Proposal for a COUNCIL IMPLEMENTING DECISION authorising Germany to apply a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2021-08-04
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU emission allowance, Germany, VAT, derogation from EU law, emission trading, fuel, greenhouse gas, taxpayer, tradeable emission permit

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   EUROPEAN COMMISSION  Brussels, 4.8.2021  COM(2021) 445 final 2021/0253 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Germany to apply a special measure derogating from Article 193 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 tax1 (hereafter ‘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  15  March  2021,  Germany  requested 
authorisation to derogate from Article 193 of the VAT Directive regarding the person liable 
for payment of VAT in case of transfer of emission allowances traded in the national system 
under  the  Fuel  Emission  Allowance  Trading  Act  (BEHG)  of  12  December  2019.  In 
accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission  informed  the  other 
Member States by letter dated 7 April 2021 of the request made by Germany. By letter dated 
8 April 2021 the Commission notified Germany 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 

As  a  general  rule,  Article  193  of  the  VAT  Directive  stipulates  that  the  taxable  person 
supplying goods or services is liable to pay VAT. 

Pursuant to Article 395 of the VAT Directive, Member States may apply measures derogating 
from the provisions of the VAT Directive to simplify the procedure for collecting VAT or to 
prevent certain forms of tax evasion or avoidance if they have been authorised by the Council. 

Germany requested a derogation from Article 193 of the VAT Directive, in order to designate 
taxable  persons  receiving  transfers  of  emission  allowances  under  the  Fuel  Emission 
Allowance  Trading  Act  (BEHG)  of  12  December  2019  as  liable  for  payment  of  VAT  (the 
reverse charge mechanism). 

Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council  of  13  October  2003 
establishing a scheme for greenhouse gas emission allowance trading within the Community2 
governs  the  greenhouse  gas  emission  allowance  trading  scheme  in  the  EU  (EU  Emissions 
Trading  Scheme  or  EU  ETS).  The  Directive  allows  Member  States  to  maintain  their  own 
national trading systems in parallel. 

Under  the  BEHG,  Germany  has  created  a  legal  framework  for  a  national  emissions  trading 
scheme for the pricing of greenhouse gas emissions from fossil fuels, which do not fall under 
the  EU  Emissions  Trading  Scheme.  The  Act  will  help  to  achieve  national  climate  targets, 
including  the  long-term  target  of  net-zero  greenhouse  gas  emissions  by  2050,  and  the 
reduction targets under the EU Climate Regulation, as well as improving energy efficiency.  

Experience in allowance trading has generally shown that this sector is highly vulnerable to 
turnover  tax  fraud.  For  this  reason,  the  VAT  Directive  provides  in  Article  199a(1)  for  the 
possibility for Member States to apply the reverse charge mechanism to  the transmission of 
certain  allowances  and  certificates.  Germany  makes  use  of  the  possibilities  provided  for  in 
Article 199a(1)(a) and (f) of the VAT Directive and applies the reverse charge mechanism to 

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OJ L 347, 11.12.2006, p. 1. 
OJ L 275, 25.10.2003, p. 32-46. 

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greenhouse gas emission allowance trading under the EU Emissions Trading Scheme and to 
trading in  gas and  electricity certificates. This  has helped to  reduce tax losses related to  the 
transfer of such allowances and certificates. 

Based  on  this  experience,  it  must  be  assumed  that  trading  in  allowances  for  fuel  emissions 
under the BEHG could  also be exploited for fraudulent purposes and that losses in turnover 
tax  are  therefore  to  be  expected  in  this  field.  One  particular  feature  of  emission  allowance 
trading  is  that  the  allowances  can  be  exchanged  quickly,  repeatedly  and  easily,  without  the 
expense required for the transport of goods for example. The corresponding supply chains are 
obscured  by  the  frequent  and  rapid  change  of  ownership,  making  it  very  difficult  for  the 
authorities to detect and hence to ensure that the proper amount of tax is levied. 

It  is  also  expected  that  the  supply  chain  could  involve  ‘missing  traders’  who,  when 
discovered,  have  either  disappeared  already  or  no  longer  have  any  assets,  so  that  the  tax 
evaded  can no longer be collected by the authorities. Under such scenario, the purchaser of 
the allowances in the supply chain declares the turnover tax shown in the supplier’s invoice as 
deductible input tax under Articles 167 and 168 of the VAT Directive, but the supplier does 
not pay the invoiced turnover tax to the tax authorities. Since the input tax deduction is not 
matched by any turnover tax revenue, the input tax represents a tax loss for the German tax 
authorities. 

