Proposal for a COUNCIL IMPLEMENTING DECISION authorising the United Kingdom to apply a special measure derogating from Articles 16 and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-09-20
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: United Kingdom, VAT, derogation from EU law, greenhouse gas, motor fuel, motor vehicle, tax collection

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   EUROPEAN COMMISSION  Brussels, 20.9.2018 COM(2018) 652 final 2018/0334 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising the United Kingdom to apply a special measure derogating from Articles 16 and 168 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 derogating 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  27  April  2018,  the  United  Kingdom  requested 
authorisation to continue to apply a measure derogating from Articles 16 and 168 of the VAT 
Directive. In accordance with Article 395(2) of the VAT Directive, the Commission informed 
the  other  Member  States  by  letter  dated  11  June  2018  of  the  request  made  by  the  United 
Kingdom. By letter dated 12 June 2018, the Commission notified United Kingdom that it had 
all the information it considered necessary for appraisal of the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article  168  of  the  VAT  Directive  provides  that  a  taxable  person  is  entitled  to  deduct  VAT 
charged  on  purchases  made  for  the  purpose  of  taxed  transactions.  Article  16  of  the  same 
Directive requires the application by a taxable person of goods forming part of his business 
assets  for  his  private  use  or  for  that  of  his  staff  to  be  treated  as  a  supply  of  goods  for 
consideration, where the VAT on those goods or the component parts thereof was wholly or 
partly deductible. This system allows for the recovery of initially deducted VAT in relation to 
the private use. 

In  the  case  of  company  cars,  partly  used  for  private  (non-business)  purposes,  it  is  often  a 
difficult matter to calculate and to tax expenditure related to the private use under the above-
mentioned rules. 

In  this  context,  the  United  Kingdom  has  operated  a  special  scheme  of  flat  rate  taxation  of 
private  use  authorised  by  Council  Decision  86/356/EEC  of  21  July  1986  authorising  the 
United  Kingdom  to  apply  flat-rate  measures  in  respect  of  non-deductible  value  added  tax 
charged on fuel expenditure in company cars1, which was based on the engine capacity and 
fuel type of the car. 

This original derogation was abolished and replaced by Council Decision 2006/659/EC of 25 
September  2006  authorising  the  United  Kingdom  to  introduce  a  special  measure  derogating 
from Articles 5(6) and 11(A)(1)(b) of Directive 77/388/EEC on the harmonisation of the laws 
of the Member States relating to turnover taxes2, introducing a flat rate taxation of the private 
use on the basis of the car’s CO2 emission rating. The latter Council Decision was on its turn 
replaced  by  Council  Implementing  Decision  (EU)  2015/2109  of  17  November  20153  which 
will expire on 31 December 2018.  

The scheme is based on the fact that there is a direct relationship between the emission and 
the amount of fuel consumed as higher emissions correspond with greater fuel consumption. 
Based  on  these  emission  ratings,  the  fuel  consumption  per  kilometre  is  calculated, which  is 
then combined with the average private mileage determined on the basis of direct tax data and 
the retail price of road fuel. This results in a private use charge which corresponds with the 

1 
2 
3 

OJ L 212, 2.8.1986, p. 35. 
OJ L 272, 3.10.2006, p. 15. 
OJ L 305, 21.11.2015, p. 49-50.  

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amount  of  VAT  due  on  the  private  use  of  the  vehicle.  The  system  is  optional  for  taxable 
persons who may choose not to recover VAT on their fuel.  

As required by Article 4 of Decision (EU) 2015/2109, the United Kingdom submitted to the 
Commission a report on the functioning of the derogating measure. According to the United 
Kingdom,  this  system  has  proven  to  be  accurate  and  has  led  to  a  substantial  simplification, 
both  for  businesses  and  the  tax  administration.  The  United  Kingdom  also  submits  that  it 
provides taxable persons with legal certainty by providing a simplified method which can be 
used to account for VAT on private use of fuel.  

On this basis, the United Kingdom has requested to be authorised to continue the application 
of the derogation until 31 December 2020. 

• 

Consistency with existing policy provisions in the policy area 

Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on which the VAT is not deductible. Until such time, it authorises Member States to maintain 
exclusions  which  were  in  place  on  1  January  1979.  There  are  therefore  a  number  of  “stand 
still” provisions restricting the right to deduct VAT in relation to passenger cars.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be  subject  to  a  restriction  on  the  right  to  deduct4,  such  derogation  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level.  

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  simplify  the  procedure  for  collecting  VAT.  It  does  not  go  beyond  what  is 
required to simplify VAT collection in a specific sector. 

The system remains optional for taxable persons. 

• 

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. 

