Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia 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: 2018-11-06
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Latvia, VAT, derogation from EU law, supply, taxpayer, wood product

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   EUROPEAN COMMISSION  Brussels, 6.11.2018  COM(2018) 725 final 2018/0381 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia 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 20 June 2018, the Republic of Latvia (hereinafter 
Latvia)  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  17 August 2018,  Latvia  sent  a  report  on 
the  application  of  that  measure  as  required  by  Article  2  of  Council  Implementing 
Decision 2009/1008/EC  of  7 December 20092  as  amended  by  Council  Implementing 
Decision (EU) 2015/2396 of 10 December 20153. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  7 September 2018  of  the  request  made  by  Latvia.  By  letter 
dated  10 September 2018,  the  Commission  notified  Latvia  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. 

Latvia  requested  to  continue  to  apply  the  reverse  charge  mechanism  to  timber  transactions, 
i.e. to make the person to whom these goods or services are supplied liable for the payment of 
VAT. 

for 

Latvia 

derogating  measure 

The 
by 
Council Decision 2006/42/EC  of  24 January 20064  until  31 December  2009  and  by  Council 
Implementing  Decision  2009/1008/EU  of  7 December 20095  until  31 December 2012.  The 
authorisation  to  apply  the  derogation  has  subsequently  been  extended  by  Council 
Implementing  Decision  2013/55/EU  of  22 January 20136  until  31 December 2015  and  by 
(EU)  2015/2396  of  10 December 20157  until 
Council 
31 December 2018. 

Implementing  Decision 

initially 

granted 

been 

had 

According  to  Latvia,  the  timber  market,  which  is  one  of  the  most  important  sectors  of  its 
economy, is particularly sensitive to VAT fraud, because it is dominated by a great number of 
small  local  operators  and  individual  suppliers.  The  nature  of  the  market  and  of  businesses 

1 
2 
3 
4 
5 
6 
7 

OJ L 347, 11.12.2006, p. 1. 
OJ L 347, 24.12.2009, p.30. 
OJ L 332, 18.12.2015, p. 142. 
OJ L 25, 28.1.2006, p. 31. 
OJ L 347, 24.12.2009, p.30. 
OJ L 22, 25.1.2013, p.16. 
OJ L 332, 18.12.2015, p.142. 

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involved has generated VAT fraud, which the Latvian tax authorities have found difficult to 
control. In order to combat this abuse, they have introduced the reverse charge mechanism to 
timber  transactions,  which  has  proven  to  be  very  effective  and  has  decreased  fraud  in  this 
sector significantly.  

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, according to Latvia. 

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  one  last  time,  allowing  Latvia  to  continue  to  apply  this 
derogating  measure  until  31 December 2021.  Until  the  expiry  of  this  derogation,  Latvia 
should implement other conventional measures to fight and prevent VAT fraud in the sector 
of timber. 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. 

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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 Latvia 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 Latvia to continue to apply the 
reverse  charge  mechanism  to  timber  transactions.  The  situation,  on  which  the  initial 
derogation was based, continues to exist. Latvia claims that despite the fact that there has been 
a reduction in the number of cases of fraud involving VAT and VAT evasion on the timber 
market since the introduction of the reverse charge procedure, the risk is not eliminated.  

According to Latvia, 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 

The proposal is limited in time. 

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2018/0381 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia 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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4 

5 

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Council Decision 2006/42/EC2 authorised Latvia to apply a measure derogating from 
Article  21(1)(a)  of  Directive  77/388/EEC3,  to  designate  the  recipient  as  the  person 
liable  to  pay  value  added  tax  (VAT)  in  the  case  of  timber  transactions  until 
31 December 2009.  By  Council  Implementing  Decision  2009/1008/EU4  Latvia  was, 
by  way  of  derogation  from  Article  193  of  Directive  2006/112/EC,  authorised  to 
continue  to  designate  the  recipient  as  the  person  liable  to  pay  VAT  in  the  case  of 
timber transactions until 31 December 2012. The authorisation to apply the derogating 
measure was subsequently extended by Council Implementing Decision 2013/55/EU5 
until  31 December 2015  and  by  Council  Implementing  Decision  (EU)  2015/23966 
until 31 December 2018.  

By  letter  registered  with  the  Commission  on  20 June 2018,  Latvia  requested  the 
authorisation  to  continue  to  apply  a  measure  derogating  from  Article 193 of 
Directive 2006/112/EC 
the 
Commission on 17 August 2018, a report on the application of the measure as required 
by 
Implementing 
Decision 2009/1008/EC has been submitted by Latvia to the Commission. 

subparagraph  of  Article  2  of  Council 

letter  registered  with 

transactions.  By 

second 

timber 

the 

to 

OJ L 347, 11.12.2006, p.1. 
OJ L 25, 28.1.2006, p. 31. 
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 of 7 December 2009 authorising the Republic of Latvia 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 347, 24.12.2009, p. 30). 
Council  Implementing  Decision  of  22 January 2013  amending  Implementing  Decision  2009/1008/EU 
authorising the Republic of Latvia 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 22, 25.1.2013, p. 16). 
Council  Implementing  Decision  (EU)  2015/2396  of  10 December 2015  amending  Implementing 
Decision  2009/1008/EU  authorising  the  Republic  of  Latvia  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 332, 18.12.2015, p. 142). 

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(3) 

(4) 

(5) 

(6) 

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 
7 September 2018 of the request made by Latvia. By letter dated 10 September 2018, 
the  Commission  notified  Latvia  that  it  had  all  the  information  necessary  to  consider 
the request. 

According to Latvia, the timber market, which is one of the most important sectors of 
its economy, is particularly sensitive to VAT fraud, because it is dominated by a great 
number of small local operators and individual suppliers. The nature of the market and 
of  businesses  involved  has  generated  VAT  fraud,  which  the  Latvian  tax  authorities 
have found difficult to control. In order to combat this abuse, they have introduced the 
reverse  charge  mechanism  to  timber  transactions,  which  has  proven  to  be  very 
effective and has decreased fraud in this sector significantly.  

Latvia  should  therefore  be  authorised  to  apply  the  derogating  measure  for  a  further 
limited period of time 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.  Latvia should therefore implement  other conventional  measures 
to  fight  and  prevent  VAT  fraud  in  the  sector  of  timber  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. 

(7) 

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

(8) 

Implementing Decision 2009/1008/EU should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 2 of Implementing Decision 2009/1008/EU is replaced by the following: 

Article 1 

This Decision shall apply until 31 December 2021.' 

'Article 2 

This Decision shall apply as from 1 January 2019. 

Article 2 

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This Decision is addressed to the Republic of Latvia. 

Article 3 

Done at Brussels, 

For the Council 
The President 

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