Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Netherlands to introduce a special measure derogating from Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax
Date: 2020-11-17
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Netherlands, VAT, derogation from EU law, goods and services, tax relief

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.11.2020  COM(2020) 728 final 2020/0323 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising the Netherlands to introduce a special measure derogating from Articles 168 and 168a 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  Directive1"),  the  Council,  acting  unanimously  on  a 
proposal  from  the Commission,  may authorise any Member State to  apply special measures 
derogating  from  the  provisions  of  this  Directive,  in  order  to  simplify  the  procedure  for 
charging VAT or to prevent certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  30  July  2020,  the  Netherlands  requested  an 
authorisation  to  apply  a  measure  derogating  from  Articles  168  and  168a  of  Directive 
2006/112/EC,  in  order to  exclude from  the right of deduction the VAT  borne on goods  and 
services which are used for more than 90 % by the taxable person for his private use or for 
that of his employees, or in general, for non-business purposes or non-economic activities.  

In  accordance  with  Article  395(2)  of  Directive  2006/112/EC,  the  Commission  informed  the 
other  Member  States  by  letters  dated  10  September  2020  of  the  request  made  by  the 
Netherlands.  The  Commission  notified  the  Netherlands  by  letter  dated  11  September  2020 
that it had all the information necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article 168 of Directive 2006/112/EC provides that a taxable person is entitled to deduct the 
VAT  charged  on  purchases  made  and  services  received  for  the  purpose  of  his  taxed 
transactions. Article 168a(1) of Directive 2006/112/EC provides that the VAT on expenditure 
related to immovable property forming part of the business assets of a taxable person and used 
both for business and non-business purposes shall be deductible only up to the proportion of 
the property's use for purposes of the taxable person's business. Pursuant to Article 168a(2) of 
Directive  2006/112/EC  Member  States  may  also  apply  this  rule  in  relation  to  expenditure 
related to other goods forming part of the business assets as they specify.  

The measure pursued by the Netherlands deviates from those principles and entirely excludes 
from the right of deduction the VAT borne on goods and services that are used by a taxable 
person  for  more  than  90%  for  private  or  non-business  purposes,  including  non-economic 
activities.  

The rate of 90 % is based on the implementation of this rate in the Netherlands for corporate 
and  income  tax  purposes.  More  than  90 %  non-business  use  means  that  investments  are 
almost  entirely  used  by  the  trader  for  his  own  private  use  or  for  private  purposes  of  his 
employees,  or,  in  general,  for  non-business  purposes  or  non-economic  activities  and  these 
investments are, therefore, not regarded as business investments. 

In  its  request,  the  Netherlands  argue  that  based  on  the  fact  that  everyone  who  regularly 
supplies goods or services for a remuneration is a taxable person, the Dutch tax authorities, in 
the current (digital) economy  are faced with numerous private persons or part-time or micro-
businesses  with  a  very  small  turnover.  They  are  allowed  to  deduct  the  VAT  on  their 
inputs/costs.  For  example,  there  are  the  owners  of  solar  panels,  participants  in  sharing 
economy  who  rent  out  their  cars  or  houses,  independent  people  without  staff,  etc.  The  thin 
line  between  their  professional  and  private  activities  generates  in  practice  quite  a  lot  of 
discussions  on  the  level  of  their  right  to  deduct  input  VAT,  a  right  that  is  quite  often  very 
limited for these persons.  

1 

OJ 347, 11.12.2006, p.1. 

EN 

1 

  EN 

                                                 
The  Netherlands  informed  the  Commission  that  managing  the  right  to  deduct  input  tax  for 
these  taxable  persons,  with  continuous  VAT  declarations  and  corrections  leads  to 
disproportionate  burdens,  both  for  the  taxable  persons  concerned  and  for  the  tax 
administrations.  

This leads, in addition, to an unwarranted cash flow advantage against the taxable persons that 
use  these  goods  and  services  100%  for  business  purposes.  Taxable  persons  that  use  these 
goods and services only marginally for business purposes are still allowed to a 100% right of 
deduction.  In  addition,  the  VAT  legislation  has  a  high  level  of  complexity  for  micro-
businesses that cannot afford legal support, entailing a big risk for mistakes, evasion and thus 
complicating compliance. The latter is substantiated by an example of owners of solar panels 
who  become  taxable  persons  for  the  energy  they  produce  and  supply  to  the  electricity  grid, 
whereby  they  deduct  all  the  VAT  on  the  panels  purchased  and  even  add  costs  such  as  the 
purchase  price  of  building  land  and  houses  to  install  the  solar  panels.  Since  the  use  of  the 
garages and houses is primarily for private use, this leads to complicated discussions on the 
right to deduct input VAT and how to correctly apply this.  

As  a  consequence,  the  special  measure  in  question  provides  a  facilitation  for  both  tax 
administrations and businesses as there is no need for any monitoring of the subsequent use of 
the  goods  and  services  to  which  the  exclusion  from  deduction  applied  at  the  time  of  their 
acquisition, particularly with respect to a possible taxation of private use pursuant to Articles 
16  or  26  of  Directive  2006/112/EC.  Authorising  the  derogating  measure  is  therefore 
appropriate. 

The measure is expected to have little impact on the overall tax revenue. The initial deduction 
is currently corrected for non-business use by the correction on the basis of Articles 16 and 26 
of  Directive  2006/112/EC.  The  measure  is  expected  to  have  no  impact  on  the  Union’s  own 
resources accruing from VAT. 

