Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EC authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax
Date: 2022-10-13
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, derogation from EU law, motor vehicle, tax relief

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   EUROPEAN COMMISSION  Brussels, 13.10.2022  COM(2022) 519 final 2022/0321 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Decision 2007/441/EC authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 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  19  April 2022,  Italy  requested an extension of 
the  derogation  from  Article  26(1)  point  (a)  and  Article  168  of  the  VAT  Directive  that  it 
currently  applies.  The  Commission  asked  for  further  information  on  2  May  2022  and  Italy 
provided the requested clarifications on 1 June 2022. 

Italy asks for an authorisation to continue to derogate from Article 168 of the VAT Directive 
by limiting to 40% the right to deduct input VAT charged on expenditure related to motorised 
road  vehicles  not  wholly  used  for  business  purposes.  In  addition,  Italy  requests  an 
authorisation  to  continue  to  derogate  from  Article  26(1)  point  (a)  of  the  same  directive  by 
exempting  from  VAT  the  use  for  private  purposes  of  vehicles  included  in  the  assets  of  a 
taxable  person’s  business,  where  such  vehicles  are  subject  to  a  restriction  of  the  right  to 
deduct.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  23  June  2022  on  the  request  made  by  Italy.  By  letter  dated 
24 June  2022,  the  Commission  notified  Italy  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 

The  deduction  right  may  be  difficult  to  exercise  when  goods  can  be  used  privately  or  for 
business  purposes  without  distinction.  In  these  cases,  the  ratio  business  use  to  non-business 
use  may  be  complex  to  establish  and  the  conduct  of  inspections  to  confirm  such  ratio  may 
create significant difficulties and red tape for both tax authorities and taxable persons. It could 
even lead to time-consuming and costly disputes. In practice, it is sometimes even impossible 
to  verify  the  actual  use  of  vehicles  which  may  result  in  (attempted)  VAT  fraud  (such  as 
unreliable record keeping), and consequently a decrease in VAT revenue.  

Italy is dominated by small companies (94.7% of the Italian enterprises are micro-enterprises) 
and most of the company cars in circulation are owned by these kind of enterprises. The fact 
that such vehicles are used in the exercise of the ordinary business activity does not preclude 
their private use. In such situation, that is when these vehicles are to a certain extent used for 
private purposes, VAT shall be borne for the private use. In the Italian circumstances where 
almost all the economic fabric is composed of micro-entreprises, the workload to assess and 
verify  the  allocation  of  use  in  the  private  sphere  or  in  the  business  sphere  would  require 
disproportionately large outlays, including those resulting from the need to maintain detailed 
documentation. 

For  those  reasons,  Italy  has  been  authorised  to  derogate  from  Article  168  of  the  VAT 
Directive by limiting to 40% the right to deduct VAT on the purchase of a vehicle, including 
contracts  of  assembly  and  the  like,  manufacture,  intra-Community  acquisition,  importation, 

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OJ L 347, 11.12.2006, p. 1. 

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leasing or hire, modification, repair or maintenance, and expenditure on supplies or services 
performed in relation to vehicles and their use, including lubricants and fuel, provided that the 
vehicle in question is not used exclusively for business purposes. The special measures cover 
all motor vehicles but agricultural or forestry tractors, normally used for carrying persons or 
goods by road and having a total maximum weight lower than 3.5 tonnes and fewer than nine 
seats, including the driver’s seat.  

Likewise, Italy is authorised to derogate from Article 26(1) point (a) of the VAT Directive by 
exempting from VAT the use for private purposes of vehicles forming part of the assets of a 
taxable person’s business where those vehicles are covered by the above special measures.  

