Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/563 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
Date: 2021-01-20
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Estonia, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 20.1.2021  COM(2021) 14 final 2021/0006 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/563 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   
 
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  9  October  2020,  Estonia  requested  an 
authorisation  to  continue  to  apply,  until  31  December  2024,  a  measure  derogating  from 
Article  287  of  the  VAT  Directive,  allowing  Estonia  to  exempt  from  VAT  taxable  persons 
whose annual turnover is no higher than EUR 40 000. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  15  October  2020  of  the  request  made  by  Estonia.  The 
Commission notified Estonia by letter dated 19 October 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. 

Pursuant  to  point  (8)  of  Article  287  of  the  VAT  Directive,  Estonia  may  exempt  from  VAT 
taxable persons whose annual turnover is no higher than the equivalent in national currency of 
EUR 16 000 at the conversion rate on the day of its accession. 

By  Council  Implementing  Decision  (EU)  2017/5632  Estonia  was  authorised  to  increase  the 
threshold concerning taxable persons, the annual turnover of which, does not exceed EUR 40 
000. Estonia, according to the implementing decision, may apply the derogating measure from 
1 January 2018 until 31 December 2020. 

The special procedure for small enterprises has been amended by the Council Directive (EU) 
2020/2853,  which  comes  into  force  1  January  2025.  Estonia  requested  to  prolong  the 
application  of  the  derogating  measure  until  31  December  2024.  The  new  threshold,  starting 
from  1  January  2025,  according  to  Article  284  of  the  VAT  Directive  is  EUR  85  000. 
Therefore  the  threshold  value  of  EUR  40  000,  established  for  small  enterprises  in  Estonia, 
complies with the new provision. 

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OJ L 347, 11.12.2006, p.1. 
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. 33–34). 
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. 13–23) 

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The maintenance of the value of the threshold for registering as a taxable person, allows for 
persons whose taxable turnover is in the range of EUR 16 001 to EUR 40 000, to maintain a 
smaller administrative burden without a significant impact on the total amount of value added 
tax  (VAT)  revenue.  The  workload  of  the  tax  administrator  is  also  slightly  reduced.  The 
derogating measure remains voluntary for taxable persons. 

The  derogating  measure,  simplifying  the  obligations  of  small  operators,  is  in  line  with  the 
objectives set out by the European Union for small businesses. 

The application of the measure does not significantly impact the total amount of VAT revenue 
collected in the phase of end consumption. The reduction, as a result of the measure, in the 
VAT that is paid into the state revenue is EUR 15.6 million per year, which accounts for 0.6% 
of the total receipt of value added tax. 

The  derogating  measure  does  not  affect  the  own  resources  from  VAT,  as  Estonia  will 
calculate  the  compensation  in  accordance  with  Article  6  of  Council  Regulation  (EEC, 
Euratom) No 1553/89. 

It  is  therefore  appropriate  to  authorise  the  Republic  of  Estonia  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 40 000 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.  The  Netherlands5  has  been  granted  a  threshold  of  EUR  25 
000;  Italy6  a  threshold  of  EUR  30  000;  Luxembourg7  a  threshold  of  EUR  35  000;  Latvia8, 

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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)  2018/1904  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). 
Council  Implementing  Decision  (EU)  2020/1261  of  4  September  2020  amending  Implementing 
Decision  (EU)  2017/2408  authorising  the  Republic  of  Latvia  to  apply  a  special  measure  derogating 

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Poland9  have  been  granted  a  threshold  of  EUR  40  000;  Lithuania10  a  threshold  of  EUR  55 
000;  Croatia11  a  threshold  of  45  000  and  Malta12  a  threshold  of  EUR  20  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  the  Republic  of  Estonia,  is  aligned  with  the 
requirements of Directive (EU) 2020/285 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 special 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 

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from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  296, 
10.9.2020, p. 4–5). 
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) 2017/1853 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. 15–16). 
Written procedure ongoing for the new measure 
Council  Implementing  Decision  (EU)  2020/1661  of  3  November  2020  amending  Implementing 
Decision (EU) 2017/1768 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  374, 
10.11.2020, p. 4–5). 
Council  Implementing  Decision  (EU)  2020/1662  of  3  November  2020  amending  Implementing 
Decision (EU) 2018/279 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 374, 10.11.2020, p. 6–7). 
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)  2020/1260  of  4  September  2020  amending  Implementing 
Decision (EU) 2017/1855 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 296, 10.9.2020, p. 1–3). 
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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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  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 

Proposed instrument: Council Implementing Decision. 

