Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2020-07-23
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Romania, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 23.7.2020  COM(2020) 331 final 2020/0149 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 26(1)(a) and Article 168 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 13 March 2020, Romania requested an extension 
of the derogation from  Article 168 of the VAT Directive in  order to  continue to  restrict the 
right to deduct the input VAT on expenditure connected with motor vehicles. In accordance 
with Article 395(2) of the VAT Directive, the Commission informed the other Member States 
by letter dated 2 April 2020 of the request made by Romania. By letter dated 3 April 2020, the 
Commission  notified  Romania  that  it  had  all  the  information  it  considered  necessary  for 
appraisal of the request. 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Articles 168 VAT Directive provides that a taxable person is entitled to deduct VAT charged 
on  purchases  made  for  the  purpose  of  taxed  transactions.  Article  26(1)(a)  of  the  same 
Directive  requires  the  use  of  goods  forming  part  of  the  assets  of  a  business  for  private 
purposes to be a supply of services for consideration if the VAT on the goods was eligible for 
deduction.  This  system  allows  for  the  recovery  of  initially  deducted  VAT  in  relation  to  the 
private use.  

In  the  case  of  passenger  cars,  this  system  is  difficult  to  apply,  in  particular  because  it  is 
difficult to identify the split between private and business use. Where records are kept, they 
add  an  additional  burden  to  both  the  business  and  the  administration  in  maintaining  and 
checking them.  

is  currently  authorised  on 

Romania 
the  basis  of  Council  Implementing  Decision 
2012/232/EU2 to restrict to 50 % the right to deduct VAT on the purchase, intra-Community 
acquisition,  importation,  hire  or  leasing  of  motorised  road  vehicles  as  well  as  expenditure 
related thereto. Some categories of vehicles were specifically excluded from this restriction, 
such as vehicles used exclusively for emergency, security or courier services, vehicles used by 
agents and taxis, vehicles used for instruction by driving schools, used for hire or leasing or 
used  as  commodities  for  trading  purposes.  At  the  same  time,  businesses  are  relieved  from 
accounting  from  tax  on  the  private  use.  Council  Implementing  Decision  2015/156/EU3 
authorised  Romania  to  continue  to  apply  until  31  December  2017  the  special  measure.  The 
period  of  validity  of  this  decision  was  extended  by  Council  Implementing  Decision  (EU) 
2017/2012 of 7 November 20174 until 31 December 2020.  

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OJ L 347, 11.12.2006, p. 1. 
Council Implementing Decision 2012/232/EU of 26 April 2012 authorising Romania to apply measures 
derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of 
value added tax (OJ L 117, 1.05.2012, p. 7).   
Council  Implementing  Decision  2015/156/EU  of  27 January  2015  extending  the  period  of  validity  of 
Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Article 
26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax (OJ L 26, 
31.1.2015, p. 27). 
Council  Implementing  Decision  (EU)  2017/2012  of  7  November  2017  amending  Implementing 
Decision  2012/232/EU  authorising  Romania  to  apply  measures  derogating  from  Article  26(1)(a)  and 

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Romania  has  requested  to  prolong  the  authorisation  to  limit  the  initial  deduction  to  a  set 
percentage  and  in  turn  to  relieve  the  business  from  accounting  for  tax  on  the  private  use. 
Romania informed the Commission that the grounds for the prolongation of the measure are 
largely the same as described in the initial request. In accordance with Article 4(2) of Council 
Decision  2012/232/EU  Romania  has  presented  a  report  on  the  deduction  limit  applied  by 
Romania. Romania submits that the measure fulfilled its role and that if the measure were not 
prolonged, the tax evasion recorded in this area before the introduction of the measure would 
most  probably  re-appear.  According  to  the  data  submitted,  the  share  of  small  enterprises  in 
Romania is high: 99.7% of all the enterprises active in the industrial sector, the construction 
sector  or  the  services  sector  in  2017  were  small  or  medium-sized  enterprises;  and  active 
enterprises  with  up  to  nine  employees  accounted  for  89.4%  of  all  economic  and  social 
operators active in those four sectors. Romania argues that, in practice, a car owned by such 
enterprises is often used both for business activities and for personal purposes. 

It  also  appears  from  the  information  provided  by  Romania  that  the  limitation  of  50%  still 
reflects  the  overall  business  and  private  use  of  vehicles  by  taxable  persons  in  Romania  and 
that this limit therefore should still be regarded as appropriate.  

The  derogation  should  be  limited  in  time  to  31  December  2023,  so  that  it  can  be  assessed 
whether the 50% restriction is still a correct reflection of the overall apportionment between 
business  and  private  use.  Any  extension  request  should  be  accompanied  by  a  report  which 
includes a review of the percentage applied and should be sent to the Commission with that 
request by 31 March 2023.  

• 

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 such time, it authorises Member States to maintain 
exclusions  which  were  in  place  on  1  January  1979.  There  are  therefore  a  number  of  'stand 
still' provisions restricting the right to deduct VAT in relation to passenger cars.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be subject to a restriction on the right to deduct VAT5, such derogation is appropriate in the 
awaiting of a harmonisation of these rules at EU level.  

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive.  

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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.  

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Article  168  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  292, 
10.11.2017, p. 57–58). 
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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• 

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  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 in a specific 
sector. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Under  Article  395  of  Council  Directive  2006/112/EC,  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 an individual Member State. 

3. 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

• 

Stakeholder consultations 

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

• 

Collection and use of expertise 

There was no need for external expertise.  