The  authorisation  for  the  derogating  measures  mentioned  above  was  first  granted  by  the 
Council  by  means  of  Decision  2007/441/EC  of  18  June  20072  until  31  December  2010. 
Subsequently, the derogating measures were prolonged  four times following  Italy’s  request: 
Council Implementing Decision 2010/748/EU of 29 November 20103 extended them for the 
period  1  January  2011  until  31  December  2013;  Council  Implementing  Decision 
2013/679/EU of 15 November 20134 for the period 1 January 2014 until 31 December 2016; 
Council  Implementing  Decision  (EU)  2016/1982  of  8  November  20165  for  the  period  1 
January  2017  until  31  December  2019;  and  last,  Council  Implementing  Decision  (EU) 
2019/2138 of 5 December 2019 for the period 1 January 2020 until 31 December 20226. 

The  present  request  from  Italy  to  prolong  the  special  measures  until  31  December  2025  is 
based on the same grounds as those presented in the previous requests.  The request  and the 
information  provided  by  Italy  on  1  June  2022  include  an  explanation  of  the  percentage 
limitation applied on the right of deduction. 

Given  the  positive  impact  of  the  special  measure  on  the  administrative  burden  of  taxpayers 
and  tax  authorities  alike,  it  is  proposed,  subject  to  certain  conditions,  to  authorise  the 
requested  extension.  Any  further  extension  request  should  be  accompanied  by  a  duly 
substantiated  and  justified  report  reviewing  the  necessity  and  effectiveness  of  the  special 
measures and a review of the percentage applied for the period starting 1 January 2023 until 
the submission of the request and should be sent to the Commission by 31 March 2025. 

• 

Consistency with existing policy provisions in the policy area 

Similar  special  measures,  although  at  the  rate  of  50%,  in  relation  to  the  right  of  deduction 
have been granted to other Member States7.  

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OJ L 165, 27.6.2007, p. 33. 
OJ L 318, 4.12.2010, p. 45. 
OJ L 316, 27.11.2013, p. 37. 
OJ L 305, 12.11.2016, p. 30. 
OJ L 324, 13.12.2019, p. 7. 
For  example:  Council  Implementing  Decision  (EU)  2021/1997  of  15  November  2021  amending 
Implementing Decision (EU) 2018/1994 authorising Croatia to introduce a special measure derogating 
from  point  (a)  of  Article  26(1)  and  Article  168  of  Directive  2006/112/EC  on  the  common  system  of 
value added tax (OJ L 408, 17.11.2021, p. 1–2); Council Implementing Decision (EU) 2020/1262 of 4 
September  2020  amending  Implementing  Decision  2012/232/EU  authorising  Romania  to  apply 
measures derogating from  Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common 
system  of  value  added  tax  (OJ  L  296,  10.9.2020,  p.  6–7);  Council  Implementing  Decision  (EU) 
2018/1493 of 2 October 2018 authorising Hungary to introduce a special measure derogating from point 
(a)  of  Article  26(1)  and  Articles  168  and  168a  of  Directive  2006/112/EC  on  the  common  system  of 
value added tax (OJ L 252, 8.10.2018, p. 44–46); Council Implementing Decision (EU) 2017/1854 of 
10 October 2017 amending Implementing Decision 2014/797/EU authorising the Republic of Estonia to 

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Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on which the VAT is not deductible. Until  it does, Member States  can maintain exclusions 
that were in place under national laws on 1 January 1979. On this basis, there is a number of 
‘stand  still’  provisions  restricting  the  right  to  deduct  VAT  in  relation  to  corporate  motor 
vehicles8. 

Previous initiatives to establish rules on which categories of expenditure may be subject to a 
restriction on the right to deduct have failed9. Until those rules are harmonised at EU level, 
special measures such as the present ones are considered appropriate. 

The proposed measures are therefore consistent with the provisions of the VAT Directive. 

• 

Consistency with other Union policies 

This measure is consistent with the Commission Communication of 15 July 2020, Action Plan 
for Fair and Simple Taxation in Support of Economic Recovery10, which highlights the need 
to support companies which face more administrative complexity and where compliance costs 
are proportionately much higher, that is notably the small and medium-sized enterprises. It is 
also compatible with the Commission's 2017 work programme11, which highlights the need to 
simplify VAT for smaller businesses.  

