Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2010/99/EU authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2018-11-05
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Lithuania, VAT, derogation from EU law, goods and services, liquidation, provision of services, supply, taxpayer, wood product

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   EUROPEAN COMMISSION  Brussels, 5.11.2018  COM(2018) 727 final 2018/0376 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2010/99/EU authorising the Republic of Lithuania to extend the application of a measure derogating from Article 193 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  apply 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  27 April 2018,  the  Republic  of  Lithuania 
requested the authorisation to continue to apply a measure derogating from Article 193 of the 
VAT  Directive,  which  determines  the  person  liable  for  the  payment  of  VAT.  By  letter 
registered with the Commission on 23 July 2018, the Republic of Lithuania submitted a report 
on the application of that measure.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  16 August 2018  of  the  request  made  by  the  Republic  of 
Lithuania,  except  for  Spain  and  Cyprus  who  have  been  informed  by  letters  dated 
17 August 2018.  By  letter  dated  20 August 2018,  the  Commission  notified  the  Republic  of 
Lithuania that it had all the information necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

As  a  general  rule,  Article  193  of  the  VAT  Directive  stipulates  that  the  taxable  person 
supplying goods or services is normally liable to pay VAT. 

Pursuant to Article 395 of the VAT Directive, Member States may apply measures derogating 
from the provisions of the VAT Directive to simplify the procedure for collecting VAT or to 
prevent certain forms of tax evasion or avoidance if they have been authorised by the Council. 

The  Republic  of  Lithuania  requested  to  continue  to  apply  the  reverse  charge  mechanism  to 
supplies  of  timber  and  to  supplies  of  goods  and  services  by  a  taxable  person  under  an 
insolvency or a restructuring procedure subject to judicial oversight, i.e. to make the person to 
whom these goods or services are supplied liable for the payment of VAT. 

The derogating measure for the Republic of Lithuania had initially been granted by Council 
Decision 2006/388/EC of 15 May 20062 for a period until 31 December 2009 and was again 
granted  by  Council  Implementing  Decision  2010/99/EU  of  16 February 20103  until 
31 December 2012 
of 
13 November 20124  until  31 December 2015  and  by  Council  Implementing  Decision  (EU) 
2015/2395 of 10 December 20155 until 31 December 2018. 

Implementing  Decision 

by  Council 

2012/704/EU 

and 

In  its  current  request  and  its  evaluation  report,  the  Republic  of  Lithuania  informed  the 
Commission that the application of the reverse charge mechanism to supplies of timber and to 
supplies  of  goods  and  services  by  a  taxable  person  under  an  insolvency  or  restructuring 
procedure  has  proven  to  be  very  effective  in  order  to  prevent  fraud.  The  reverse  charge 
mechanism  is  not  only  a  means  for  controlling  and  collecting  VAT  more  easily  for  the  tax 
administration,  but  also  encourages  taxpayers  to  meet  their  obligations.  According  to  the 

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OJ L 347, 11.12.2006, p. 1. 
OJ L 150, 3.6.2006, p.13. 
OJ L 45, 20.2.2010, p. 10. 
OJ L 319, 16.11.2012, p.7. 
OJ L 332, 18.12.2015, p.140. 

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Republic of Lithuania, the number of infringements in the above-mentioned areas has fallen 
significantly since the introduction of the reverse charge mechanism. Moreover, this  special 
measure does not have a negative impact on the total amount of VAT revenue collected at the 
final  stage  of  consumption  and  thus,  does  not  affect  the  Union's  VAT  own  resources  in  a 
negative way. 

Derogations  are  in  general  granted  for  a  limited  period  of  time  as  to  allow  an  assessment 
whether the special measure is appropriate and effective and in order to grant Member States 
time  to  introduce  other  conventional  measures  to  tackle  the  respective  problem  until  the 
expiry of the derogating measure, thus  making  an extension of the derogation redundant. A 
derogation  allowing  making  use  of  the  reverse  charge  mechanism  is  only  granted 
exceptionally for specific fraudulent areas and constitutes a means of last resort.  

Taking into consideration the unchanged legal and factual situation, it is therefore proposed to 
extend the derogating measure the last time, allowing the Republic of Lithuania to continue to 
apply this derogating measure until 31 December 2021. Until the expiry of this derogation the 
Republic  of  Lithuania  should  implement  other  conventional  measures  to  fight  and  prevent 
further spreading of VAT fraud in the sector of timber and in the situation of taxable persons 
under  insolvency  or  restructuring  procedures.  As  a  consequence  there  should  be  no  further 
need to derogate from Article 193 of Directive 2006/112/EC with regard to these supplies. 

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to Article 193 of the VAT Directive have been granted to other 
Member States. 

The  proposed  measure  is,  therefore,  consistent  with  the  existing  provisions  of  the  VAT 
Directive.  

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. 

• 

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. 

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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 Republic of Lithuania 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  Republic  of  Lithuania  to 
continue to apply the reverse charge mechanism to supplies of timber and to supplies of goods 
and services by a taxable person under an insolvency or a restructuring procedure subject to 
judicial oversight for a limited period of time. This mechanism aims at fighting fraud in the 
given sectors. It also simplifies the collection and the controls of the correct payments of VAT 
for the tax administration and encourages taxpayers to meet their obligations. 

According to the Republic of Lithuania, the extension of this measure will not have a negative 
impact on the total  amount of VAT revenue collected at the final stage of consumption and 
thus, does not affect the Union's VAT own resources in a negative way. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication on the EU budget.  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal is limited in time. 

