Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2013/805/EU authorising the Republic of Poland to introduce measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2019-07-02
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Poland, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 2.7.2019  COM(2019) 309 final 2019/0146 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2013/805/EU authorising the Republic of Poland to introduce measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax  
 
 
EXPLANATORY MEMORANDUM 

Pursuant  to  Article  395(1)  of  Council  Directive  2006/112/EC  of  28  November  2006  on  the 
common system of value added tax1 (‘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 14 January 2019, Poland requested an extension 
of the derogation from Articles 26(1)(a) and 168 of the VAT Directive in order to continue (a) 
to limit to 50% the right of deduction of input VAT on expenditure relating to certain motor 
vehicles and (b) to exempt from VAT the use by taxable persons of motor vehicles covered by 
the  derogation  for  private  purposes  or  for  any  purpose  other  than  business  activities.  In 
accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission  informed  the  other 
Member States by letter dated 15 April 2019 on the request made by Poland. By letter dated 
16  April  2019,  the  Commission  notified  Poland  that  it  had  all  the  information  it considered 
necessary for the appraisal of 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  VAT 
charged on purchases of goods or services used for the purposes of taxed transactions in the 
Member  State  where  such  transactions  take  place.  Article  26(1)(a)  of  the  same  directive 
stipulates that the use for private purposes of goods forming part of the assets of a business 
shall be considered as a supply of services for consideration if the VAT on such goods was 
eligible for deduction. 

In the case of passenger cars forming part of the assets of a business, the application of the 
above provisions encounters a number of practical difficulties, in particular because it is not 
easy to distinguish between private and business use of a motor vehicle. Moreover, in cases 
where  records  about  the  use  of  such  cars  are  kept,  they  add  an  additional  burden  to  both 
businesses  and  administrations  in  terms  of  maintaining  and  controlling  them.  Those 
difficulties may increase the risk of VAT abuse or fraud attempts. 

Poland is currently authorised to derogate from Article 168 of the VAT Directive by limiting 
to 50% the right to deduct VAT on the purchase,  intra-Community acquisition, importation, 
hire  or  leasing  of  motor  vehicles  as  well  as  VAT  charged  on  expenditure  related  to  those 
vehicles,  provided  that  they  are  not  used  exclusively  for  business  purposes.  The  derogation 
does not cover motor vehicles with a total maximum weight exceeding 3.5 tonnes and those 
with  more  than  nine  seats,  including  the  driver’s  seat.  Similarly,  it  does  not  cover 
expenditures related entirely to the taxable person’s business. 

In addition, Poland is authorised to derogate from  Article 26(1)(a) of the VAT Directive by 
exempting from VAT the private use by the taxable person or their staff of vehicles caught by 
the above derogation. Any use for purposes other than business is considered as private use.  

1 

OJ L 347, 11.12.2006, p. 1. 

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The  authorisation  for  the  above  derogating  measures  was  first2  granted  by  the  Council  by 
means  of  the  Implementing  Decision  2013/805/EU  of  17  December  20133  for  the  period  1 
January  2014  until  31  December  2016.  Consequently,  Poland  incorporated  the  authorised 
measures into the national VAT legislation with effect from 1 April 20144.  

In 2016, Poland requested an extension of the period in which the measures in question could 
be  applied.  The  Council  authorised  such  extension  until  31  December  2019  by  means  of 
Implementing Decision (EU) 2016/1837 of 11 October 20165.  

The present request from Poland to prolong further the derogation until 31 December 2022 is 
based  on  the  same  grounds  as  those  presented  in  the  previous  requests.  The  request  is 
accompanied by a report including a review of the percentage limitation applied on the right 
of deduction, as required by Article 3(2) of Decision 2013/805/EU. 

Poland maintains that the current rate of 50% is justifiable and should continue to be applied, 
as  it  has  contributed  to  simplifying  the  VAT  collection  procedure  and  has  prevented  tax 
evasion. According to the data submitted by Poland, small enterprises with modest turnover 
(microenterprises)  and  a  few  employees  dominate  the  Polish  economy.  Such  enterprises  are 
either sole traders or family firms. In 2014-2017, they accounted for almost 96% of the total 
number  of  enterprises  in  the  country.  Poland  argues  that  it  is  difficult  to  delineate  between 
private and business use of corporate vehicles owned by such microenterprises. The same is 
true  with  regard  to  large  companies,  which  often  make  their  vehicles  available  for  the 
exclusive  use  of  their  employees  as  a  non-cash  fringe  benefit.  It  is  true  that  establishing  a 
distinction between private and business use of corporate vehicles would entail onerous and 
disproportionate  costs  on  keeping  appropriate records  as  compared  to  the  potential  benefits, 
notably as regards sole traders and microenterprises. It could also give rise to legal disputes 
between the tax authorities and taxable persons resulting in additional costs. 