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

The  granting  of  the  extension  of  the  special  measures  cannot  be  achieved  by  Italy.  The 
intervention of the Commission is necessary to present a proposal to the Council, who may 
authorise Italy to extend the special measures. 

• 

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  to  prevent  certain  forms  of  tax  evasion  or 
avoidance. In particular, given the potential for businesses to under declare their liability and 
the burdensome check of mileage data for tax authorities, the 40% restriction would simplify 
the  VAT  collection  procedure  and  would  prevent  tax  evasion  inter  alia  through  incorrect 
record keeping. 

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apply  a  measure  derogating  from  point  (a)  of  Article  26(1)  and  Articles  168  and  168a  of  Directive 
2006/112/EC on the common system of value added tax (OJ L 265, 14.10.2017, p. 17–18).  
See the list compiled by Madeleine Merkx (2018) VAT deduction and member state sovereignty: (still) 
a good idea?, World Journal of VAT/GST Law, 7:2, 53-75, DOI: 10.1080/20488432.2018.1550163. 
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). 
Communication from the Commission to the European Parliament and the Council An Action Plan for 
Fair and Simple Taxation in Support of Economic Recovery (COM(2020)312 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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• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

Recourse  to  a  Council  decision  responds  to  the  requirement  of  Article  395  of  the  VAT 
Directive  under  which  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.  

In the case at hand, the aim is to address Italy only. The recourse to a Decision is therefore 
warranted  as  such  an  instrument  can  be  addressed  to  an  individual  Member  State  and  be 
binding only towards this Member State.  

The  choice  of  an  Implementing  act  is  warranted  as  it  activates  the  option  opened  under 
Article 395 of the VAT Directive. 

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 Italy and concerns only this particular Member State. 

• 

Collection and use of expertise 

There was no recourse to external expertise. 

• 

Impact assessment 

The  proposal  aims  to  simplify  the  procedure  for  collecting  VAT  and  to  prevent  VAT 
evasion. It has, therefore, a potential positive impact for both businesses and administrations. 
The derogating measures have been identified by Italy as the most appropriate solution. The 
measures  are  comparable  to  other  past  and  present  derogations  granted  to  other  Member 
States. 

• 

Regulatory fitness and simplification 

The  special  measures  contribute  to  simplifying  compliance  obligations  and  reducing 
administrative  burdens  on  taxable  persons,  especially  in  the  SMEs  sector,  and  for  the  tax 
administration.  It  significantly  reduces  the  difficulties  associated  with  verifying  the 
correctness  of  input  VAT  deductions,  which  often  lead  to  costly  and  time-consuming 
administrative and court disputes. 

The  proposal  does  not  have  any  information  and  communication  technology  (ICT) 
consequences. 

• 

Fundamental rights 

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

4. 

BUDGETARY IMPLICATIONS 

The  proposal  will  not  have  a  negative  impact  on  the  EU  budget.  The  proposal  aims  to 
authorise  Italy  to  continue  restricting  the  right  to  deduct  for  certain  vehicles  and  related 

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expenditure for the period 2023-2025.  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The proposal includes a sunset clause set at 31 December 2025. 

In case Italy considers a further extension of the derogating measures beyond 2025, it should 
submit to the Commission an extension request accompanied by a report including a review 
of the percentage restriction no later than 31 March 2025.  

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2022/0321 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Decision 2007/441/EC authorising the Italian Republic to apply measures 
derogating from Articles 26(1)(a) and 168 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) 

(4) 

(5) 

