Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/1768 authorising Croatia to introduce a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax
Date: 2020-09-30
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Croatia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 30.9.2020  COM(2020) 599 final 2020/0280 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/1768 authorising Croatia 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 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 18 May 2020, Croatia requested an authorisation 
to  continue,  after  31  December  2020,  to  exempt  from  VAT  taxable  persons  whose  annual 
turnover is no higher than the equivalent in national currency of EUR 45 000.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member States by letter dated 6 June 2020 of the request made by Croatia. By letter dated 11 
June  2020,  the  Commission  notified  Croatia  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 

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(19) of the VAT Directive, Croatia may exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at 
the conversion rate on the day of its accession. By virtue of Council Implementing Decision 
(EU) 2017/17682 Croatia is  authorised to  apply a higher threshold  and thus  to  exempt from 
VAT  taxable  persons  with  an  annual  turnover  not  exceeding  EUR 45 000.  This  Decision 
expires on 31 December 2020 and Croatia requested to prolong its application.  

According  to  the  Croatian  authorities,  the  measure  facilitates  VAT  collection,  enabling 
Croatia  to  simplify  administrative  procedures  for  small  enterprises  and  thus  reduce  the 
administrative burden on them. Moreover, the measure also reduces the workload for the tax 
authorities. 

Further, the Croatian authorities observed that in  the last  years the increase of the threshold 
did not lead to the reduction of state budget revenues.  

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. 

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2 

OJ L 347, 11.12.2006, p. 1. 
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. 71–72). 

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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 
281  to  294  of  the  VAT  Directive  on  the  special  scheme  for  small  enterprises  have  recently 
been reviewed. Council Directive (EU) 2020/2853, laying down simpler VAT rules for small 
enterprises,  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  Croatia  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 Directive (EU) 2020/285 amending 
Articles  281  to  294  of  the  VAT  Directive  on  a  special  scheme  for  small  enterprises,  which 
resulted from the VAT action plan4, 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 45 000 is consistent with Directive (EU) 2020/285, 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.  Malta5  has  been  granted  a  threshold  of  EUR  20  000;  the 
Netherlands6 a threshold of EUR 25 000; Italy7 a threshold of EUR 30 000; Luxembourg8 a 

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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)  2016/1988  of  8  November  2016  amending  Implementing 
Decision  2013/678/EU  authorising  the  Italian  Republic  to  continue  to  apply  a  special  measure 
derogating from Article 285 of Directive 2006/112/EC on the common system of value added tax (OJ L 
306, 15.11.2016, p.11-12). 
Council  Implementing  Decision  (EU)  2019/2210  of  19  December  2019  amending  Implementing 
Decision 2013/677/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). 

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threshold  of  EUR  35  000;  Latvia9  Poland10  and  Estonia11  have  been  granted  a  threshold  of 
EUR 40 000; Lithuania12 a threshold of EUR 45 000; Hungary13 a threshold of EUR 48 000; 
Slovenia14 a threshold of EUR 50 000; and Romania15 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 Croatia, 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 
Programme16  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  Programme17,  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. 

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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). 
Council Implementing Decision (EU) 2018/1919 of 4 December 2018 amending Decision 2009/790/EC 
authorising  the  Republic  of  Poland  to  apply  a  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) 2017/1853 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). 

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Likewise,  the  measure  is  consistent  with  the  2015  single  market  strategy18,  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 
2020  Action  Plan:  Reigniting  the  entrepreneurial  spirit  in  Europe’19,  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  Communication20,  and  the  2008  Communication  ‘”Thinks  small 
first”  –  a  “Small  Business  Act”  for  Europe’21  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. 

• 

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 Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

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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 upgrading the Single Market: more 
opportunities for people and businesses (COM(2015) 550 final). 
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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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. 

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 Croatia and concerns only this particular Member State. 