4 

COM (2004) 728 final - Proposal for a Council Directive amending Directive 77/388/EEC with a view 
to simplifying value added tax obligations (OJ C 24, 29.1.2005, p.10) withdrawn on 21 May 2014 (OJ 
C 153 21. 05. 2014, p. 3)  

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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  United  Kingdom  and  concerns  only  this 
Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposed Decision aims at simplifying VAT collection in relation to fuel expenditure for 
company  cars  partly  used  for  non-business  purposes  and  has  therefore  a  potential  positive 
impact. 

For  taxable  persons,  who  would  opt  to  make  use  of  this  system,  it  reduces  administrative 
burdens and compliance costs by removing the need to keep detailed mileage records for each 
company  car  for  VAT  purposes.  Such  record  keeping  requirements  are  likely  to  be  time 
consuming and often impose significant administrative burdens for relatively small amounts 
of  tax.  The  simplification  method  also  reduces  burdens  for  the  tax  authorities  which  would 
otherwise be required to audit numerous individual situations. 

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

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implications for the EU budget. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause; an automatic time limit which is set at 31 December 
2020. 

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2018/0334 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the United Kingdom to apply a special measure derogating from Articles 16 
and 168 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) 

Council  Decision  2006/659/EC2  authorised  the  United  Kingdom  to  apply  special 
simplification  measures  in  order  to  determine  on  a  flat-rate  basis  the  proportion  of 
non-deductible value added tax (VAT) relating to expenditure on fuel in business cars 
not exclusively used for business purposes. The system, which is optional for taxable 
persons, is based on the level of carbon dioxide (CO2) emissions from the car, as there 
is  a  proportional  correlation  between  emissions  and  fuel  consumption  and  therefore 
with expenditure on fuel. 

Council Decision 2006/659/EC was replaced by Council Implementing Decision (EU) 
2015/21093 which will expire on 31 December 2018.  

By  letter  registered  with  the  Commission  on  27  April  2018,  the  United  Kingdom 
requested authorisation to continue to apply the measure until 31 December 2020. 

The  Commission  transmitted  the  request  made  by  the  United  Kingdom  to  other 
Member  States  by  letter  dated  11  June  2018.  By  letter  dated  12  June  2018,  the 
Commission notified the United Kingdom that it had all the information necessary to 
consider the request. 

As  required  by  Article  4  of  Implementing  Decision  (EU)  2015/2109,  the  United 
Kingdom submitted a report on the functioning of the special measure. According to 
the United Kingdom, the arrangement has effectively led to a simplification, both for 
taxable  persons  and  the  tax  administration,  of  the  procedure  of  collecting  VAT  in 
relation to expenditure on fuel for business cars.  

(6) 

It is therefore appropriate that the United Kingdom be authorised to apply the measure 
until  31  December  2020.  It  should  nevertheless  be  noted  that  the  United  Kingdom 

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2 

3 

OJ L 347, 11.12.2006, p. 1. 
Council Decision 2006/659/EC of 25 September 2006 authorising the United Kingdom to introduce a 
special  measure  derogating  from  Articles  5(6)  and  11(A)(1)(b)  of  Directive  77/388/EEC  on  the 
harmonisation of the laws of the Member States relating to turnover taxes (OJ L 272, 3.10.2006, p. 15). 
Council  Implementing  Decision  (EU)  2015/2109  of  17  November  2015  authorising  the  United 
Kingdom  to  apply  a  special  measure  derogating  from  Articles  26(1)(a),  168  and  168a  of  Directive 
2006/112/EC on the common system of value added tax (OJ L 305, 21.11.2015, p. 49).  

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notified on 29 March 2017 its intention to leave the Union, pursuant to Article 50 of 
the  Treaty  on  the  European  Union,  which  implies  that,  unless  a  ratified  withdrawal 
agreement between the European Union and the United Kingdom establishes another 
date, all Union primary and secondary law will cease to apply to the United Kingdom 
on 30 March 2019, 00:00h (CET) ('the withdrawal date'). In such event this Decision will 
equally cease to have effect. 

(7) 

The  derogating  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 
accruing from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Articles  16  and  168  of  Directive  2006/112/EC,  the  United 
Kingdom is authorised to fix on a flat-rate basis the proportion of value added tax relating to 
expenditure on fuel used for private purposes in business cars from 1 January 2019 until 31 
December 2020. 

Article 2 

The  proportion  of  the  tax  referred  to  in  Article  1  shall  be  expressed  in  fixed  amounts, 
established  on  the  basis  of  the  CO2  emissions  level  of  the  type  of  vehicle,  that  reflect  fuel 
consumption.  The  United  Kingdom  shall  adjust  these  fixed  amounts  annually  to  reflect 
changes in the average cost of fuel. 

The system set up on the basis of this Decision shall be optional for taxable persons. 

Article 3 

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland. 

Article 4 

Done at Brussels, 

For the Council 
The President 

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