Under  Article  395  of  the  VAT  Directive,  derogation  from  the  common  VAT  rules  is  only 
possible  with  the  authorisation  of  the  Council  acting  unanimously  on  a  proposal  from  the 

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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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Commission.  Moreover,  a  Council  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 Estonia 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 EUR 40 000.  

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 Estonia, and subsequently on tax administration.  

According  to  Estonia  in  2016  and  2017,  the  percentage  of  persons  identified  for  VAT 
purposes, with an annual turnover in the range EUR 16 001-40 000 is accounted for 18% of 
the total number of persons identified for VAT purposes. In 2019, this percentage was 15% of 
all the persons identified for  VAT purposes. As  of 14 September 2020, the total  number of 
taxable  persons  identified  for  VAT  purposes  in  Estonia  is  98  160.  The  derogating  measure 
thus directly affects approximately 3 000 businesses. 

The budgetary impact in terms of VAT revenue for Estonia has not led to a significant impact 
on  the  national  revenue  budget.  The  reduction,  as  a  result  of  the  measure  in  VAT  state 
revenue is EUR 15.6 million per year, which accounts for 0.6% of the total receipt of VAT. 
The effect is negligible. 

• 

Fundamental rights 

The proposal does not have any consequences for the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

The  proposal  has  no  implication  for  the  EU  budget  because  Estonia  will  carry  out  a 
compensation  calculation  in  accordance  with  Article  6  of  Council  Regulation  (EEC 
EURATOM) 1553/8922. 

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OJ L 155, 7.6.1989, p. 9–13. 

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2021/0006 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2017/563 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 

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) 

Pursuant to Article 287(8) of Directive 2006/112/EC, Estonia may exempt from value 
added  tax  (VAT)  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent in national currency of EUR 16 000 at the conversion rate on the day of its 
accession. 
By  Council  Implementing  Decision  (EU)  2017/5632,  Estonia  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 is no higher than EUR 40 000. Estonia was authorised to apply the derogating 
measure from 1 January 2018 until 31 December 2020 or until the entry into force of a 
directive  amending  the  provisions  of  Articles  281  to  294  of  Directive  2006/112/EC, 
whichever date is earlier. 
On  18  February  2020,  the  Council  adopted  Directive  (EU)  2020/2853  amending 
Articles 281 to 294 of Directive 2006/112/EC as regards the special scheme for small 
enterprises and laying down new rules for small enterprises, including the maximum 
threshold  of  Member  State  annual  turnover  of  EUR  85 000  or  the  equivalent  in 
national currency.  

(4) 

By  letter  registered  with  the  Commission  on  9  October  2020,  Estonia  requested  an 
authorisation to continue to apply the derogating measure until 31 December 2024. 

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OJ L 347, 11.12.2006, p. 1. 
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  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) 

(8) 

(9) 

By letter dated 15 October 2020, the Commission informed the other Member States, 
in  accordance  with  the  second  subparagraph  of  Article  395(2)  of  Directive 
2006/112/EC,  of  the  request  made  by  Estonia.  By  letter  dated  19  October  2020,  the 
Commission notified Estonia that it had all the information necessary to consider the 
request. 

The derogating  measure is in line with the objectives of Commission Communication 
"Think small first" – a "Small Business Act" for Europe4. 

Based  on  information  provided  by  Estonia,  the  derogating  measure  will  only  have  a 
negligible  impact  on  the  overall  amount  of  tax  revenue  of  Estonia  collected  at  the 
stage  of  final  consumption.  Taxable  persons  may  still  opt  for  the  normal  VAT 
arrangements in accordance with Article 290 of Directive 2006/112/EC.  

The derogating measure will not adversely affect the Union's own resources accruing 
from  VAT  because  Estonia  will  carry  out  a  compensation  calculation  in  accordance 
with Article 6 of Council Regulation (EEC, Euratom) No 1553/895. 

Given  the  potential  positive  impact  of  the  derogating  measure  in  reducing  the 
administrative burden and costs for small businesses, Estonia should be authorised to 
apply the derogating measure for a further period.  

(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 
Estonia to apply the derogating measure until 31 December 2024. 

(11) 

Implementing Decision (EU) 2017/563 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

In  Article  2  of  Implementing  Decision  (EU)  2017/563,  the  second  paragraph  is  replaced  by 
the following: 

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

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Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  European 
Economic and Social Committee and the Committee of the Regions  - “Think Small First” - A “Small 
Business Act” for Europe, Brussels, 25.6.2008, COM(2008)394 final.  
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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This Decision is addressed to the Republic of Estonia. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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