Proposal for a COUNCIL IMPLEMENTING DECISION authorising Finland to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2020-05-07
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Finland, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 7.5.2020  COM(2020) 181 final 2020/0070 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Finland to introduce a special measure derogating from Article 287 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  valued  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  6  January  2020,  Finland  requested  an 
authorisation to apply, as of 1 January 2021, a measure derogating from Article 287 of the 
VAT  Directive,  allowing  Finland  to  exempt  from  VAT  taxable  persons  whose  annual 
turnover  is  no  higher  than  EUR  15  000.  By  letter  registered  with  the  Commission  on 
19 February 2020,  Finland  sent  more  detailed  information  on  the  measure  it  wants  to 
introduce. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  10  March  2020  of  the  request  made  by  Finland.  The 
Commission  notified Finland by letter dated 11  March 2020 that it had  all the information 
necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to 
apply  special  schemes  for  small  enterprises,  including  the  possibility  of  exempting  taxable 
persons below  a certain  annual  turnover. This  exemption  implies that a taxable person does 
not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT 
on his inputs. 

Under Article 287(5) of the VAT Directive, Finland may exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of ECU 10 000 at 
the conversion rate on the day of its accession. Finland joined the euro on 1 January 2002. 

By raising the threshold for a person to be identified for VAT purposes from ECU 10 000 to 
EUR 15 000,  it  is  anticipated  that  the  measure  will  reduce  the  administrative  burden  on 
businesses eligible for the scheme, and in particular on micro-enterprises, by releasing them 
from the VAT obligations under the normal VAT arrangements, such as keeping VAT records 
or submitting VAT returns.  

Moreover, there will also be a reduction in the workload for the tax authorities. 

According to the Finnish authorities, the measure will only have a minor impact on the overall 
amount of VAT revenue collected at the final consumption stage. 

The measure has an optional character. Therefore, small businesses whose turnover does not 
exceed the threshold will still have the possibility to exercise their right to apply the normal 
VAT arrangements. 

Derogations are normally granted for a limited period to allow an assessment of whether the 
derogating  measure  remains  appropriate  and  effective.  Moreover,  the  provisions  of  Articles 

1 

OJ L 347, 11.12.2006, p.1. 

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281  to  294  of  the  VAT  Directive  on  the  special  scheme  for  small  enterprises  have  recently 
been  reviewed.  The  new  directive  laying  down  simpler  VAT  rules  for  small  enterprises2 
requires  that  Member  States  adopt  and  publish  the  laws,  regulations  and  administrative 
provisions, which are necessary to comply with the new rules, by 31 December 2024 at the 
latest. Member States will have to apply those national provisions from 1 January 2025. 

It  is  therefore  appropriate  to  authorise  Finland  to  apply  the  derogating  measure  until  31 
December 2024. 

• 

Consistency with existing policy provisions in the policy area 

The derogating measure is in line with the philosophy of the new directive amending Articles 
281  to  294  of  the  VAT  Directive  on  a  special  scheme  for  small  enterprises,  which  resulted 
from  the  VAT  action  plan3,  and  aims  to  create  a  modern,  simplified  scheme  for  those 
businesses.  In  particular,  it  seeks  to  reduce  VAT  compliance  costs  and  distortions  of 
competition  both  domestically  and  at  EU  level,  reduce  the  negative  impact  of  the  threshold 
effect, and facilitate business compliance as well as monitoring by tax administrations. 

Moreover,  the  threshold  of  EUR  15  000  is  consistent  with  the  new  directive,  insofar  as  it 
allows  Member  States  to  set  the  annual  turnover  threshold  required  for  an  exemption  from 
VAT at a level no higher than EUR 85 000 (or the equivalent in national currency). 

Similar derogations, exempting from VAT taxable persons whose annual turnover is below a 
certain  threshold,  as  provided for in  Articles 285 and 287 of the VAT  Directive, have been 
granted  to  other  Member  States.  Malta4  has  been  granted  a  threshold  of  EUR  20  000;  the 
Netherlands5 a threshold of EUR 25 000; Luxembourg6 a threshold of EUR 35 000; Poland7, 
Estonia8 and Latvia9 have been granted a threshold of EUR 40 000; Croatia10 and Lithuania11 

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Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 
purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p.13). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time to 
decide COM(2016)148 final. 
Council  Implementing  Decision  (EU)  2018/279  of  20  February  2018  authorising  Malta  to  apply  a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 54, 24.2.2018, p. 14). 
Council  Implementing  Decision  (EU)  2018/1904  of  4  December  2018  authorising  the  Netherlands  to 
introduce  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 310, 6.12.2018, p. 25). 
Council  Implementing  Decision  (EU)  2019/2210  of  19  December  2019  amending  Implementing 
Decision 2016/577/EU authorising Luxembourg to introduce a special measure derogating from Article 
285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  332,  23.12.2019,  p. 
155). 
Council Implementing Decision (EU) 2018/1919 of 4 December 2018 amending Decision 2009/790/EC 
authorising the Republic of Poland to apply a special measure derogating from Article 287 of Directive 
2006/112/EC on the common system of value added tax (OJ L 311, 7.12.2018, p. 32). 
Council Implementing Decision (EU) 2017/563 of 21 March 2017 authorising the Republic of Estonia 
to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 80, 25.3.2017, p.33) 
Council  Implementing  Decision  (EU)  2017/2408  of  18  December  2017  authorising  the  Republic  of 
Latvia  to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 342, 21.12.2017, p. 8). 