It is stated that the percentage rate set at 50% reflects adequately the actual business use of 
such vehicles. Indeed, as submitted by Poland, applying a higher or a lower rate would lead to 
excessively high discrepancies between the set rate and the actual use of vehicles for business 
activities  and  private  purposes.  This  rate  is  similar  to  the  percentage  used  in  other  Member 
States.  

It  appears  that  taxable  persons  have  expressed  a  mostly  positive  opinion  on  both  the 
conditions  for  deduction  and  the  set  percentage  rate.  The  measures  adopted  by  Decision 
2013/805/EU  are  considered  as  a  satisfactory  compromise  between  the  adopted  rules  and 
expensive,  time-consuming  and  largely  ineffective  record  keeping  with  the  view  to 
confirming that a particular vehicle has indeed been used for business activities.  

The derogating measures are not expected to affect significantly the overall amount of the tax 
revenue  of  Poland  collected  at  the  stage  of  the  final  consumption.  Likewise,  they  are  not 
expected to adversely affect the Union’s own resources accruing from VAT.  

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A similar authorisation was in place until 31 December 2013, based on Council Implementing Decision 
of 27 September 2010 (OJ L 256, 30.9.2010, p. 24). 
OJ L 353, 28.12.2013, p. 51. 
Poland states that this was done by means of the Act of 7 February 2014 amending the VAT Act of 11 
March  2004  [Journal  of  Laws  (Dziennik  Ustaw)  2011,  No  177,  item  1054,  as  amended]  and  certain 
other acts (Journal of Laws 2014, item 312). 
OJ L 280, 18.10.2016, p. 28. 

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In  the  light  of  the  above,  and  given  that  the  EU  legal  framework  and  the  factual  situation 
remain  unchanged,  the  requested  extension  of  the  derogating  measures  until  31  December 
2022  appears  to  be  justified.  Therefore,  it  is  proposed  that  the  request  be  granted.  Should 
Poland wish to ask for a further extension beyond 2022, it shall submit an extension request 
by  1  April  2022,  accompanied  by  a  report  including  a  review  of  the  percentage  restriction 
applied. 

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to the right of deduction have been granted to other Member 
States. 

Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on  which  the  VAT  is  not  deductible.  Until  then,  it  authorises  Member  States  to  maintain 
exclusions that were in place under national laws on 1 January 1979. On this basis, there is a 
number of ‘stand still’ provisions restricting the right to deduct VAT in relation to corporate 
motor vehicles. 

Previous initiatives to establish rules on which categories of expenditure may be subject to a 
restriction on the right to deduct have failed6. Until those rules are harmonised at EU level, 
derogations such the present one are considered as appropriate. 

The proposed measures are therefore consistent with the provisions of the VAT Directive. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive is the only possible legal basis. 

• 

Subsidiarity (for non-exclusive competence)  

Considering the provision of the VAT Directive on which it is based, the proposal falls under 
the exclusive competence of the European Union. Hence, 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,  i.e.  to  simplify  tax  collection  and  to  prevent  certain  forms  of  tax  evasion  or 
avoidance. In particular, given the potential for businesses to under declare their liability and 
the burdensome check of mileage data for tax authorities, the 50% restriction would simplify 
the  VAT  collection  procedure  and  would  prevent  tax  evasion  inter  alia  through  incorrect 
record keeping. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

6 

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). 

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Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is 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 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by Poland and concerns only this particular Member State. 

• 

Collection and use of expertise 

There was no need for external expertise.  

• 

Impact assessment 

The proposal aims to simplify the procedure for collecting VAT and to prevent VAT evasion. 
It  has,  therefore,  a  potential  positive  impact  for  both  businesses  and  administrations.  The 
derogating measures have been identified by Poland as the most appropriate solution and are 
comparable to other past and present derogations granted to other Member States. 

• 

Fundamental rights 

The proposal does not have any consequences for the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will not have a negative impact on the EU budget. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal includes a sunset clause which is set at 31 December 2022. 

In  case  Poland  considers  a  further  extension  of  the  derogating  measures  beyond  2022,  it 
should submit to the Commission an extension request accompanied by a report including a 
review of the percentage limit no later than 1 April 2022.  