• 

Impact assessment 

The proposal is designed to counter VAT evasion and to simplify the procedure for charging 
tax and has, therefore, a potential positive impact for both businesses and administrations. The 
solution has been identified by Romania as a suitable measure and is comparable to other past 
and present derogations. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implication for the EU budget. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause;  an automatic time limit which is set at 31 December 
2023. 

In case Romania would consider another extension of the derogating measure beyond 2023, a 
report  including  a  review  of  the  percentage  limit  should  be  submitted  to  the  Commission 
together with the extension request no later than 31 March 2023. 

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2020/0149 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2012/232/EU authorising Romania to apply measures 
derogating from Article 26(1)(a) 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 tax1, and in particular Article 395 thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

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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. Pursuant to Article 26(1)(a) of that 
Directive, the use  of business assets for private use of taxable persons or their staff or, 
more  generally,  for  purposes  other  than  those  of  their  business  is  to  be  treated  as  a 
supply of services. 
By  Council  Implementing  Decision  2012/232/EU2  Romania  was  authorised,  until  31 
December  2014,  to  limit  to  50%  the  right  to  deduct  VAT  on  the  purchase,  intra-
Community  acquisition,  importation,  hire  or  leasing  of  certain  motorised  road 
vehicles,  and  on  expenditure  related  to  those  vehicles,  including  fuel,  when  such 
vehicles are not used exclusively for business purposes, and to relieve taxable persons 
from  having  to  treat  non-business  use  of  such  vehicles  as  a  supply  of  services  in 
accordance with Article 26(1)(a) of Directive 2006/112/EC. By Council Implementing 
Decision  2015/156/EU3  Romania  was  authorised  to  apply  the  derogating  measures 
until  31  December  2017.  By  Council  Implementing  Decision  (EU)  2017/20124 
Romania was authorised to apply the derogating measures until the date of entry into 
force of Union rules determining the  expenditure relating to  motorised road vehicles 

OJ L 347, 11.12.2006, p. 1.  
Council Implementing Decision 2012/232/EU of 26 April 2012 authorising Romania to apply measures 
derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of 
value added tax (OJ L 117, 1.5.2012, p. 7).  
Council  Implementing  Decision  2015/156/EU  of  27 January  2015  extending  the  period  of  validity  of 
Implementing Decision 2012/232/EU authorising Romania to apply measures derogating from Articles 
26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax (OJ L 26, 
31.1.2015, p. 27). 
Council  Implementing  Decision  (EU)  2017/2012  of  7  November  2017  amending  Implementing 
Decision  2012/232/EU  authorising  Romania  to  apply  measures  derogating  from  Article  26(1)(a)  and 
Article  168  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  292, 
10.11.2017, p. 57). 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

that  is  not  eligible  for  full  deduction  of  VAT  or  31  December  2020,  whichever  is 
earlier.  

By  letter  registered  with  the  Commission  on  13  March  2020,  Romania  requested 
authorisation  to  continue  to  apply  a  measure  derogating  from  Article  26(1)(a)  and 
Article  168  of  Directive  2006/112/EC  in  order  to  restrict  the  right  of  deduction  in 
relation  to  expenditure  on  certain  motorised  road  vehicles  not  used  exclusively  for 
business purposes.  

The  application  of  a  flat  percentage  rate  for  the  amount  of  VAT  on  expenditure 
eligible  for  deduction  concerning  motorised  road  vehicles  which  are  not  used 
exclusively for business purposes simplifies the procedure for collecting VAT. 

In  accordance  with  Article  395(2), 
the  second  subparagraph,  of  Directive 
2006/112/EC,  the  Commission  informed  the  other  Member  States  by  letter  dated  2 
April  2020  of  the  request  made  by  Romania.  By  letter  dated  3  April  2020,  the 
Commission  notified Romania that it had all the information  it considered necessary 
for appraisal of the request. 

In  accordance  with  Article  4(2)  of  Implementing  Decision  2012/232/EU  Romania 
submitted,  together  with  the  extension  request,  a  report  to  the  Commission  on  the 
application of that Implementing Decision. Based on currently available information, 
Romania submits that the limit of 50 % is still justifiable and remains appropriate.  

Extension of the derogating measures should be limited to the time needed to evaluate 
the  effectiveness  of  those  measures  and  the  appropriateness  of  the  percentage 
limitation. Romania should therefore be authorised to continue to apply the derogating 
measures until 31 December 2023. 

In  the  event  that  Romania  considers  that  an  extension  of  the  authorisation  beyond 
2023 is necessary, it should submit a request for an extension to the Commission by 31 
March  2023,  together  with  a  report  which  includes  a  review  of  the  percentage  limit 
applied. 

The derogation measures will only have a negligible effect  on the overall amount of 
tax revenue of Romania collected at the stage of final consumption and will have no 
adverse impact on the Union’s own resources accruing from VAT. 

(10) 

Implementing Decision 2012/232/EU should be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 4 of Implementing Decision 2012/232/EU is replaced by the following: 

Article 1 

'Article 4 

1. 

2. 

This Decision shall expire on the date of entry into force of Union rules determining 
the  expenditure  relating  to  motorised  road  vehicles  that  is  not  eligible  for  full 
deduction of VAT, or on 31 December 2023, whichever is the earlier. 

Any  request  for  authorisation  to  extend  the  derogating  measures  authorised  by  this 
Decision shall be submitted to the Commission by 31 March 2023. 

Such  request  shall  be  accompanied  by  a  report  which  includes  a  review  of  the  percentage 
restriction applied on the right to deduct VAT on the basis of this Decision.'.  

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This Decision is addressed to Romania. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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