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal for a Council Implementing Decision increases the threshold of annual turnover 
below which taxable persons may be exempted from VAT. It therefore extends the scope of 
the  simplification  measure  which  removes  many  of  the  VAT  obligations  for  businesses 
operating  with  an  annual  turnover  no  higher  than  the  equivalent  in  the  national  currency  of 
EUR 45 000.  

Persons whose taxable turnover does not exceed the threshold will not have to register to be 
identified  for  VAT  purposes,  and  thus  the  administrative  burden  on  them  will  reduce  as  a 
result of the measure, since they will not need to keep VAT records or submit a VAT return. 
There  will  also  be  a  reduction  in  the  workload  for  the  tax  authorities.  This  will  have  a 
potential  positive  impact  on  the  reduction  of  administrative  burden  for  taxable  persons 
currently registered for VAT in Croatia, and subsequently on tax administration.  

The budgetary impact in terms of VAT revenue for Croatia has not led to the reduction of the 
national revenue budget.  

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Croatia  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) 1553/89. 

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause. 

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2020/0280 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2017/1768 authorising Croatia 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 Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

Pursuant  to  Article  287  point  (19)  of  Directive  2006/112/EC,  Croatia  may  exempt  
taxable  persons  whose  annual  turnover  is  no  higher  than  the  equivalent  in  national 
currency of EUR 35 000 from value added tax (‘VAT’) at the conversion rate on the 
day of its accession. 
By  Council  Implementing  Decision  (EU)  2017/17682,  Croatia  was  authorised  to 
introduce  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC 
(‘the  derogating  measure’)  to  exempt  from  VAT  taxable  persons  whose  annual 
turnover was no higher than the equivalent in national currency of EUR 45 000 at the 
conversion rate of the day of its accession, until 31 December 2020 or until the entry 
into  force  of  a  directive  amending  Articles  281  to  294  of  Directive  2006/112/EC, 
whichever date is earlier.  

By  letter  registered  with  the  Commission  on  18  May  2020,  Croatia  requested  an 
authorisation  to  continue  to  apply  the  derogating  measure  until  31  December  2024, 
being  the  date  by  which  Member  States  are  to  adopt  the  laws,  regulations  and 
administrative provisions necessary to comply with Council Directive (EU) 2020/2853, 
which lays down simpler VAT rules for small enterprises and inter alia deletes Article 
287 of Directive 2006/112/EC. 

(4) 

By  letter  dated  9  June  2020,  the  Commission  informed  the  other  Member  States, 
pursuant  to  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC,  of  the 

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OJ L 347, 11.12.2006, p. 1. 
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  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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(5) 

(6) 

(7) 

request  made  by  Croatia.  By  letter  dated  11  June  2020,  the  Commission  notified 
Croatia that it had all the information necessary to consider the request. 

According to the information provided by Croatia, it appears that the reasons for the 
derogating  measure  remain  largely  unchanged  and  the  increased  threshold  had  no 
impact  on  the  overall  amount  of  tax  revenue  collected  at  the  stage  of  final 
consumption. Taxable persons may still opt for the normal VAT arrangements. 

Given  the  potential  positive  impact  of  the  derogating  measure  in  reducing  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, 
Croatia should be authorised to continue applying the derogating measure. 

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, Article 287 of Directive 2006/112/EC is deleted 
by  Directive  (EU)  2020/285  with  effect  from  1  January  2025.  It  is  therefore 
appropriate  to  authorise  Croatia  to  apply  the  derogating  measure  until  31  December 
2024. 

(8) 

The  derogation  has  no  impact  on  the  Union's  own  resources  accruing  from  value 
added  tax  because  Croatia  will  carry  out  a  compensation  calculation  in  accordance 
with Article 6 of Council Regulation (EEC, Euratom) No 1553/894. 

(9) 

Implementing Decision (EU) 2017/1768 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

In Article 2 of Implementing Decision (EU) 2017/1768, the second paragraph is replaced by 
the following: 

‘This Decision shall apply from 1 January 2018 until 31 December 2024.’ 

This Decision is addressed to the Republic of Croatia. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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