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2019/0146 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2013/805/EU authorising the Republic of Poland to 
introduce measures derogating from point (a) of Article 26(1) and Article 168 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 tax7, and in particular the first subparagraph of Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Article 168 of Directive 2006/112/EC establishes a right for taxable persons to deduct 
value  added  tax  (VAT)  charged  on  supplies  to  them  of  goods  and  services  that  are 
used  for  the  purposes  of  their  taxed  transactions.  Article  26(1)(a)  of  that  Directive 
treats the use of business assets for the private use of taxable persons or their staff or, 
more generally, for purposes other than those of their business as a supply of services 
for consideration. 
By  Council  Implementing  Decision  2013/805/EU8,  Poland  is  authorised  to  limit  the 
right under Article 168 of Directive 2006/112/EC to deduct VAT to 50% in the case of 
VAT  on  the  purchase,  intra-Community  acquisition,  importation,  hire  or  leasing  of 
certain motorised road vehicles, and of VAT on expenditure related to those vehicles, 
where the vehicle in question is not entirely used for business purposes. For vehicles 
to  which  that  50%  limit  applies,  Poland  is  also  authorised  to  relieve  taxable  persons 
from  having  to  treat  non-business  use  of  those  vehicles  as  a  supply  of  services  in 
accordance with Article 26(1)(a) of that Directive.  

The  expiry  date  of  Implementing  Decision  2013/805/EU  was  extended  by  Council 
Implementing Decision 2016/1837/EU9 to 31 December 2019. 

By  letter  registered  with  the  Commission  on  14  January  2019,  Poland  requested 
authorisation 
the  derogating  measures  authorised  by 
Implementing Decision 2013/805/EU (‘the derogating measures’) for a further period 
until 31 December 2022. 

to  continue 

to  apply 

(5) 

By  letter  dated  15  April  2019,  the  Commission  informed  the  other  Member  States 
pursuant to Article 395(2) of Directive 2006/112/EC of the request that had been made 

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9 

OJ L 347, 11.12.2006, p. 1. 
Council Implementing Decision 2013/805/EU of 17 December 2013 authorising the Republic of Poland 
to  introduce  measures  derogating  from  point  (a)  of  Article  26(1)  and  Article  168  of  Directive 
2006/112/EC on the common system of value added tax (OJ L 353, 28.12.2013, p. 51). 
Council  Implementing  Decision  (EU)  2016/1837  of  11  October  2016  authorising  the  Republic  of 
Poland  to  continue  to  apply  measures  derogating  from  point  (a)  of  Article  26(1)  and  Article  168  of 
Directive 2006/112/EC on the common system of value added tax (OJ L 280, 18.10.2016, p. 28).  

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(6) 

(7) 

(8) 

(9) 

by Poland. By letter dated 16 April 2019, the Commission notified Poland that it had 
all the information necessary to consider the request.  

Alongside  the  request,  Poland  submitted  a  report  to  the  Commission,  in  accordance 
with  Article  3(2)  of  Implementing  Decision  2013/805/EU,  including  a  review  of  the 
percentage  restriction  applied  on  the  right  to  deduct  VAT.  Based  on  the  information 
currently  available,  Poland  maintains  that  a  rate  of  50%  is  still  justified.  It  also 
maintains that the derogation authorised by Implementing Decision 2013/805/EU from 
the requirement set out in Article 26(1)(a) of Directive 2006/112/EC is still necessary 
to  avoid  double  taxation.  Those  derogating  measures  are  justified  by  the  need  to 
simplify the procedure for collecting  VAT and  to  prevent  tax evasion resulting from 
incorrect record-keeping and false tax declarations. 

Extension of the derogating measures should be limited to the time needed to evaluate 
the effectiveness of the derogating measures and the appropriateness of the percentage. 
Poland  should  therefore  be  authorised  to  continue  to  apply  the  derogating  measures 
until 31 December 2022. 

A deadline should be set for requesting authorisation for any further extension of the 
derogating measures beyond 2022. Poland should also be required to submit a report 
alongside any such extension request, including a review of the percentage restriction 
applied on the right to deduct VAT. 

The derogating measures  will only have  a negligible effect on the overall amount  of 
tax  collected  at  the  stage  of  final  consumption  and  will  not  adversely  affect  the 
Union’s own resources accruing from VAT. 

(10) 

Implementing Decision 2013/805/EU should be therefore amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 3 of Implementing Decision 2013/805/EU is replaced by the following: 

Article 1 

This Decision shall expire on 31 December 2022. 

‘Article 3 

Any request for authorisation to extend the derogating measures authorised by this Decision 
shall be submitted to the Commission by 1 April 2022. The request shall be accompanied by a 
report including a review of the percentage restriction applied on the right to deduct VAT on 
the basis of this Decision.’. 

This Decision is addressed to the Republic of Poland. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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