Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2009/791/EC authorising Germany to continue to apply a measure derogating from Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax
Date: 2018-11-20
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Germany, VAT, derogation from EU law, goods and services, tax relief

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.11.2018  COM(2018) 750 final 2018/0388 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2009/791/EC authorising Germany to continue to apply a measure derogating from Articles 168 and 168a 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  10 September 2018,  the  Federal  Republic  of 
Germany  (hereinafter  Germany)  requested  the  authorisation  to  continue  to  apply  a  measure 
derogating  from  Articles  168  and  168a  of  the  VAT  Directive,  to  exclude  from  the  right  of 
deduction the VAT borne on goods and services which are used for more than 90 % by the 
taxable person for his private use or for that of his employees, or in general, for non-business 
purposes  or  non-economic  activities.  The  request  was  accompanied  by  a  report  on  the 
application  of  this  measure  as  required  by  Article  2  of  Council  Decision  2009/791/EC  of 
20 October 20092  as  amended  by  Council  Implementing  Decision  (EU)  2015/2428  of 
10 December 20153.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  14 September 2018  of  the  request  made  by  Germany.  By 
letter  dated  17 September 2018,  the  Commission  notified  Germany  that  it  had  all  the 
information necessary to consider 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 the VAT 
charged  on  purchases  made  and  services  received  for  the  purpose  of  his  taxed  transactions. 
Article  168a(1)  of  the  VAT  Directive  provides  that  the  VAT  on  expenditure  related  to 
immovable property forming part of the business assets of a taxable person and used both for 
business  and  non-business  purposes  shall  be  deductible  only  up  to  the  proportion  of  the 
property's use for purposes of the taxable person's business. Pursuant to Article 168a(2) of the 
VAT Directive Member  States may also  apply this rule in  relation  to  expenditure related to 
other goods forming part of the business assets as they specify.  

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. 

Germany requested to continue to apply a derogating measure allowing it to entirely exclude 
from the right of deduction the VAT borne on goods and services that are used by a taxable 
person  for  more  than  90 %  for  private  or  non-business  purposes,  including  non-economic 
activities. 

This  derogating  measure  for  Germany  had  initially  been  granted  by  Council  Decision 
2000/186/EC  of  28 February 20004  for  a  period  until  31 December 2002  and  was  again 
granted by Council Decision 2003/354/EC of 13 May 20035 for a period until 30 June 2004, 

1 
2 
3 
4 
5 

OJ L 347, 11.12.2006, p. 1. 
OJ L 283, 30.10.2009, p.55. 
OJ L 334, 22.12.2015, p. 12. 
OJ L 59, 4.3.2000, p.12. 
OJ L 123, 17.5.2003, p. 47. 

EN 

1 

  EN 

 
                                                 
by  Council  Decision  2004/817/EC  of  19 November 20046 
for  a  period  until 
31 December 2009  and  by  Council  Decision  2009/791/EC  of  20 October 2009  for  a  period 
until  31 December 2012.  The  latter  has  been  prolonged  until  31 December 2015  by  Council 
Implementing Decision 2012/705/EU of 13 November 20127 and until 31 December 2018 by 
Council Implementing Decision (EU) 2015/2428 of 10 December 20158.  

In  its  current  request,  Germany  informed  the  Commission  that  the  application  of  the 
derogating measure has proven to be very effective and constitutes a major simplification for 
the collection of VAT. It also helps to prevent tax evasion and avoidance. 

The requested minimal use of goods for at least 10 % for business purposes in order to allow 
to  deduct  input  VAT  is  relatively  low.  According  to  Germany,  the  prolongation  of  this 
measure will therefore only have little 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  Germany,  the  measure  reduces  administrative  burdens  for  taxpayers  and  tax 
administrations,  because  the  ratio  of  the  use  of  such  goods  for  business  and  non-business 
purposes does not have to be monitored nor adapted and therefore no records have to be kept 
on these changes. The 10 % limit also corresponds to what is foreseen in the German income 
tax  legislation,  which  provides  that  only  goods  that  are  used  for  at  least  10 %  for  business 
purposes can be regarded as business assets. 

