Proposal for a COUNCIL IMPLEMENTING DECISION authorising Spain and France to apply a special measure derogating from Article 5 of Directive 2006/112/EC on the common system of value added tax
Date: 2019-11-13
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Aquitaine, Basque Country, France, Spain, VAT, cross-border cooperation, derogation from EU law, electricity supply, energy grid, trans-European network

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   EUROPEAN COMMISSION  Brussels, 13.11.2019  COM(2019) 583 final 2019/0256 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Spain and France to apply a special measure derogating from Article 5 of Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 

Pursuant  to  Article  395  of  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system  of  valued  added  tax1  (hereafter  ‘the  VAT  Directive’),  the  Council,  acting 
unanimously  on  a  proposal  from  the  Commission,  may  authorise  Member  States  to  apply 
special  measures  for  derogation  from  that  Directive  in  order  to  simplify  the  procedure  for 
charging the tax or to prevent certain types of tax evasion or avoidance. 

By letters registered with the Commission respectively on 23 May 2019 and 17 June 2019, 
France  and  Spain  requested  an  authorisation  to  derogate  from  Article  5  of  the  VAT 
Directive.  In  accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission 
informed the other Member States of the request made by Spain and France by letters dated 
10 September 2019. By letters dated 11 September 2019, the Commission notified Spain and 
France that it had all the information it considered necessary for the appraisal of the request. 

1. 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  European  Union  has  developed  a  strong  energy  policy,  based  on  the  need  for  secure, 
competitive  and  sustainable  energy.  The  European  Union  has  therefore  set  ambitious 
objectives  to  be  reached  at  Union  Level,  regarding  energy  efficiency,  development  of 
renewable energy sources and reduction of CO2 emissions. In order to reach these objectives, 
it is necessary a more integrated energy market. 

In  this  regard,  the  development  of  electricity  interconnection  capacity  between  Spain, 
Portugal  and  the  rest  of  Europe  is  a  priority.  The  importance  of  a  further  increase  in 
interconnection  capacity  between  Spain  and  France  was  emphasized  in  the  Madrid 
Declaration signed on 4 March 2015 by the President of France, the Prime Ministers of Spain 
and  Portugal  and  the  President  of  the  European  Commission.  In  this  document  it  was 
underlined  the  fundamental  importance  of  attaining  a  fully-functioning  and  interconnected 
internal  energy  market.  The  document  also  stressed  that  building  the  necessary  energy 
infrastructure  is  actually  imperative  for  the  Member  States  which  have  not  yet  attained  a 
minimum  level  of  integration  in  the  internal  energy  market,  such  as  Portugal  and  Spain. 
Following  this  declaration,  the  High  Level  Group  for  South-West  Europe  was  established, 
with the aim of monitoring the development of interconnections in the region. 

An  important  step  in  this  direction  was  the  construction  of  the  Baixas-Santa  Llogaia 
interconnection.  The  construction  of  a  second  interconnection  through  the  Bay  of  Biscay  is 
considered as the next step. 

In this regard, the national electricity market regulators of Spain and France, respectively the 
‘Comisión Nacional de los Mercados y la Competencia’ and the ‘Commission de Régulation 
de  l’Énergie’,  signed  an  agreement  on  22  September  2017  to  finance  an  electricity 
interconnection  between  both  Member  States  through  the  Biscay  Gulf.  The  construction  of 
this  interconnection  was  entrusted  to  the  electricity  transmission  system  operators  in  Spain 
and  France,  respectively  ‘Red  Eléctrica  de  España’  and  ‘Réseau  de  transport  d’Electricité’. 
The agreement provides for a division of the cost on equal shares, thus 50% of the costs will 
be borne by Spain and the other 50% of the costs will be borne by France. 

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OJ L 347, 11.12.2006, p. 1. 