The  application  of  the  reverse  charge  mechanism  for  trading  in  greenhouse  gas  emissions 
pursuant  to  Article 199a(1)(a) and  (b) of the VAT Directive is  limited to  allowances traded 
under  the  EU  emission  trading  system.  Therefore,  Articles 199a(1)(a)  and  (b)  of  the  VAT 
Directive do not provide legal basis for applying the reverse charge mechanism to the trade of 
allowances under national trading systems such as the BEHG. 

Taking  into  consideration  the  vulnerability  to  fraud  in  the  allowance-trading  sector,  and  the 
impossibility  to  apply  Articles  199a(1)(a)  and  (b)  of  the  VAT  Directive  to  transmissions  of 
allowances under the BEHG, it is therefore proposed to introduce a special measure allowing 
Germany to  apply the reverse  charge mechanism to  the  abovementioned  transmissions  until 
31 December 2024. Given the scope and novelty of the derogation, which refers to the trading 
of  greenhouse  gas  emissions  from  fossil  fuels,  a  sector  prone  to  fraud,  it  is  important  to 
evaluate  its  impact.  Therefore,  if  Germany  would  consider  an  extension  of  the  special 
measure  beyond  2024,  it  should  submit  to  the  Commission  a  request  for  an  extension 
accompanied by a report on the application of the special measure by 31 March 2024 at the 
latest.  This  report  shall  include  an  assessment  of  the  impact  of  the  measure  on  the  fight 
against VAT fraud and the number of traders and transactions affected by the measure. 

• 

Consistency with existing policy provisions in the policy area 

Articles 199a(1)(a)  and  (b)  of  the  VAT  Directive  allow  Member  State  to  apply  the  reverse 
charge  mechanism  to  the  transfer  of  allowances  to  emit  greenhouse  gases,  as  defined  in 
Article  3  of  Directive  2003/87/EC,  and  to  the  transfer  of  other  units  that  may  be  used  by 
operators for compliance with the same Directive. 

The  granting  of  a  derogation  allowing  to  apply  the  reverse  charge  mechanism  to  the 
transmission  of  allowances  referring  to  emissions  that  do  not  fall  within  the  EU  Emissions 
Trading Scheme regulated by Directive 2003/87/EC is consistent with the objectives pursued 
by the abovementioned provisions in the VAT Directive. 

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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 tax collection and combat tax evasion. It does not go beyond what is 
required to fulfil these aims. 

• 

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 Germany 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  aims  at  preventing  certain  forms  of  tax 
evasion or avoidance in the allowance-trading sector, which is especially vulnerable to VAT 
fraud. The reverse charge mechanism should help Germany to curb VAT fraud in this sector. 
Consequently, the derogating measure will have a potential positive impact. 

Because of the narrow scope of the derogation and the limited application in time, its impact 
will in any case be limited. 

• 

Fundamental rights 

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

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4. 

BUDGETARY IMPLICATIONS 

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

5. 

OTHER ELEMENTS 

The proposal includes a sunset clause set at 31 December 2024. 

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2021/0253 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Germany to apply a special measure derogating from Article 193 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 valued 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) 

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Article 193 of Directive 2006/112/EC  provides that  the taxable person supplying the 
goods or services is, as a general rule, liable for the payment of value added tax (VAT) 
to the tax authorities. 

By  letter  of  15  March  2021,  Germany  submitted  a  request  to  the  Commission  for 
authorisation  to  apply  a  special  measure  derogating  from  Article  193  of  Directive 
2006/112/EC regarding persons liable for payment of VAT in the case of transfer of 
emission  allowances  traded  in  a  national  trade  system  under  the  Fuel  Emission 
Allowance Trading Act2 (BEHG) of 12 December 2019 (“the request”). 

In accordance with Article 395(2), second subparagraph, of Directive 2006/112/EC, by 
letters  dated  7  April  2021,  the  Commission  transmitted  the  request  to  the  other 
Member States and, by letter dated 8 April 2021, it notified Germany that it had all the 
information necessary to consider the request. 

Article 199a(1), points (a) and (b), of Directive 2006/112/EC allows Member States to 
designate taxable persons receiving transfers of allowances to emit greenhouse gases, 
as defined in Article 3 of Council Directive 2003/87/EC3, and transfers of other units 
that  may  be  used  by  operators  for  compliance  with  that  Directive,  as  liable  for 
payment of VAT (‘the reverse charge mechanism’). These provisions were included in 
Directive  2006/112/EC  by  Council  Directive  2010/23/EU4  in  order  to  contribute  to 
fighting  VAT  fraud.  The  application  of  the  reverse  charge  mechanism  for  trading  in 
greenhouse gas emissions pursuant to Article 199a(1), points (a) and (b), of Directive 
2006/112/EC  is  limited  to  allowances  traded  under  the  EU  emission  trading  system 
(“EU ETS”).  