Derogations are in  general granted for a limited time as to allow an assessment whether the 
special  measure  is  appropriate  and  effective.  In  this  respect,  based  on  the  information 
provided  by  Germany,  the  Commission  understands  that  the  10 %/90 %  apportionment 
between business and non-business use still represents a sound basis to sort out transactions in 
respect of which the business use can be considered as negligible.   

As  a  consequence,  the  special  measure  in  question  provides  a  facilitation  for  both  tax 
administrations and businesses as there is no need for any monitoring of the subsequent use of 
the  goods  and  services  to  which  the  exclusion  from  deduction  applied  at  the  time  of  their 
acquisition,  particularly  with  respect  to  a  possible  taxation  of  private  use  pursuant  to 
Articles 16  or  26  of  the  VAT  Directive  or  adjustments  to  the  deduction  as  required  under 
Articles 184 –  192  of  that  Directive.  An  extension  of  the  derogating  measure  is  therefore 
appropriate. 

However, any extension should be limited in time in order to assess  whether the conditions, 
on which the derogation is based, would still be valid. Therefore, it is proposed to extend the 
derogation  until  the  end  of  2021  and  to  request  Germany  to  present,  together  with  the 
extension  request,  a report  by 31 March 2021  at  the latest  including a  review of the applied 
apportionment  rate  between  business  and  non-business  use  on  which  the  exclusion  from 
deduction is based in case a further extension would be envisaged beyond 2021.  

• 

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 for taxable persons. 

6 
7 
8 

OJ L 357, 2.12.2004, p. 33. 
OJ L 319, 16.11.2012, p. 8. 
OJ L 334, 22.12.2015, p. 12. 

EN 

2 

  EN 

 
                                                 
Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be  subject  to  a  restriction  on  the  right  to  deduct9,  such  derogation  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level. 

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. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Germany 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 is designed to simplify the procedure for 
collecting VAT by allowing Germany to continue to apply a derogation measure allowing it 
to entirely exclude from the right of deduction the VAT borne on goods and services that are 
used by a taxable person for more than 90 % for private or non-business purposes, including 
non-economic activities. This measure has proven to be a suitable and efficient tool.  

9 

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)  

EN 

3 

  EN 

 
                                                 
According to Germany, 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 will not adversely affect the Union's own resources from VAT. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal is limited in time and includes a review clause. 

EN 

4 

  EN 

 
2018/0388 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2009/791/EC authorising Germany to continue to apply a measure 
derogating from Articles 168 and 168a 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) 

1 
2 

3 

4 

5 

6 

Articles  168  and  168a  of  Directive  2006/112/EC  govern  taxable  persons'  right  to 
deduct value added tax (VAT) charged on goods and services supplied to them for the 
purposes  of  their  taxed  transactions.  Germany  was  authorised  to  introduce  a 
derogating  measure  intended  to  exclude  VAT  borne  on  goods  and  services  from  the 
right of deduction where those goods and services are used by the taxable person for 
more  than  90 %  for  his  private  purposes  or  for  purposes  of  his  employees,  or  in 
general for non-business purposes or non-economic activities.  
Initially, Council Decision 2000/186/EC2 authorised Germany to introduce and apply 
measures  derogating  from  Articles  6  and  17  of  Council  Directive  77/388/EEC3  until 
31 December 2002.  Council  Decision  2003/354/EC4  authorised  Germany  to  apply  a 
measure  derogating  from  Article  17  of  Directive  77/388/EEC  until  30 June 2004. 
Council Decision 2004/817/EC5 extended the authorisation until 31 December 2009. 
By  Council  Decision  2009/791/EC6  Germany  was  authorised  to  continue  to  apply  a 
from  Article  168  of  Directive  2006/112/EC  until 
measure  derogating 

OJ L 347, 11.12.2006, p.1. 
Council Decision of 28 February 2000 authorising the Federal Republic of Germany to apply measures 
derogating from Articles 6 and 17 of the Sixth Directive 77/388/EEC 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 59, 4.3.2000, p.12). 
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 Decision of 13 May 2003 authorising Germany to apply a measure derogating from Article 17 
of the Sixth Directive 77/388/EEC on the harmonisation  of the laws of the Member States relating to 
turnover taxes (OJ L 123, 17.5.2003, p. 47). 
Council  Decision  of  19  November  2004  authorising  Germany  to  apply  a  measure  derogating  from 
Article 17 of the Sixth Directive 77/388/EEC on the  harmonisation of the laws of the  Member States 
relating to turnover taxes (OJ L 357, 2.12.2004, p. 33). 
Council  Decision  2009/791/EC  of  20  October  2009  authorising  the  Federal  Republic  of  Germany  to 
continue  to  apply  a  measure  derogating  from  Article  168  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 283, 30.10.2009, p. 55). 