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The  project  involves  the  construction  of  two  independent  high  voltage  direct  current 
(hereafter ‘HVDC’) links, each rated 1000 Megawatts (hereafter ‘MV’), between Cubnezais 
(France) and Gatica (Spain). The project will be composed of the following elements: 

- Technical adaptations of the existing Gatica and Cubnezais substations; 

-  Connections  from  the  existing  Gatica  and  Cubnezais  substations  to  the  new  Gatica  and 
Cubnezais HVDC converter stations; 

- Four new 1000 MW HVDC converter stations (2 bipoles in Gatica and 2 in Cubnezais); 

-  Two  1000  MW  links  (4  cables)  of  which  90  kilometres  terrestrial  and  280  kilometres 
submarine through the Biscay Gulf; 

- The voltage of the HVDC links will be defined once the tender process is completed. 

In  accordance  with  the  principle  of  territorial  application  laid  down  by  the  VAT  Directive, 
with  regard  to  supplies  of  goods  and  services  it  is  necessary  to  establish  where  they  are 
carried out. That is why for every supply of goods or services, intra-Community acquisition 
and import of goods related to the execution of the project, it would normally be necessary to 
establish if they are carried out in Spain or in France. Spain and France are of the opinion that 
the application of this rule would create tax complications to the taxable persons responsible 
for  the  construction  of  the  electricity  interconnection  and  for  the  Spanish  and  French  tax 
authorities,  as  the  project  is  actually  managed  as  a  whole  irrespective  of  its  cross-border 
nature. 

In order to simplify the charging of VAT, Spain and France request an authorisation based on 
Article  395  of  the  VAT  Directive  to  derogate  from  Article  5  of  the  VAT  Directive  and  to 
provide  that,  for  VAT  purposes,  all  supplies  of  goods  and  services,  intra-Community 
acquisitions and imports of goods destined for the execution of the foreseen investment (i.e. 
the  construction  of  the  electricity  interconnection)  are  invoiced  by  the  suppliers  as  taking 
place 50% in the territory of Spain and 50% in the territory of France. 

After the construction of the electricity interconnection, the normal VAT rules will apply. 

The Council authorised a similar special measure to Spain and France2 for the construction of 
an  underground  electricity  interconnection  between  Santa  Llogaia  in  Spain  and  Baixas  in 
France. Other derogations from the territoriality principle have been authorised by the Council 
on previous occasions, inter alia, between Germany and Poland3, Germany  and Czechia4, as 
well as between Poland and Ukraine5.  

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Council Implementing Decision 2012/85/EU of 10 February 2012 (OJ L 41, 15.2.2012, p. 16). 
Council Decision 95/115/EC of 30 March 1995 (OJ L 80, 8.4.1995, p.47); Council Decision 96/402/EC 
of 25 June 1996 (OJ L 165, 4.7.1996, p. 35); Council Decision 95/435/EC of 23 October 1995 (OJ L 
257, 27.10.1995, p. 34); Council Decision 2001/741/EC of 16 October 2001 (OJ L 278, 23.10.2001, p. 
28) and Council Implementing Decision (EU) 2018/918 of 22 June 2018 (OJ L 163, 28.6.2018, p. 17). 
Council Decision 97/188/EC of 17 March 1997 (OJ L 80, 21.3.1997, 21 of March 1997  p.18); Council 
Decision 97/511/EC of 24 July 1997 (OJ L 214, 6.8.1997, p. 39) and Council Decision 2001/742/EC of 
16 October 2001 (OJ L 278, 23.10.2001, p. 30). 
Council Implementing Decision (EU) 2017/1769 of 25 September 2017 (OJ L 250, 28.9.2017, p. 73). 

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The  split  between  France  and  Spain  of  the  VAT  charged  on  the  construction  work  will 
represent  a  simplification,  which  will  make  it  easier  for  the  businesses  concerned  and  tax 
authorities to apply the tax rules than would be the case if the normal tax rules were applied. 

Given  the  narrow  scope  of  the  derogating  measure,  any  possible  negative  impact  of  the 
measure on the VAT collected at the stage of final consumption and thus on the Union’s own 
resources accruing from VAT, would be negligible. 

In light of the above, it is proposed to grant the requested derogating measure. 

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 Member States upon their own request and 
does not constitute any obligation. 