OJ L 347, 11.12.2006, p. 1. 
Gesetz über einen nationalen Zertifikatehandel für Brennstoffemissionen (BGBl. I S. 2728). 
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a 
system  for  greenhouse  gas  emission  allowance  trading  within  the  Union  and  amending  Council 
Directive 96/61/EC (OJ L 275, 25.10.2003, p. 32). 
Council  Directive  2010/23/EU  of  16 March  2010  amending  Directive  2006/112/EC  on  the  common 
system  of  value  added  tax,  as  regards  an  optional  and  temporary  application  of  the  reverse  charge 
mechanism in relation to supplies of certain services susceptible to fraud (OJ L 72, 20.3.2010, p. 1). 

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(5) 

(6) 

(7) 

(8) 

(9) 

Under  the  BEHG,  Germany  has  created  a  legal  framework  for  a  national  emissions 
trading scheme, which covers emissions that do not fall within the EU ETS. Therefore, 
Articles 199a(1), points (a) and (b), of Directive 2006/112/EC do not provide a legal 
basis for applying the reverse charge mechanism to trading under the BEHG. 

According  to  Germany,  trading  in  allowances  is  highly  vulnerable  to  VAT  fraud. 
Trading  in  allowances  for  fuel  emissions  under  the  BEHG  might  be  exploited  for 
fraudulent purposes in the same way as under the EU ETS. Emission allowances can 
be  exchanged  quickly,  repeatedly  and  easily.  The  frequent  and  rapid  change  of 
ownership  of  these  emission  allowances  makes  it  very  difficult  for  the  authorities  to 
detect and hence to ensure that the proper amount of tax is levied. The purchaser of the 
allowances, being a taxable person with the right of deduction, could deduct the VAT 
incurred,  without  the  supplier  having  paid  the  invoiced  turnover  tax  to  the  tax 
authorities. In particular, the involvement in the supply chain of ‘missing traders’, who 
quickly  disappear  or  do  not  have  any  assets,  prevents  the  evaded  tax  from  being 
collected by the authorities, negatively impacting the budget. To remedy the losses to 
public  revenues,  Germany  requests  a  derogation  from  Article  193  of  Directive 
2006/112/EC  to  be  authorised  to  introduce  the  reverse  charge  mechanism  to  the 
transfer of emission allowances. 

Designating the recipient, being a taxable person, as the person liable for the payment 
of VAT in those particular cases would simplify the procedure for collecting VAT and 
prevent tax evasion and avoidance. Therefore, Germany should be authorised to apply 
the  reverse  charge  mechanism  to  the  transfer  of  emission  allowances  traded  in  a 
national trade system under the BEHG. 

The  special  measure  should  be  limited  in  time.  Germany  should  therefore  be 
authorised to apply that measure until 31 December 2024. 

Given  the  scope  and  novelty  of  the  special  measure,  it  is  important  to  evaluate  its 
impact.  Therefore,  in  the  case  that  Germany  wishes  to  extend  that  measure  beyond 
2024, it should submit a report to the Commission, including a review of the special 
measure  together  with  the  extension  request  by  31  March  2024  at  the  latest.  That 
report should include an assessment of the impact of the measure on the fight against 
VAT fraud and the number of traders and transactions affected by the measure. 

(10)  The  derogating  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 

accruing from VAT, 

HAS ADOPTED THIS DECISION:  

Article 1 

By way of derogation from Article 193 of Directive 2006/112/EC, Germany is authorised to 
provide that the person liable for payment of VAT is the taxable person to whom the transfer 
of emission allowances traded in a national trade system under the Fuel Emission Allowance 
Trading Act (Gesetz über einen nationalen Zertifikatehandel für Brennstoffemissionen) of 12 
December 2019 is made. 

This Decision shall expire on 31 December 2024.  

Article 2 

Any  request  for  the  extension  of  the  special  measure  provided  for  in  this  Decision  shall  be 
submitted to the Commission by 31 March 2024 and shall be accompanied by a report on the 

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application of this measure which includes an assessment of the impact of the measure on the 
fight against VAT fraud and the number of traders and transactions affected by the measure. 

This Decision is addressed to the Federal Republic of Germany. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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