However, any derogating measures should be limited in  time in  order to  assess whether the 
conditions and the impacts, on which the derogation is based, would still be valid. Therefore, 
it is proposed to authorise the derogation until the end of 2023 and to request the Netherlands 
to  present,  in  case  a  further  extension  would  be  envisaged  beyond  2023,  together  with  the 
extension request, a report by 31 March 2023 at the latest, including a review of the applied 
apportionment between business and non-business use on which the exclusion from deduction 
is based.  

• 

Consistency with existing policy provisions in the policy area 

Similar  derogations  in  relation  to  the  restriction  of  right  of  deduction  have  been  granted  to 
other Member States Austria2, Germany3.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be subject to a restriction on the right to deduct VAT4, such derogation is appropriate in the 
awaiting of a harmonisation of these rules at EU level.  

2 

3 

Council Implementing Decision (EU) 2018/1487 of 2 October 2018 amending Implementing Decision 
2009/1013/EU  authorising  the  Republic  of  Austria  to  continue  to  apply  a  measure  derogating  from 
Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax, OJ L 251, 
5.10.2018, p. 33–34. 
Council  Implementing  Decision  (EU)  2018/2060  of  20  December  2018  amending  Decision 
2009/791/EC  authorising  Germany  to  continue  to  apply  a  measure  derogating  from  Articles  168  and 
168a of Directive 2006/112/EC on the common system of value added tax, OJ L 282, 12.11.2018, p. 8–
12. 

EN 

2 

  EN 

 
                                                 
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 proposal 
falls under the exclusive competence of the Union. The subsidiarity  principle therefore 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.  simplification  and  to  prevent  certain  forms  of  tax  evasion  or  avoidance.  The 
derogating  measure  would  avoid  that  VAT  on  investments,  which  are  only  marginally  used 
for business purposes is first entirely deducted  as if used entirely for business purposes and 
subsequently  corrected  to  reflect  the  real  marginal  business  use,  thus  entailing  continuous 
administrative and reporting requirements. With this measure, the private use no longer needs 
to  be  revised  and  adjusted  annually,  nor  does  the  tax  administration  need  to  monitor  the 
changes in private/business use proportion during the revision period.  

 • 

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 the Netherlands 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 certain forms of tax evasion or avoidance and to simplify 
the  procedure  for  charging  VAT  and  has,  therefore,  a  potential  positive  impact  for  both 

4 

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)  

EN 

3 

  EN 

 
                                                                                                                                                         
businesses  and  administrations.  The  solution  has  been  identified  by  the  Netherlands  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 the Netherlands 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. 

EN 

4 

  EN 

  
2020/0323 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising the Netherlands to introduce a special measure derogating from Articles 168 
and 168a 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) 

(4) 

(5) 

Articles 168 and 168a of Directive 2006/112/EC which govern taxable persons' right 
to deduct value added tax (VAT) charged on goods and services supplied to them for 
the purposes of their taxed transactions.   

By letter registered with the Commission on 30 July 2020, the Netherlands requested  
authorisation to introduce a special measure derogating from Articles 168 and 168a of 
Directive 2006/112/EC in order to exclude entirely from the right to deduct VAT on 
goods and services used by the taxable person for more than 90 % for his private use 
or for the private purposes of his employees, or, in general, for non-business purposes 
or non economic activities.  

In  accordance  with  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC, 
the  Commission  informed  the  other  Member  States,  by  letter  dated  10  September 
2020, of the request made by the Netherlands. By letter dated 11 September 2020, the 
Commission  notified  the  Netherlands  that  it  had  all  the  information  necessary  to 
consider the request. 

The  objective  of  the  special  measure  is  to  simplify  the  procedure  for  charging  and 
collecting VAT and to prevent certain forms of tax evasion or avoidance. The amount 
of tax due at the level of final consumption is only affected to a negligible extent. 

According  to  the  information  provided  by  the  Netherlands,  the  legal  and  factual 
situation  which  justifies  application  of  the  special  measure  exists.  The  Netherlands 
should, therefore, be  authorised to  introduce the special measure, but  limited in  time 
until  31  December  2023  in  order  to  allow  for  a  review  of  the  necessity  and 
effectiveness of the special measure and the apportionment rate between business and 
non-business use it is based upon. 

(6) 

In  the  event  that  the  Netherlands  considers  that  an  extension  of  the  authorisation 
beyond 2023 is necessary, it should submit a request to the Commission by 31 March 

1 

OJ 347, 11.12.2006, p. 1. 

EN 

5 

  EN 

 
                                                 
2023,  accompanied  by  a  report  on  the  application  of  the  derogating  measure,  which 
includes a review of the apportionment rate applied. 

(7) 

The  derogation  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 value added tax, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Articles 168 and 168a of Directive 2006/112/EC, the Netherlands 
is authorised to exclude value added tax (VAT) borne on goods and services from the right to 
deduct  VAT  when  the  goods  and  services  in  question  are  used  for  more  than  90%  for  the 
private  purposes  of  a  taxable  person,  or  for  the  private  purposes  of  his  employees  or,  in  
general for non-business purposes or non-economic activities.  

Article 2 

This Decision shall apply from 1 January 2021 until 31 December 2023. 

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

Such request shall be accompanied by a report on the application of the derogating measure 
which includes a review of the apportionment rate applied on the right to deduct VAT on the 
basis of this Decision. 

This Decision is addressed to the Kingdom of the Netherlands. 

Article 3 

Done at Brussels, 

For the Council 
The President 

EN 

6 

  EN