limited, 
cautious approach to ensure that derogations do not undermine the operation of the 
general VAT system, are limited in scope, necessary and proportionate. 

As to the concrete situation of Romania, the 0% VAT rate is requested for purposes 
of  fighting  tax  evasion  and  decreasing  the  shadow  economy.  Furthermore  the 
measure is supposed to have additional economic and social benefits.  

In  this  respect  the  Commission  would  like  to  reiterate  that  a  derogation  based  on 
Article  395  of  the  VAT  Directive  can  only  be  granted  in  order  to  prevent  certain 
types  of  tax  evasion  or  avoidance.  Tax  fraud  in  the  area  of  VAT  deprives  public 
budgets of revenues  which could have been  collected from VAT. The fight  against 
tax fraud aims to stop these losses to the public budgets and regain the lost revenues. 
However, by introducing the 0% VAT rate this aim is not fulfilled. With the planned 
measure no revenues stemming from VAT would be collected on the supplies subject 
to 0% VAT rate as Romania simply renounces such revenues.  

Consequently, according to the Commission, the introduction of 0% VAT rate cannot 
be regarded as a measure to prevent tax evasion or avoidance as required by Article 
395  of  the  VAT  Directive.  As  the  conditions  of  Article  395  are  not  fulfilled,  the 
derogating measure requested by Romania cannot be justified based on this Article.  

4. 

CONCLUSION 

On the basis of the above-mentioned elements, the Commission objects to the request 
made by Romania. 

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