EN 

5 

  EN 

 
                                                 
Implementing  Decision  2012/705/EU7  authorised 
31 December 2012.  Council 
Germany  to  apply  the  measure  derogating  from  Articles  168  and  168a  until 
31 December 2015  and  Council  Implementing  Decision  (EU)  2015/24288  until 
31 December 2018.  

By letter registered with the Commission on 10 September 2018, Germany requested 
the  authorisation  to  continue  to  apply  a  measure  derogating  from  Articles  168  and 
168a  of  Directive  2006/112/EC  to  entirely  exclude  from  the  right  of  deduction  the 
VAT  borne  on  goods  and  services  that  are  used  by  a  taxable  person  for  more  than 
90 %  for  private  or  non-business  purposes,  including  non-economic  activities.  The 
request  was  accompanied  by  a  report  on  the  application  of  the  derogating  measure 
including  a  review  of  the  apportionment  rate  applied  on  the  right  to  deduct  VAT  as 
required by Article 2 of Council Decision 2009/791/EC.  

the 

second 

accordance  with 

In 
subparagraph  of  Article  395(2)  of 
Directive 2006/112/EC, the Commission informed the other Member States, by letters 
dated  14 September 2018  of  the  request  made  by  Germany.  By  letter  dated 
17 September 2018, the Commission notified Germany that it had all the information 
necessary to consider the request. 

According  to  Germany  the  measure  has  proven  very  effective  to  simplify  the 
collection  of  VAT  and  to  avoid  tax  evasion  and  avoidance.  The  measure  reduces 
administrative burdens for businesses and tax administrations, as there is no need for 
any monitoring of the subsequent use of the goods and services to which the exclusion 
from deduction applied at the time of their acquisition. Germany should therefore be 
authorised to continue to apply this special measure for a further limited period until 
31 December 2021. 

In  the  event  that  Germany  considers  an  extension  beyond  2021  to  be  necessary,  it 
should  submit  a  request  for  an  extension  to  the  Commission  by  31 March 2021 
accompanied  by  a  report  on  the  application  of  the  measure  which  should  include  a 
review of the apportionment rate applied.   

(4) 

(5) 

(6) 

(7) 

(8) 

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

(9) 

Decision 2009/791/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

Article 2 of Decision 2009/791/EC is replaced by the following: 

This Decision shall expire on 31 December 2021. 

‘Article 2 

7 

8 

Council Implementing Decision 2012/705/EU of 13 November 2012 amending Decision 2009/791/EC 
and Implementing Decision 2009/1013/EU authorising Germany and Austria respectively to continue to 
apply  a  measure  derogating  from  Articles  168  and  168a  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 319, 16.11.2012, p. 8). 
Council  Implementing  Decision  (EU)  2015/2428  of  10 December 2015  amending  Decision 
2009/791/EC and Implementing Decision 2009/1013/EU authorising Germany and Austria respectively 
to continue to apply a measure derogating from Articles 168 and 168a of Directive 2006/112/EC on the 
common system of value added tax (OJ L 334, 22.12.2015, p. 12). 

EN 

6 

  EN 

 
                                                 
Any request for the extension of the derogating measure provided for in this Decision shall be 
submitted to the Commission by 31 March 2021. 

Such  request  shall  be  accompanied  by  a  report  on  the  application  of  this  measure  which 
includes a review of the apportionment rate applied on the right to deduct VAT on the basis of 
this Decision.’ 

This Decision shall apply from 1 January 2019.  

Article 2 

This Decision is addressed to the Federal Republic of Germany. 

Article 3 

Done at Brussels, 

For the Council 
The President 

EN 

7 

  EN