Proposal for a COUNCIL IMPLEMENTING DECISION authorising Lithuania to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2019-01-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Lithuania, VAT, computer equipment, derogation from EU law, taxpayer

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   EUROPEAN COMMISSION  Brussels, 21.1.2019  COM(2019) 9 final 2019/0006 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Lithuania to introduce a special 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 (hereafter 'the VAT Directive'), 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  16  October  2018,  Lithuania  requested  a 
derogation  from  Article  193  of  the  VAT  Directive  in  order  to  apply  the  reverse  charge 
mechanism  to  hard  drives.  In  accordance  with  Article  395(2)  of  the  VAT  Directive,  the 
Commission  informed  the  other  Member  States  by  letters  dated  19  November  2018  of  the 
request  made  by  Lithuania.  By  letter  dated  20  November  2018,  the  Commission  notified 
Lithuania that it had all the information necessary to consider the request. 

1. 

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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 value added tax (VAT). 

Pursuant to Article 395 of the VAT Directive, Lithuania requested a derogation from Article 
193 of the VAT Directive to be authorised to apply the reverse charge mechanism to supplies 
of  hard  drives  which  are  not  covered  by  Article  199a  of  the  VAT  Directive.  Under  this 
procedure, the taxable person, to whom the supplies are made, becomes liable for the payment 
of VAT. This taxable person, provided it has a full right of deduction, would simultaneously 
declare and deduct the VAT corresponding to the supply, thus leading to no effective payment 
of VAT to the Treasury.  

Lithuania  discovered  VAT  fraud  in  the  sector  of  electronic  goods  such  as  laptops,  mobile 
phones,  tablets  and  hard  drives.  These  goods  are  acquired  from  other  Member  States  and, 
before they are supplied to retailers or directly to consumers, multiple transactions take place 
between  missing  traders  who  do  not  pay  VAT  to  the  Treasury.  Checks  carried  out  in 
Lithuania revealed that in 2016-2017 around 6 million EUR in tax may not have been paid on 
electronic goods representing significant losses for the state budget.  

Lithuania  undertook  a  number  of  measures  to  tackle  and  prevent  the  VAT  fraud.  Since 
October  2016,  all  VAT  payers  in  Lithuania  are  obliged,  on  a  monthly  basis,  to  enter 
information  on  the  VAT  invoices  that  they  have  received  and  issued  into  the  e-invoice 
subsystem  (‘i.SAF’)  of  the  smart  administration  system  ('i.MAS')  helping  the  authorities  to 
identify differences between the data declared by VAT taxpayers and the amounts of tax not 
declared  in  a  timely  manner.  Also  information  on  goods  transport  documents  must  be 
registered  in  the  i.MAS  electronic  consignment  notes  subsystem  (‘i.VAZ’),  specifying  the 
goods carried, consignors and consignees, before the goods are transported in the territory of 
Lithuania.  This  operational  information  gathered  by  the  State  Tax  Inspectorate  also  used  to 
detect  potential  cases  of  fraud  or  to  quickly  find  out  about  goods  involved  in  a  fraudulent 
chain.  

Despite  all  the  measures  introduced  to  combat  VAT  fraud,  the  information  provided  by 
Lithuania shows that these measures are not sufficient to prevent VAT fraud in the supply of 
electronic goods. Lithuania considers that the introduction of the reverse charge in the sector 
concerned is necessary.  

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Lithuania intends to introduce the reverse charge to electronic products based on Article 199a 
of  the  VAT  Directive.  However  hard  drives  are  not  included  in  this  article.  Lithuania  also 
submits that the experience of other Member States shows that following the introduction of 
the reverse charge mechanism to those electronic goods covered by Article 199a of the VAT 
Directive the fraud moves to other electronic goods.  

Lithuania therefore requests to be authorised to introduce the reverse charge mechanism also 
to hard drives based on Article 395 of the VAT Directive.  

Given  the  potential  positive  impact  of  the  measure  in  the  fight  against  fraud  discovered  by 
Lithuania, it is proposed to grant the derogation for a limited period, from 1 March 2019 until 
28  February  2022.  During  the  period  of  application  of  the  derogating  measure  Lithuania 
should introduce other conventional measures to effectively control and prevent fraud in the 
supplies of hard drives. Consequently there should be no further need to derogate from Article 
193 of the VAT Directive with regards to the supplies of hard drives.  

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 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 prevent certain forms of tax evasion or avoidance in a specific sector.  

• 

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. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Lithuania and concerns only this Member State. 

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• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal for  Implementing Decision aims  at  preventing  certain  forms  of tax evasion  or 
avoidance in the sector of hard drives. The reverse charge mechanism should help Lithuania 
to prevent VAT fraud in hard drives' sector. Consequently, the derogating measure will have a 
potential positive impact.  

Because  of  the  narrow  scope  of  the  derogation  and  the  limited  application  in  time,  the 
negative  impact,  consisting  in  higher  administrative  burden  for  businesses  dealing  with 
electronic products, will in any case be limited. 

4. 

BUDGETARY IMPLICATIONS 

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

5. 

OTHER ELEMENTS 

The proposal includes a time limitation set at 28 February 2022. 

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2019/0006 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Lithuania to introduce a special 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 thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Article 193 of Directive 2006/112/EC  provides that  the taxable person supplying the 
goods or services is, as a general rule, liable for the payment of value added tax (VAT) 
to the tax authorities. 

By letter registered with the Commission on 16 October 2018, Lithuania has requested 
an  authorisation  to  introduce  a  special  measure  derogating  from  Article  193  of 
Directive 2006/112/EC in order to apply the reverse charge mechanism to supplies of 
hard drives.  

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 19 
November 2018 of the request made by Lithuania. By letter dated 20 November 2018, 
the Commission notified Lithuania that it had all the information necessary to consider 
the request. 

Lithuania discovered VAT missing trader fraud in the sector of electronic goods such 
as laptops, mobile phones, tablets and hard drives. The scale and scope of this practice 
has a direct, very negative impact on the state budget.  

Lithuania  has  undertaken  number  of  measures  to  tackle  and  prevent  the  VAT  fraud. 
According to Lithuania those measures are not sufficient to prevent VAT fraud in the 
supply of electronic goods. 

Lithuania  intends  to  introduce  the  reverse  charge  to  electronic  products  based  on 
Article 199a of Directive 2006/112/EC. However, hard drives are not included in that 
article.  

In order to provide for a more comprehensive form of the reverse charge mechanism 
that  should  apply  not  only  to  the  electronic  products  as  already  allowed  by  Article 
199a  of  Directive  2006/112/EC  but  also  to  hard  drives,  Lithuania  requests  to  be 
authorised to introduce the reverse charge mechanism for supplies of hard drives based 
on Article 395 of Directive 2006/112/EC.  

1 

OJ 347, 11.12.2006, p. 1. 

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(8) 

(9) 

Given  the  possible  positive  impact  of  the  special  measure  in  the  fight  against  fraud 
identified by Lithuania, the derogation should be granted for a limited period, from 1 
March 2019 until 28 February 2022.  

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  the  VAT  fraud  in  the  sector  of  hard  drives  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 the supplies of hard drives.  

(10)  The  special  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 

accruing from VAT, 

HAS ADOPTED THIS DECISION:  

By way of derogation from Article 193 of Directive 2006/112/EC, Lithuania is authorised to 
designate the recipient as the person liable to pay VAT in the case of supplies of hard drives.  

Article 1 

This Decision shall apply from 1 March 2019 and shall expire on 28 February 2022.  

Article 2 

This Decision is addressed to the Republic of Lithuania. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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