Given the very 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  the  VAT  Directive,  derogation  from  the  common  VAT  rules  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 individual Member States. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This  proposal  is  based  on  requests  made  by  Spain  and  France  and  concerns  only  these 
Member States. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The  proposal  for  a  Council  Implementing  Decision  allows  Spain  and  France  to  treat  all 
supplies of goods and services, intra-Community acquisitions and imports of goods destined 
for the construction of the electricity interconnection between Gatica and Cubnezais as carried 
out  in  a  50%  proportion  in  Spain  and  a  50%  proportion  in  France  for  VAT  purposes.  The 

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measure is expected to simplify the tax obligations of the suppliers involved in the project and 
the  tax  collection  by  tax  authorities.  Given  the  limited  scope  of  this  derogation,  the  impact 
will in any case be limited. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no impact on the Union’s own resources accruing from VAT. 

5. 

OTHER ELEMENTS 

The proposal will expire on completion of the construction of the electricity interconnection 
between Gatica in Spain and Cubnezais in France. 

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2019/0256 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Spain and France to apply a special measure derogating from Article 5 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 the first subparagraph of Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

By letters registered with the Commission on 23 May 2019 and 17 June 2019, France 
and  Spain  requested  authorisation  to  introduce  a  special  measure  derogating  from 
Article  5  of  Directive  2006/112/EC  in  relation  to  the  construction  of  an  electricity 
interconnection  between  Gatica  in  Spain  and  Cubnezais  in  France  (‘the  special 
measure’). 

By letters dated 10 September 2019, the Commission transmitted the request made by 
Spain  and  France  to  the  other  Member  States  in  accordance  with  Article  395(2)  of 
Directive 2006/112/EC. By letters dated 11 September 2019, the Commission notified 
Spain and France that it had all the information necessary to consider the request. 

The  national  electricity  market  regulator  of  Spain,  the  Comisión  Nacional  de  los 
Mercados  y  la  Competencia,  and  the  national  electricity  market  regulator  of  France, 
the  Commission  de  Régulation  de  l’Energie,  signed  an  agreement  on  22  September 
2017  to  finance  an  electricity  interconnection  between  Spain  and  France  across  the 
Bay  of  Biscay.  Construction  of  the  interconnection  was  entrusted  to  the  electricity 
transmission  system  operators  in  Spain  and  France,  Red  Eléctrica  de  España  and 
Réseau de transport d’Electricité. The agreement provides for the costs of the project 
to be borne in equal shares, in other words 50% by Spain and 50% by France. 

Through the special measure, the  electricity interconnection is  to  be treated as  being 
situated 50 % in Spain and 50 % in France for the purposes of supplies of goods and 
services, intra-Community acquisition of goods and importation of goods intended for 
its construction. 

In the absence of the special measure, it would be necessary, according to the principle 
of territoriality, to ascertain for each supply whether the place of taxation was within 
Spain or France. 

Based  on  the  information  provided  by  Spain  and  France,  the  special  measure  will 
simplify the procedure for collecting VAT, and the overall amount of the tax revenue 
of Spain and France collected at the stage of final consumption will only be affected to 

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OJ L 347, 11.12.2006, p. 1. 

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a negligible extent. It is therefore appropriate to authorise Spain and France to apply 
the special measure derogating from Article 5 of Directive 2006/112/EC by which the 
electricity interconnection between Gatica in Spain and Cubnezais in France is to be 
considered,  for  the  purposes  of  supplies  of  goods  and  services,  intra-Community 
acquisitions and imports of goods intended for its construction, as being situated 50% 
on the territory of Spain and 50% on the territory of France. 

(7) 

The derogation has no impact on the Union’s own resources accruing from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  5  of  Directive  2006/112/EC,  Spain  and  France  are 
authorised to consider the electricity interconnection between Gatica in Spain and Cubnezais 
in France as being situated 50 % on the territory of Spain and 50 % on the territory of France 
for  the  purposes  of  supplies  of  goods  and  services,  intra-Community  acquisitions  of  goods 
and importations of goods intended for its construction. 

This Decision is addressed to the Kingdom of Spain and the French Republic. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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