Proposal for a COUNCIL IMPLEMENTING DECISION authorising Hungary to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-06-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 21.6.2018  COM(2018) 486 final 2018/0260 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Hungary 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  introduce  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  13  November  2017,  Hungary  requested  an 
authorisation  to  introduce  a  measure  derogating  from  Article  287  of  the  VAT  Directive 
allowing the exemption from VAT of taxable persons with an annual turnover not exceeding 
EUR 48 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States  by letters dated 6 February  2018 of the request made  by Hungary. By letter 
dated  7  February  2018,  the  Commission  notified  Hungary  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 

Chapter 1 of Title XII of the VAT Directive allows Member States to apply special schemes 
to  small  enterprises,  including  the  possibility  of  exempting  taxable  persons  whose  annual 
turnover  does  not  exceed  a  certain  threshold.  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(12)  of  the  VAT  Directive,  Hungary  may  exempt  from  VAT  taxable 
persons  whose  annual  turnover  is  no  higher  than  the  equivalent  in  national  currency  of 
EUR 35 000 at the conversion rate on the day of its accession. Hungary requests to increase 
the exemption threshold from EUR 35 000 to EUR 48 000 as from 1 January 2019.  

From  the  information  provided  by  Hungary,  raising  the  exemption  threshold  from 
EUR 35 000 to EUR 48 000 would increase the number of small enterprises that may benefit 
from  the  reduction  of  administrative  burdens  and  compliance  costs.  Moreover,  since  this 
threshold would be aligned with  another threshold concerning income tax, small  enterprises 
would benefit from fully simplified tax arrangements. 

Bearing  in  mind  that  economic  growth  has  led  to  a  steady  increase  in  revenue,  raising  the 
personal exemption threshold could be justified according to Hungary.  

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

Considering that Hungary has been authorised to exempt taxable persons from VAT with an 
annual  turnover  not  exceeding  a  threshold  of  EUR 35 000  and  that  it  has  re-evaluated  the 
situation, a higher threshold seems to be acceptable. It is therefore proposed to allow Hungary 
to  increase  the  exemption  threshold  for  SMEs  from  EUR 35 000  to  EUR 48 000  until  31 
December  2021  or  the  the  date  from  which  Member  States  are  to  apply  any  national 
provisions  that  they  are  required  to  adopt  in  the  event  that  a  directive  is  adopted  amending 
Articles  281  to  294  of  Directive  2006/112/EC  governing  the  special  scheme  for  small 
enterprises. 

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OJ L 347, 11.12.2006, p. 1. 

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Consistency with existing policy provisions in the policy area 

• 
Similar derogations have been granted to other Member States. Luxembourg2 was granted a 
threshold of EUR 30 000, Poland3 and Estonia4 a threshold of EUR 40 000, Italy5 a threshold 
of EUR 65 000, Croatia6 a threshold of EUR 45 000, Latvia7 a threshold of EUR 40 000 and 
Romania8 a threshold of EUR 88 500.  

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 Plan9, and the 2017 Commission Work Programme10, the Commission's proposal 
on the SMEs scheme11 has recently been presented. 

It  is  therefore  proposed  to  grant  the  derogating  measure  and  increase  the  threshold  until  31 
December  2021  or  until  the  date  from  which  Member  States  are  to  apply  any  national 
provisions  that  they  are  required  to  adopt  in  the  event  that  a  directive  is  adopted  amending 
Articles 281 to 294 of Directive 2006/112/EC.  

• 

Consistency with other Union policies 

The measure is in line with the Union's objectives for small businesses, as laid down in the 
Commission  Communication  "Think  small  first"  –  a  "Small  Business  Act"  for  Europe"12 
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. 

