Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Netherlands to introduce a special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-10-26
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Netherlands, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 26.10.2018  COM(2018) 714 final 2018/0367 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Netherlands to introduce a special measure derogating from Article 285 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  (‘the  VAT  Directive’1),  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  19 July 2018,  the  Netherlands  requested  an 
authorisation  to  introduce  a  measure  derogating  from  Article  285  of  the  VAT  Directive 
allowing the exemption from VAT of taxable persons whose annual turnover does not exceed 
EUR 25 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letters dated 9 August 2018 of the request made by the Netherlands except 
for  Spain  and  Cyprus  who  have  been  informed  by  letters  dated  10 August 2018.  By  letter 
dated 13 August 2018, the Commission notified the Netherlands 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 Member States to apply special schemes 
to  small  enterprises,  including  the  possibility  to  exempt  taxable  persons  whose  annual 
turnover does not exceed a certain threshold from VAT. This exemption implies that a taxable 
person does not have to charge VAT on his supplies and, consequently, cannot deduct VAT 
on the inputs. 

Under Article 285 of the VAT Directive, Member States which have not exercised the option 
under Article 14 of the Second Council Directive 67/228/EEC2 may exempt taxable persons 
whose annual turnover does not exceed EUR 5 000 from VAT. The Netherlands, being one of 
these  Member  States,  requested  to  increase  the  exemption  threshold  from  EUR 5 000  to 
EUR 25 000 as of 1 January 2020. 

According  to  the  information  provided  by  the  Netherlands,  their  current  system  is  of 
graduated relief for taxable persons who, on an annual basis and after deduction of input tax, 
are liable for no more VAT than EUR 1 883. The process for granting graduated tax relief is 
complex,  and  contains  a  high  level  of  error.  Due  to  the  rapidly  growing  number  of  small 
businesses  in  the  Netherlands,  the  operational  costs  for  the  Dutch  tax  authorities  are 
increasing and the administrative burden for businesses is growing, while the financial interest 
involved  remains  low.  The  Netherlands,  therefore,  wish  to  modernise  their  system  by 
introducing an optional turnover-linked VAT exemption scheme with an exemption threshold 
of  EUR 25 000.  This  measure  would  reduce  VAT  obligations  for  small  businesses  and 
simplify the collection of VAT for tax authorities.   

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2 

OJ L 347, 11.12.2006, p. 1. 
Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member 
States concerning turnover taxes  – Structure and procedures for application of the common system of 
value added tax (OJ 71, 14.4.1967, p.1303/67). 

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The Netherlands also point out that this measure is in line with the scope of the proposal for a 
Directive on the special scheme for small businesses published by the European Commission 
on 18 January 20183.  

It  is  therefore  proposed  to  allow  the  Netherlands  to  increase  the  exemption  threshold  for 
SMEs from EUR 5 000 to EUR 25 000 until 31 December 2022 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 governing 
the special scheme for small enterprises. 

Consistency with existing policy provisions in the policy area 

• 
Similar derogations have been granted to other Member States.  Luxembourg4 was granted a 
threshold of EUR 30 000, Poland5 and Estonia6 a threshold of EUR 40 000, Italy7 a threshold 
of EUR 65 000, Croatia8 a threshold of EUR 45 000, Latvia9 a threshold of EUR 40 000 and 
Romania10 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  Plan11,  and  the  2017  Commission  Work  Programme12,  the  Commission's 
proposal on the SMEs scheme has been presented recently. 

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9 

10 

11 

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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. 
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. 

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• 

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  Europe13, 
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. the simplification for small enterprises 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 
provisions  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 the Netherlands 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  the  Netherlands  to  exempt 
taxable  persons  whose  annual  turnover  does  not  exceed  EUR 25 000  from  VAT  as  of 
1 January 2020.  Taxable  persons  whose  annual  turnover  does  not  exceed  the  threshold  are 
released  from  many  of  the  general  VAT  obligations  and  the  administrative  burden  on  them 

13 

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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will reduce as a result of this measure as well. It also simplifies tax collection for the Dutch 
tax authorities. 

According to the Netherlands, the introduction of the EUR 25 000 threshold will not have any 
substantial impact on the total tax revenue at the stage of final consumption. Approximately 
9 % of taxpayers are expected to use the exemption threshold, which corresponds to an impact 
on the State budget of around 0.09 %.   

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication on the EU budget, because the Netherlands will carry out a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) 1553/89. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal is limited in time.  

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2018/0367 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Netherlands to introduce a special measure derogating from Article 285 
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) 

Pursuant  to  the  first  paragraph  of  Article  285  of  Directive  2006/112/EC,  Member 
States  which  have  not  exercised  the  option  under  Article  14  of  Council  Directive 
67/228/EEC2  may  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 5 000 from value added tax (VAT).  

By letter registered with the Commission on 19 July 2018, the Netherlands requested 
an  authorisation  to  introduce  a  special  measure  derogating  from  Article  285  of 
Directive  2006/112/EC  in  order  to  apply  an  exemption  threshold  of  EUR 25 000. 
Through that special measure taxable persons whose annual turnover is no higher than 
EUR 25 000 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.  The  special  scheme  is  optional  for 
taxable persons. 

In  accordance  with  the  second  subparagraph  of  Article  395(2)  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letters  dated 
9 August 2018  of  the  request  made  by  the  Netherlands,  with  the  exception  of  Spain 
and Cyprus informed by letters dated 10 August 2018. By letter dated 13 August 2018, 
the  Commission  notified  the  Netherlands  that  it  had  all  the  information  necessary  to 
consider the request. 

(5) 

The  requested  derogation  is  in  line  with  the  policy  objectives  of  Commission 
Communication "Think Small First" – A "Small Business Act" for Europe.3 

1 
2 

3 

OJ 347, 11.12.2006, p. 1. 
Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member 
States concerning turnover taxes  – Structure and procedures for application of the common system of 
value added tax (OJ 71, 14.4.1967, p.1303/67). 
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,  COM(2008)394 final of 25 June 2008.  

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(6) 

(7) 

(8) 

(9) 

Given  that  the  Netherlands  expect  that  the  increased  threshold  will  result  in  reduced 
VAT obligations and thus a reduction in administrative burdens and compliance costs 
for  small  enterprises,  the  Netherlands  should  be  authorised  to  apply  the  special 
measure for a limited period of time, until 31 December 2022. The special scheme for 
small  enterprises  is  optional,  so  taxable  persons  would  still  be  able  to  opt  for  the 
normal VAT arrangements.  

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 2022. If that happens, this Decision should cease to apply. 

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

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

HAS ADOPTED THIS DECISION:  

By  way  of  derogation  from  Article  285  of  Directive  2006/112/EC,  the  Netherlands  are 
authorised  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 25 000.  

Article 1 

Article 2 

This Decision shall apply from 1 January 2020 until the earlier of the following two dates: 

(a) 

(b) 

31 December 2022; 

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 the Netherlands. 

Article 3 

Done at Brussels, 

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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