COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2018-06-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, consortium, derogation from EU law, goods and services, provision of services, supply, taxpayer

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.6.2018  COM(2018) 484 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC  
 
 
1. 

BACKGROUND 

Pursuant to Article 395 of Council Directive 2006/112/EC of 28 November 2006 on 
the  common  system  of  value  added  tax  (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. 

By  letter  registered  with  the  Commission  on  19  July  2016,  Italy  requested  an 
authorisation to apply a measure derogating from Article 193 of the VAT Directive 
authorising  Italy  to  apply  the  reverse  charge  mechanism  for  supplies  of  goods  and 
services to consortia by their members. Since the information submitted by Italy was 
not sufficient to consider the request, several letters were sent by the Commission to 
Italy  requesting  additional  clarifications  and  several  oral  exchanges  regarding  the 
request  took  place  between  Italy  and  the  Commission.  In  accordance  with  Article 
395(2) of the VAT Directive, the Commission informed the other Member States by 
letter  dated  28  March  2018  of  the  request  made  by  Italy.  By  letter  dated  3  April 
2018,  the  Commission  notified  Italy  that  it  had  all  the  information  it  considered 
necessary for appraisal of the request. 

As  a  general  rule,  the  person  liable  for  the  payment  of  VAT  to  the  tax  authorities 
under  Article  193  of  the  VAT  Directive  is  the  taxable  person  supplying  the  goods. 
The  purpose  of  the  derogation  requested  by  Italy  is  to  place  that  liability  on  the 
taxable  persons  (consortia  in  this  case)  to  whom  the  supplies  are  made  by  their 
members  (the  so-called  reverse  charge  mechanism).  The  aim  of  the  requested 
derogation is the fight against tax evasion. 

2. 

REVERSE CHARGE 

The  person  liable  for  the  payment  of  VAT  pursuant  to  Article  193  of  the  VAT 
Directive is the taxable person supplying the goods or services. The purpose of the 
reverse charge mechanism is to shift that liability onto the taxable person to whom 
the supplies are made. 

By designating the person to whom the goods or services are supplied as the person 
liable for the payment of VAT, the supplier does not charge and receive VAT from 
the  customer.  The  supplier  can,  therefore,  not  disappear  with  the  VAT  amount 
without  paying  it  to  the  Treasury.  In  this  sense,  the  reverse  charge  mechanism  has 
been found effective as a temporary tool for fighting fraud. 

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3. 

THE REQUEST 

Italy requested a special measure derogating from Article 193 of the VAT Directive 
as regards the application of the reverse charge mechanism for supplies of goods and 
services to consortia12 by their members.  

Italy submits in its request that the introduction of the reverse charge for supplies of 
goods  and  services  between  consortia  members  and  consortia  would  ensure  the 
immediate curbing of evasion schemes such as failure to declare and/or non-payment 
of VAT to the State by consortia members. It could additionally provide a deterrent 
for  possible  fraudsters  and  the  tax  control  to  become  more  effective  due  to  the 
limited number of consortia to be audited.  

4. 

THE COMMISSION'S VIEW 

When  the  Commission  receives  requests  in  accordance  with  Article  395,  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  the  proposal  prevents  certain  types  of  tax 
evasion or avoidance. In this context, the Commission has always taken a restrictive, 
cautious approach to ensure that derogations do not undermine the operation of the 
general VAT system, are limited in scope, necessary and proportionate. 

Any derogation from the system of fractionated payment can, therefore, not be more 
than  a  last  resort  and  an  emergency  measure  and  must  offer  guarantees  as  to  the 
necessity and exceptional nature of the derogation granted.  

Notwithstanding several Commission's requests, neither the nature nor the extent of 
possible fraud problems arising in the relation between consortia and their members 
has been demonstrated by Italy.  

It  is  difficult  to  see  how  VAT  fraud  problems  can  indeed  occur  in  the  relationship 
between the consortia and the members; the former supposed to act on behalf of the 
members.  Furthermore,  given  this  particular  relationship,  it  should  be  possible  for 
Italy to tackle the fraud by adequate control measures. In any case, the Commission 
remains available when requested to provide Italy necessary assistance to counter the 
problems of VAT evasion.  

Consequently,  as  it  is  not  demonstrated  by  Italy  that  the  derogating  measure  is 
requested  in  order  to  fight  fraud  or  in  order  to  simplify  procedures  for  taxable 
persons and/or tax administrations, as required by Article 395 of the VAT Directive, 
the request does not fulfil the conditions laid down in this Article.  

1  

Permanent consortium is a joint organisation made up of several entities created to regulate or conduct a 
specific phase of activity for the different firms involved. 

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5. 

CONCLUSION 

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

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