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a threshold of EUR 45 000; Hungary12 a threshold of EUR 48 000; Slovenia13 a threshold of 
EUR 50 000; and Romania14 a threshold of EUR 88 500. 

As already mentioned, derogations from the VAT Directive should always be limited in time 
so that their effects  can be assessed. The inclusion of an expiry date of the special measure 
until 31 December 2024, as requested by Finland, is aligned with the requirements of the new 
directive  on  simpler  VAT  rules  for  small  and  medium-sized  enterprises.  That  directive 
provides  for  1  January  2025  as  the  date  on  which  Member  States  will  have  to  apply  the 
national provisions, which they are required to adopt to comply with it. 

The proposed measure is therefore consistent with the provisions of the VAT Directive. 

• 

Consistency with other Union policies 

The  Commission  has  been  consistently  stressing  the  need  for  simpler  rules  for  small 
enterprises  in  its  annual  work  programmes.  In  this  regard,  the  2020  Commission  Work 
Programme15  refers  to  “a  dedicated  SME  Strategy  that  will  make  it  easier  for  small  and 
medium-sized businesses to operate, scale up and expand”. The derogating measure is in line 
with such objectives, as far as fiscal rules are concerned. It is notably consistent with the 2017 
Commission  Work  Programme16,  which  referred  specifically  to  VAT,  pointing  out  that  the 
administrative  burden  of  VAT  compliance  for  small  businesses  is  high  and  that  technical 
innovations pose new challenges for effective tax collection, and stressed the need to simplify 
VAT for smaller companies. 

Likewise,  the  measure  is  consistent  with  the  2015  single  market  strategy17,  where  the 
Commission set out to help small and medium-sized businesses grow, inter alia by reducing 
the administrative burdens that prevent them from taking full advantage of the single market. 
It  also  follows  the  philosophy  of  the  2013  Commission  Communication  ‘Entrepreneurship 

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Council  Implementing  Decision  (EU)  2017/1768  of  25  September  2017  authorising  the  Republic  of 
Croatia  to  introduce  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 250, 28.9.2017, p. 71). 
Council Implementing Decision (EU) 2017/1853 of 10 October 2017 amending Implementing Decision 
2011/335/EU authorising the Republic of Lithuania to apply a measure derogating from Article 287 of 
Directive 2006/112/EC on the common system of value added tax (OJ L 265, 14.10.2017, p. 15). 
Council Implementing Decision (EU) 2018/1490 of 2 October 2018 authorising Hungary to introduce a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 252, 8.10.2018, p.38). 
Council  Implementing  Decision  (EU)  2018/1700  of  6  November  2018  amending  Implementing 
Decision  2013/54/EU  authorising  the  Republic  of  Slovenia  to  introduce  a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  285, 
13.11.2018, p. 78). 
Council Implementing Decision (EU) 2017/1855 of 10 October 2017 authorising  Romania to apply a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 265, 14.10.2017, p. 19) 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the Regions  – Commission Work Programme 
2020 – A Union that strives for more (COM(2020) 37 final). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the Regions  – Commission Work Programme 
2017 (COM(2016) 710 final). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the Regions upgrading the Single Market: more 
opportunities for people and businesses (COM(2015) 550 final). 

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2020  Action  Plan:  Reigniting  the  entrepreneurial  spirit  in  Europe’18,  which  underlined  the 
need to simplify tax legislation for small businesses. 

Finally, the measure is in line with EU policies on small and medium-sized enterprises, as set 
out  in  the  2016  Start-Up  Communication19,  and  the  2008  Communication  ‘”Thinks  small 
first”  –  a  “Small  Business  Act”  for  Europe’20  which  called  on  the  Member  States  to  take 
account of the special features of SMEs when designing legislation and simplify the existing 
regulatory environment. 

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  the  tax  collection  for  small  taxable  persons  and  for  the  tax 
administration. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

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 Finland and concerns only this particular Member State. 

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Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  –  Entrepreneurship  2020  Action 
Plan: Reigniting the entrepreneurial spirit in Europe (COM(2012) 795 final). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  –  Europe’s  Next  Leaders:  The 
Start-Up and Scale-Up Initiative (COM(2016) 733 final). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  ‘Think  Small  First’  A  ‘Small 
Business Act’ for Europe (COM(2008) 394 final). 

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• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal for a Council Implementing Decision aims at increasing the current exemption 
threshold from EUR 10 000 to EUR 15 000. This increase in the threshold is a simplification 
measure which removes many of the VAT obligations for businesses operating with an annual 
turnover no higher than EUR 15 000. It will therefore have a potential positive impact on the 
reduction of administrative burden for a number of taxable persons and, subsequently, on the 
tax administration. 

