Proposal for a COUNCIL IMPLEMENTING DECISION authorising Portugal to introduce a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2019-06-14
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Portugal, VAT, derogation from EU law, establishment, supply, tax relief, taxpayer, wood product

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   EUROPEAN COMMISSION  Brussels, 14.6.2019  COM(2019) 275 final 2019/0136 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Portugal 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  (‘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 2 July 2018, Portugal requested the authorisation 
to introduce 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 
27 November 2018,  Portugal  sent  more  detailed  information  on  the  measure  it  wants  to 
introduce. On 18 December 2018, the Commission sent a letter to ask Portugal for a bilateral 
meeting  to  clarify  the  request.  The  meeting  took  place  on  27 February 2019.  Portugal 
confirmed its derogation request and sent additional information by letter registered with the 
Commission on 19 March 2019.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  27 March 2019  of  the  request  made  by  Portugal.  By  letter 
dated  28 March 2019,  the  Commission  notified  Portugal  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 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. 

Portugal  requested  to  apply  the  reverse  charge  mechanism  to  supplies  of  cork,  wood,  pine 
cones and pine nut kernels in their shell if the person to whom these goods are supplied is a 
taxable person who has his registered office, permanent establishment or residence in Portugal 
and carries out transactions for which he is entitled to fully or partly deduct input VAT.  

According  to  Portugal,  its  forestry  sector  is  one  of  the  sectors  of  economic  activity  where 
fraud and tax evasion are extremely high. This is due to the fact that this sector is dominated 
by a large number of small producers and numerous harvesters who are selling raw materials 
onwards  to  processing  companies  without  declaring  and  paying  VAT  for  these  sales.  The 
processing  companies,  however,  are  medium-sized  or  large  taxable  persons  and  are  easily 
identifiable. The nature of the market and of businesses involved has generated VAT fraud, 
which the Portuguese tax authorities have found difficult to tackle despite enhanced controls 
and  the  measures  already  taken.  In  order  to  combat  this  abuse,  Portugal  would  like  to 
introduce the reverse charge mechanism for supplies of cork, wood, pine cones and pine nut 
kernels in their shell, which would shift the liability to pay VAT to the small number of easily 
identifiable processing companies. This would, according to Portugal, eliminate this kind of 
VAT fraud and prevent the resulting losses of VAT revenue. 

1 

OJ L 347, 11.12.2006, p. 1. 

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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  fraudulent  situation  in  the  above-mentioned  sector,  it  is 
therefore  proposed  to  introduce  a  derogating  measure,  allowing  Portugal  to  apply  this 
derogating  measure  until  31 December 2022.  Until  the  expiry  of  this  derogation,  Portugal 
should implement other conventional measures to fight and prevent VAT fraud in the sector 
of cork, wood, pine cones and pine nut kernels in their shell. 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 Portugal 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  aims  at  preventing  certain  forms  of  tax 
evasion or avoidance in the sector of supplies of cork, wood, pine cones and pine nut kernels 
in  their  shell.  The  reverse  charge  mechanism  should  help  Portugal  to  further  combat  VAT 
fraud  in  this  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, its impact 
will in any case be limited. 

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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2019/0136 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Portugal 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(1) thereof,  

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

to 

By  letter  registered  with  the  Commission  on  2 July 2018,  Portugal  requested  the 
authorisation 
introduce  a  special  measure  derogating  from  Article 193 of 
Directive 2006/112/EC for supplies of cork, wood, pine cones and pine nut kernels in 
their shell if the person to whom those goods are supplied is a taxable person who has 
his registered office, permanent establishment or residence in Portugal and carries out 
transactions  for  which  he  is  entitled  to  fully  or  partly  deduct  input  value  added  tax 
(VAT).  By  letters  registered  with  the  Commission  on  27 November 2018  and 
19 March 2019 more information has been submitted by Portugal to the Commission. 

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 27 March 2019 of the request made by Portugal. By letter dated 28 March 2019, 
the Commission notified Portugal that it had all the information necessary to consider 
the request. 

According to Portugal, the forestry sector in Portugal is one of the sectors of economic 
activity where fraud and tax evasion is extremely high. This is due to the fact that this 
sector  is  dominated  by  a  large  number  of  small  producers  and  numerous  harvesters 
who are selling raw materials onwards to processing companies without declaring and 
paying VAT for these sales. The nature of the market and of businesses involved has 
generated  VAT  fraud,  which  the  Portuguese  tax  authorities  have  found  difficult  to 
tackle despite  enhanced  controls  and the measures  already taken.  In order to  combat 
abuse, Portugal would like to introduce the reverse charge mechanism for supplies of 
cork,  wood,  pine  cones  and  pine  nut  kernels  in  their  shell,  which  would  shift  the 
liability to pay VAT to the small number of easily identifiable processing companies. 
This would, according to Portugal, eliminate this kind of VAT fraud and prevent the 
resulting losses of VAT revenue. 

(4) 

Portugal should therefore be authorised to introduce a derogating measure for a limited 
period of time until 31 December 2022.  

1 

OJ L 347, 11.12.2006, p. 1. 

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(5) 

Derogations are in general granted for a limited period of time to allow an assessment 
whether  the  derogating  measure  is  appropriate  and  effective.  Derogations  give 
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. Portugal should therefore implement other conventional measures 
to fight and prevent VAT fraud in the sector of cork, wood, pine cones  and pine nut 
kernels 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 those supplies. 

(6) 

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

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article 193 of Directive 2006/112/EC,  Portugal  is  authorised  to 
designate the taxable person to whom supplies of cork, wood, pine cones or pine nut kernels 
in their shell are made as the person liable to pay VAT if this is a taxable person who has his 
registered  office,  permanent  establishment  or  residence  in  Portugal  and  carries  out 
transactions for which he is entitled to fully or partly deduct input VAT. 

This Decision shall apply from 1 January 2020 and shall expire on 31 December 2022. 

Article 2 

This Decision is addressed to the Portuguese Republic. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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