Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure derogating from Article 287 of Directive 2006/112/EC
Date: 2021-11-23
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 23.11.2021  COM(2021) 710 final 2021/0368 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure derogating from Article 287 of Directive 2006/112/EC  
 
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  19  April  2021,  Hungary  requested  an 
authorisation  to  continue  to  apply,  until  31  December  2024,  a  measure  derogating  from 
Article  287  of  the  VAT  Directive,  allowing  Hungary  to  exempt  from  VAT  taxable  persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 48 000. 

In  accordance  with  Article  395(2),  second  subparagraph,  of  the  VAT  Directive,  the 
Commission  informed  the  other  Member  States  by  letter  dated  28  June  2021  of  the  request 
made by Hungary. The Commission notified Hungary by letter dated 29 June 2021 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. 

Under  Article  287  of  the  VAT  Directive,  particular  Member  States  which  acceded  after  1 
January  1978  may  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent  in  national  currency  of  the  amounts  at  the  conversion  rate  on  the  day  of  their 
accession as specified in that provision. 

Under point 12 of Article 287 of the VAT Directive, Hungary 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) 2018/14902 Hungary was authorised, until 
31 December 2021, to apply a higher threshold and thus to exempt from VAT taxable persons 
whose annual turnover is no higher than the equivalent in national currency of EUR 48 000 at 
the conversion rate on the day of its accession.  

An  authorisation  to  continue  to  use  the  exemption  beyond  2021  for  taxable  persons  whose 
annual  turnover  is  no  higher  than  the  equivalent  in  HUF  of  EUR  48  000  would  be  a 
significant  simplification  for  persons  operating  relatively  small  businesses.  Taxable  persons 
covered by this exemption do not have to deduct and pay VAT, be registered for VAT or keep 
a full detailed record of  transactions subject to  VAT. Thanks  to  these simplifications,  small 
business  owners  can  devote  more  time  and  resources  to  developing  their  business.  The 
derogating measure remains optional for taxable persons. 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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OJ L 347, 11.12.2006, p. 1. 
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). 

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Moreover,  the  cost  of  collecting  VAT  from  taxable  persons  operating  businesses  with 
relatively  low  turnover,  resulting  from  providing  taxpayer  services  to  these  taxable  persons 
and auditing their tax returns, is disproportionately high in comparison to the amount of tax 
collected. Accordingly, by applying a VAT exemption to small business owners, the revenue 
administration  may  direct  more  resources  towards  preventing  and  combating  tax  fraud, 
evasion  and  avoidance,  and  towards  improving  the  quality  of  taxpayer  services  and  the 
effectiveness of collecting VAT from large-scale business operators. 

The  measure  does  not  significantly  affect  the  total  amount  of  revenue  from  VAT  or  the 
overall amount of tax revenue collected at the stage of final consumption. 

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

It  is  therefore  appropriate  to  authorise  Hungary  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 objectives of Directive (EU) 2020/285 amending 
Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises3, 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 48 000 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; Belgium7 a threshold of EUR 25 000, Luxembourg8 

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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)  2018/1904  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). 
Council  Implementing  Decision  (EU)  2018/2077  of  20  December  2018  amending  Implementing 
Decision 2013/53/EU authorising the Kingdom of Belgium to introduce a special  measure derogating 
from  Article  285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  331, 
28.12.2018, p. 222). 
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 

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a threshold of EUR 35 000; Poland9, Latvia10 and Estonia11 have been granted a threshold of 
EUR 40 000; Lithuania12 a threshold of EUR 55 000; Croatia13 a threshold of EUR 45 000; 
Malta14 a threshold of EUR 30 000; Slovenia15 a threshold of EUR 50 000; and Romania16 a 
threshold of EUR 88 500. 

Derogations from the VAT Directive should always be limited in time so that their effects can 
be  assessed.  In  addition,  the  inclusion  of  an  expiry  date  of  the  special  measure  until  31 
December 2024, as requested by Hungary, is aligned with the requirements of Directive (EU) 
2020/285.  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  this  respect,  the  Commission  adopted  in  March  2020  an  SME  Strategy  for  a 
sustainable and digital Europe17, where it committed to continue to work to reduce the burden 
on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars of that 
strategy.  This  special  measure  is  in  line  with  such  objectives,  as  far  as  fiscal  rules  are 
concerned.  It  is  also  consistent  with  the  2020  Action  Plan  on  fair  and  simple  taxation 
supporting  the  recovery  strategy18,  which  acknowledges  that  tax  compliance  costs  remain 

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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) 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)  2020/1261  of  4  September  2020  amending  Implementing 
Decision  (EU)  2017/2408  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  296, 
10.9.2020, p. 4). 
Council Implementing Decision (EU) 2021/358 of 22 February 2021 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 (OJ L 69, 26.2.2021, p. 4). 
Council  Implementing  Decision  (EU)  2021/86  of  22  January  2021  authorising  the  Republic  of 
Lithuania  to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 30, 28.1.2021, p. 2). 
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). 
Council  Implementing  Decision  (EU)  2021/753  of  6  May  2021  authorising  Malta  to  apply  a  special 
measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added 
tax, and repealing Implementing Decision (EU) 2018/279 (OJ L 163, 10.5.2021, p. 1). 
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). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  –  An  SME  Strategy  for  a 
sustainable and digital Europe (COM(2020) 103 final). 
Communication  from the  Commission to the European Parliament and the  Council  –  An  Action Plan 
for fair and simple taxation supporting the Recovery Strategy (COM(2020) 312 final). 