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6 

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10 

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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  (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). 
Council  Implementing  Decision  (EU)  2017/1768  of  25  September  2017  authorising  the  Republic  of 
Croatia  to  introduce  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 250, 28.9.2017, p. 71). 
Council  Implementing  Decision  (EU)  2017/2408  of  18  December  2017  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 (OJ L 342, 21.12.2017, p. 8). 
Council Implementing Decision (EU) 2017/1855 of 10 October 2017 authorising Romania to apply a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 265, 14.10.2017, p. 19). 
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. 
Commission  Work  Programme  2017  -  Delivering  a  Europe  that  protects,  empowers  and  defends, 
Strasbourg, 25.10.2016, COM(2016)710 final 
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  on  the  common  system  of  value 
added tax as regards the special scheme for small enterprises, 18.1.2018, COM(2018) 21 final. 
COM(2008)394 of 25 June 2008. 

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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,  a  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 Hungary and concerns only this Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal for a Council Implementing Decision authorises Hungary to exempt from VAT 
taxable persons whose annual turnover does not exceed EUR 48 000 as from 1 January 2019. 
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 Hungary, the EUR 48 000 threshold will not have any substantial impact on the 
collection  of  VAT  revenues.  It  would  affect  about  32 000  taxable  persons,  accounting  for 
10%  of  all  taxable  persons.  If  all  eligible  persons  made  use  of  the  increased  threshold,  this 
would entail a negligible reduction in VAT revenue of 0.52-0.65%. 

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4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Hungary  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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2018/0260 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Hungary 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 the first subparagraph of Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

1 
2 

Pursuant to point (12) of Article 287 of Directive 2006/112/EC, Hungary may exempt 
from value added tax (VAT) taxable persons whose annual turnover is no higher than 
the equivalent in national currency of EUR 35 000 at the conversion rate on the day of 
its accession. 

By letter registered  with the Commission  on 13 November 2017, Hungary requested 
an authorisation to introduce a special measure derogating from point (12) of Article 
287  of  Directive  2006/112/EC  in  order  to  increase  the  exemption  threshold  to 
EUR 48 000.  Through  that  special  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. 

A higher threshold for the special scheme for small enterprises set out in Articles 281 
to  294  of  Directive  2006/112/EC  is  a  simplification  measure  as  it  may  significantly 
reduce the VAT obligations of small enterprises. 

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission 
informed  the  other  Member  States,  by  letters  dated  6  February  2018,  of  the  request 
made by Hungary. By letter dated 7 February 2018, the Commission notified Hungary 
that it had all the information necessary to consider the request. 

The  requested  derogation  is  in  line  with  the  policy  objectives  of  Commission 
Communication  "Think  small  first"  –  a  "Small  Business  Act"  for  Europe"  25  June 
2008).2 

Given that Hungary expects that the increased threshold would result in reduced VAT 
obligations  and  thus  a  reduction  in  the  administrative  burdens  and  compliance  costs 
for small enterprises, Hungary should be authorised to apply the special measure for a 
limited period. The special scheme for small enterprises is optional, so taxable persons 
would still be able to opt for the normal VAT arrangements.  

OJ 347, 11.12.2006, p.1. 
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 final.  

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(7) 

(8) 

(9) 

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 
Articles  enters  into  force  setting  a  date  from  which  Member  States  are  to  apply 
national  provisions  before  the  period  of  validity  of  the  derogation  expires  on  31 
December 2021. If that happens, this Decision should cease to apply. 

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

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added  tax  because  Hungary  will  carry  out  a  compensation  calculation  in  accordance 
with Article 6 of Council Regulation (EEC, EURATOM) No 1553/893, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from point (12) of Article 287 of Directive 2006/112/EC, Hungary is 
authorised to exempt from VAT taxable persons whose annual turnover is no higher than the 
equivalent  in  national  currency  of  EUR 48 000  at  the  conversion  rate  on  the  day  of  its 
accession.  

Article 2 

This Decision shall apply from 1 January 2019 until the earlier of the following two dates: 

(a) 

31 December 2021; 

(b) 
the date from which Member States are to apply any national provisions that they are 
required  to  adopt  in  the  event  that  a  directive  is  adopted  amending  Articles  281  to  294  of 
Directive 2006/112/EC governing the special scheme for small enterprises. 

This Decision is addressed to Hungary.  

Done at Brussels, 

Article 3 

For the Council 
The President 

3 

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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