Currently, there are approximately 50 000 entrepreneurs exercising their right to be exempted 
from VAT, while the number of businesses registered for VAT is approximately 530 000. The 
increase  in  the  threshold  would  benefit  around  6  000  additional  entrepreneurs  with  an 
estimated annual total turnover of EUR 80 million. 

The derogating measure will be optional for taxable persons. Taxable persons will be able to 
opt  for  the  regular  VAT  arrangements  in  accordance  with  Article  290  of  Directive 
2006/112/EC. The budgetary impact in terms of VAT revenue is estimated at EUR 20 million, 
which is considered as negligible.  

• 

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 because Finland will carry out 
a  compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC, 
EURATOM) 1553/89. 

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2020/0070 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Finland to introduce a special measure derogating from Article 287 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) 

1 
2 

Pursuant  to  point  (5)  of  Article  287  of  Directive  2006/112/EC,  Finland  may  exempt 
from  value  added  tax  (‘VAT’)  taxable  persons  whose  annual  turnover  is  no  higher 
than the equivalent in national currency of ECU 10 000 at the conversion rate on the 
day of its accession. 

By  letter  registered  with  the  Commission  on  6  January  2020,  Finland  requested  an 
authorisation to introduce a special measure derogating from point (5) of Article 287 
of  Directive  2006/112/EC  (‘the  derogating  measure’)  from  1  January  2021  until  31 
December 2024 in order to increase the exemption threshold to EUR 15 000. Through 
the derogating measure, taxable persons whose annual turnover is no higher than EUR 
15 000 would be exempt from  certain  or all of the obligations in  relation  to  VAT as 
referred to in Chapters 2 to 6 of Title XI of Directive 2006/112/EC. 

A higher threshold for the special scheme for small enterprises set out in Articles 281 
to  294  of  Directive  2006/112/EC  is  a  simplification  measure,  as  it  may  significantly 
reduce the VAT obligations of small enterprises. 

By  letter  dated  10  March  2020,  the  Commission  informed  the  other  Member  States, 
pursuant  to  the  second  subparagraph  of  Article  395(2)  of  Directive  2006/112/EC,  of 
the request made by Finland. By letter dated 11 March 2020, the Commission notified 
Finland that it had all the information necessary to consider the request. 
The  derogating  measure  is  in  line  with  Council  Directive  (EU)  2020/285.2    That 
Directive  amended    Chapter  1  of  Title  XII  of  Directive  2006/112/EC  governing  the 
special  scheme  for  small  enterprises.  Directive  (EU)  2020/285  seeks  to  reduce  VAT 
compliance  costs  of  small  enterprises  and  distortions  of  competition  both  at  national 
and  Union  level,  and  to  reduce  the  negative  impact  of  transition  from  exemption  to 
taxation (the so-called threshold effect). It also seeks to facilitate business compliance 

OJ L 347, 11.12.2006, p. 1. 
Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 
purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p. 13). 

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(6) 

(7) 

(8) 

(9) 

by small enterprises and monitoring by tax administrations. The requested threshold of 
EUR 15 000 is consistent with Article 284 of Directive 2006/112/EC, as amended by 
Directive (EU) 2020/285. 

The derogating measure is optional for taxable persons. Taxable persons will still be 
able  to  opt  for  the  regular  VAT  arrangements  in  accordance  with  Article  290  of 
Directive 2006/112/EC. 

According to the information provided by  Finland, the derogating measure will only 
have a negligible effect on the overall amount of the tax revenue of Finland collected 
at the stage of final consumption. 

The derogating measure will not adversely affect the Union’s own resources accruing 
from  VAT  because  Finland  will  carry  out  a  compensation  calculation  in  accordance 
with Article 6 of Council Regulation (EEC, Euratom) No 1553/893. 

Given  that  Finland  expects  that  the  increased  threshold  will  result  in  reduced  VAT 
obligations and thus a reduction in the administrative burden and compliance costs for 
small enterprises and for the tax authorities, and the lack of any major impact on the 
total  VAT  revenue  generated,  Finland  should  be  authorised  to  apply  the  derogating 
measure. 

(10)  The authorisation to apply the derogating measure should be limited in time. The time 
limit  should  be  sufficient  to  allow  the  effectiveness  and  appropriateness  of  the 
threshold to be evaluated. Moreover, according to Directive (EU) 2020/285, Member 
States  are  to  adopt  and  publish,  by  31  December  2024,  the  laws,  regulations  and 
administrative  provisions  necessary  to  comply  with  Article  1  of  that  Directive,  and 
apply  those  provisions  from  1  January  2025.  It  is  therefore  appropriate  to  authorise 
Finland to apply the derogating measure until 31 December 2024, 

HAS ADOPTED THIS DECISION:  

By  way  of  derogation  from  point  (5)  of  Article  287  of  Directive  2006/112/EC,  Finland  is 
authorised  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 15 000. 

Article 1 

This Decision shall apply from 1 January 2021 until 31 December 2024. 

Article 2 

This Decision is addressed to the Republic of Finland. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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Council  Regulation  (EEC,  Euratom)  No  1553/89  of  29  May  1989  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 
9). 

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