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high in the EU, and that compliance costs are typically substantially higher for small than for 
large companies. 

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 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 Hungary and concerns only this particular Member State. 

• 

Impact assessment 

The proposal for a Council Implementing Decision authorises Hungary to continue to exempt 
from VAT taxable persons whose annual turnover does not exceed the equivalent in HUF of 
EUR 48 000. 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.  Subsequently,  the  measure  will  have  a  potential  positive  impact  on  the  tax 
administration, as it will reduce its administrative burden.  

According  to  the  Hungarian  authorities,  the  grounds  for  having  introduced  the  higher 
threshold  remain  unchanged.  By  31  December  2020,  766  118  taxable  persons,  whose 
threshold  did  not  exceed  the  equivalent  in  HUF  of  EUR  48  000,  were  exempt  from  VAT, 
14 % more than before the higher threshold was introduced in 2019. As Hungary emphasised, 
tribute should be paid to the fact that the revenue of taxable persons qualifying for a personal 
exemption  increases  as  the  economy  improves,  which  should  be  taken  into  account  when 
setting  the  threshold.  However,  after  2019,  merely  one  third  of  taxable  persons,  previously 

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liable  for  VAT  and  whose  annual  turnover  was  no  higher  than  the  equivalent  in  HUF  of 
48 000 EUR, opted to be exempt from VAT. 

As regards the budgetary effect, according to information provided by Hungary, in 2019, the 
increase  in  the  threshold  under  Council  Implementing  Decision  (EU)  2018/1490  from  the 
equivalent in HUF of EUR 35 000 to the equivalent in HUF of EUR 48 000 from 1 January 
2019 led to budgetary losses of HUF 7.3 billion (approximately 0,1 to 0,2 % of VAT revenue 
in accrual terms). 

The derogating measure will be optional for taxable persons. Taxable persons will be able to 
opt  for  the  regular  VAT  arrangements  in  accordance  with  Article  290  of  Directive 
2006/112/EC. 

• 

Fundamental rights 

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

4. 

BUDGETARY IMPLICATIONS 

Following  entering  into  force  of  Council  Regulation  (EU,  Euratom)  2021/769  of  30  April 
2021  amending  Regulation  (EEC,  Euratom)  No  1553/89  on  the  definitive  uniform 
arrangements for the collection of own resources accruing from value added tax19, there will 
be no compensation calculation carried out by Hungary as of VAT own resource statement for 
the financial year 2021 onwards. 

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Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9). 

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2021/0368 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary 
to apply for a further period the special measure derogating from Article 287 of 
Directive 2006/112/EC 

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) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

Pursuant to Article 287, point (12), of Directive 2006/112/EC,  Hungary may exempt 
from value added tax (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  Council  Implementing  Decision  (EU)  2018/14902,  Hungary  was  authorised  to 
introduce a special measure derogating from Article 287 of Directive 2006/112/EC to 
exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent in national currency of EUR 48 000 at the conversion rate on the day of its 
accession to the Union, either until 31 December 2021 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 (‘the special measure’). 

By  letter  of  19  April  2021,  Hungary  submitted  a  request  to  the  Commission  for  an 
authorisation  to  continue  to  apply  the  special  measure  until  31  December  2024,  the 
date  by  which  Member  States  are  to  transpose  Council  Directive  (EU)  2020/2853, 
which lays down simpler VAT rules for small enterprises. That Directive also allows 
Member States to exempt taxable persons whose Member State annual turnover does 
not exceed a threshold of EUR 85 000 or the equivalent in national currency. 

(4) 

Pursuant to the second subparagraph of Article 395(2) of Directive 2006/112/EC, the 
Commission transmitted the request made by Hungary to the other Member States by 

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OJ L 347, 11.12.2006, p. 1. 
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  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) 

letter  dated  28  June  2021.  By  letter  dated  29  June  2021,  the  Commission  notified 
Hungary that it had all the information necessary for the appraisal of the request. 

The  special  measure  is  in  line  with  Directive  (EU)  2020/285,  which  seeks  to  reduce 
VAT  compliance  costs  for  small  enterprises,  distortions  of  competition  at  both 
national  and  Union  level,  and  the  negative  impact  of  transition  from  exemption  to 
taxation  (the  threshold  effect).  It  also  seeks  to  facilitate  compliance  by  small 
enterprises as well as monitoring by tax authorities. The threshold of EUR 48 000 is 
consistent with Article 284 of Directive 2006/112/EC. 

The  special  measure  will  remain  optional  for  taxable  persons.  Taxable  persons  may 
still  opt  for  the  normal  VAT  arrangements  pursuant  to  Article  290  of  Directive 
2006/112/EC. 

According to information provided by Hungary, the special measure will only have a 
negligible effect on the overall amount of the tax revenue Hungary collects at the stage 
of final consumption. 
Following the entry into force of Council Regulation (EU, Euratom) 2021/7694, there 
will be no compensation calculation carried out by  Hungary with regard to the VAT 
own resource statement for the financial year 2021 onwards. 

Given the positive impact of the special 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, Hungary should be authorised 
to apply the special measure for a further period. 

(10)  The  authorisation  to  apply  the  special  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,  pursuant  to  Article  3(1)  of  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 Hungary to apply the special measure until 31 December 2024. 

(11) 

Implementing Decision (EU) 2018/1490 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 2 of Implementing Decision (EU) 2018/1490 is replaced by the following: 

Article 1 

This Decision shall apply from 1 January 2019 until 31 December 2024.’  

‘Article 2 

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Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9). 

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This Decision is addressed to Hungary. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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