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2018/0376 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2010/99/EU authorising the Republic of Lithuania to 
extend the application of a measure derogating from Article 193 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) 

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Council  Decision  2006/388/EC2  authorised  Lithuania  to  apply  a  measure  derogating 
from Article 21 of Directive 77/388/EEC3 to designate the taxable person to whom the 
supplies  of  goods  and  services  in  the  case  of  insolvency  procedures  or  restructuring 
procedures subject to judicial oversight and supplies of timber are made as the person 
liable to pay value added tax (VAT) due on the supplies of those goods and services.  
By Council Implementing Decision 2010/99/EU4 Lithuania was, by way of derogation 
from  Article  193  of  Directive  2006/112/EC,  authorised  until  31 December 2012  to 
continue to designate the taxable person to whom the following supplies of goods and 
services are made as the person liable for the payment of VAT: supplies of goods and 
services  by  a  taxable  person  while  under  an  insolvency  procedure  or  a  restructuring 
procedure  subject  to  judicial  oversight  and  supplies  of  timber.  The  authorisation  to 
apply  the  derogating  measure  was  subsequently  extended  by  Council  Implementing 
Decision  2012/704/EU5  until  31 December 2015  and  by  Council  Implementing 
Decision (EU) 2015/23956 until 31 December 2018.  

OJ L 347, 11.12.2006, p. 1. 
Council  Decision  2006/388/EC  of  15 May 2006  authorising  the  Republic  of  Lithuania  to  apply  a 
measure derogating from Article 21 of the Sixth Directive 77/388/EEC on the harmonisation of the laws 
of the Member States relating to turnover taxes (OJ L 150, 3.6.2006, p. 13). 
Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation  of the laws of the Member 
States relating to turnover taxes  — Common system of  value added tax: uniform basis  of assessment 
(OJ L 145, 13.6.1977, p. 1). 
Council Implementing Decision 2010/99/EU of 16 February 2010 authorising the Republic of Lithuania 
to  extend  the  application  of  a  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 45, 20.2.2010, p. 10). 
Council  Implementing  Decision  2012/704/EU  of  13 November 2012  amending  Implementing 
Decision 2010/99/EU  authorising  the  Republic  of  Lithuania  to  extend  the  application  of  a  measure 
derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (OJ L 
319, 16.11.2012, p. 7). 
Council  Implementing  Decision  (EU)  2015/2395  of  10 December 2015  amending  Implementing 
Decision  2010/99/EU  authorising  the  Republic  of  Lithuania  to  extend  the  application  of  a  measure 

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(3) 

(4) 

(5) 

(6) 

(7) 

By  letter  registered  with  the  Commission  on  27 April 2018,  Lithuania  requested  the 
authorisation to continue to apply a measure derogating from Article 193 of Directive 
2006/112/EC  to  supplies  of  timber  and  supplies  of  goods  and  services  by  a  taxable 
person under an insolvency procedure or a restructuring procedure subject to judicial 
oversight.  By letter registered with  the Commission on 23 July 2018, a report on the 
application  of  that  measure  as  required  by  the  third  paragraph  of  Article  2  of 
Implementing  Decision  2010/99/EU  has  been  submitted  to  the  Commission  by 
Lithuania.  

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 
16 August 2018,  of  the  request  made  by  Lithuania,  with  the  exception  of  Spain  and 
Cyprus informed by letters dated 17 August 2018. By letter dated 20 August 2018, the 
Commission notified Lithuania that it had all the information necessary to consider the 
request. 

Taxable  persons  under  insolvency  procedures  or  restructuring  procedures  are  often 
prevented  from  paying  VAT  invoiced  on  their  supplies  of  goods  and  services  by 
financial  difficulties.  Lithuania  also  faces  problems  in  the timber  market,  because  of 
the  nature  of  the  market  and  the  businesses  involved.  The  market  is  dominated  by 
small  local  companies,  often  resellers  and  intermediaries,  which  the  tax  authorities 
have  found  difficult  to  control.  The  most  common  form  of  evasion  involves  the 
invoicing of supplies followed by the disappearance of the business without paying tax 
but leaving the customer in receipt of a valid invoice for tax deduction. According to 
Lithuania this situation, which has justified the application of the derogating measure 
has  not  changed,  but  continues  to  exist.  The  investigations  and  the  analysis  of  the 
application  of  the  derogating  measure  carried  out  by  the  Lithuanian  tax  authorities 
have  revealed  its  effectiveness  to  prevent  VAT  fraud  in  respect  of  taxable  persons 
under insolvency or restructuring procedures as well as of timber transactions.  

Lithuania should therefore be authorised to apply the derogating measure for a further 
limited period until 31 December 2021.  

Derogations are in general granted for a limited period of time to allow an assessment 
whether  the  derogating  measure  is  appropriate  and  effective.  Derogations  grant 
Member States time to introduce other conventional measures to tackle the respective 
problem until  the expiry of the derogating measure, thus  making an extension of the 
derogation  redundant.  A  derogation  allowing  making  use  of  the  reverse  charge 
mechanism is only granted exceptionally for specific fraudulent areas and constitutes a 
means  of  last  resort.  Lithuania  should  therefore  implement  other  conventional 
measures to fight and prevent further spreading of VAT fraud in the sector of timber 
and  in  the  situation  of  taxable  persons  under  insolvency  or  restructuring  procedures 
until the expiry of this derogation and consequently should no longer need to derogate 
from Article 193 of Directive 2006/112/EC with regard to these supplies. 

(8) 

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

(9) 

Implementing Decision 2010/99/EU should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (OJ 
L 332, 18.12.2015, p. 140). 

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Article 2 of Implementing Decision 2010/99/EU is replaced by the following:  

Article 1 

This Decision shall apply until 31 December 2021.’ 

‘Article 2 

This Decision shall apply from 1 January 2019.  

Article 2 

This Decision is addressed to the Republic of Lithuania. 

Article 3 

Done at Brussels, 

For the Council 
The President 

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