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2 

Article 168 of Directive 2006/112/EC establishes a right for taxable persons to deduct 
value added tax (‘VAT’) charged on supplies of goods and services that they use for 
the purposes of their taxed transactions. Article 26(1), point (a), of that Directive treats 
the  use  of  business  assets  by  taxable  persons  or  their  staff  for  private  use  or,  more 
generally,  for  purposes  other  than  those  of  their  business  as  a  supply  of  services  for 
consideration. 
Council Decision 2007/441/EC2 authorises Italy to limit the right to deduct VAT under 
Article  168  of  Directive  2006/112/EC  to  40%  in  respect  of  the  purchase  of  certain 
motorised  road  vehicles,  including  contracts  of  assembly  and  the  like,  manufacture, 
intra-Community  acquisition,  importation,  leasing  or  hire,  modification,  repair  or 
maintenance, and related expenditure, including lubricants and fuel, where the vehicle 
in question is not entirely used for business purposes. For vehicles to which that 40% 
limit  applies,  Italy  requires  that  taxable  persons  do  not  treat  the  use  for  private 
purposes of vehicles included in the assets of a taxable person's business as a supply of 
services  for  consideration  in  accordance  with  Article  26(1),  point  (a),  of  Directive 
2006/112/EC.  

Decision 2007/441/EC is due to expire on 31 December 2022. 

By  letter  registered  with  the  Commission  on  19  April  2022,  Italy  requested 
authorisation  to  continue  to  apply  the  special  measures  authorised  by  Decision 
2007/441/EC (‘the special measures’) for a further period until 31 December 2025. 

By letter dated 2 May 2022, the Commission requested further information and Italy 
provided the requested information by letter dated 1 June 2022. 

OJ L 347, 11.12.2006, p. 1. 
Council  Decision  2007/441/EC  of  18  June  2007  authorising  the  Italian  Republic  to  apply  measures 
derogating  from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the  common system of value 
added tax (OJ L 165, 27.6.2007, p. 33). 

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(6) 

(7) 

(8) 

(9) 

(10) 

(11) 

In  response  to  the  Commission  request,  Italy  provided  an  explanation  of  the 
percentage limitation applied on the right of deduction. Italy maintains that a rate of 40 
%  is  still  justified.  In  its  request,  Italy  also  maintains  that  the  suspension  of  the 
requirement  to  account  for  VAT  on  the  private  use  of  a  motor  vehicle,  where  the 
vehicle has been subject to that limitation, is still necessary to avoid double taxation. It 
further maintains that those special measures are justified by the need to simplify the 
procedure  for  collecting  VAT  and  to  prevent  tax  evasion  resulting  from  incorrect 
record-keeping and false tax declarations. 

By letter dated 23 June 2022, the Commission notified the other Member States of the 
request  that  Italy  had  made,  pursuant  to  Article  395(2),  second  subparagraph,  of 
Directive 2006/112/EC.  By letter dated  24 June 2022, the Commission  notified  Italy 
that it had all the information necessary to consider the request. 

The  application  of  the  special  measures  will  only  have  a  negligible  effect  on  the 
overall amount of tax revenue of Italy collected at the stage of final consumption and 
will not adversely affect the Union’s own resources accruing from VAT. 

It  is  therefore  appropriate  to  extend  the  authorisation  set  out  in  Council  Decision 
2007/441/EC.  The  extension  of  the  authorisation  should  be  limited  in  time,  to  allow 
for  an  evaluation  of  its  effectiveness  and  of  the  appropriateness  of  the  percentage 
restriction applied to the right to deduct VAT.  

Italy should therefore be authorised to continue to apply the derogating measures until 
31 December 2025. 

Italy could consider that the special measures are necessary beyond the date of expiry 
of  Council  Decision  2007/441/EC.  In  order  to  ensure  a  timely  examination  of  any 
request  to  extend  the  authorisation  provided  in  that  Decision,  it  is  necessary  to  lay 
down requirements for such a request.  

(12)  Council Decision 2007/441/EC should be therefore amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 1 

Decision 2007/441/EC is amended as follows: 

1) Article 6 is replaced by the following:  

‘Article 6 

The Italian Republic may request extension of the authorisation provided for in this Decision 
by 31 March 2025. Such request shall be submitted to the Commission and accompanied by a 
report,  which  includes  a  review  of  the  percentage  restriction  applied  on  the  right  to  deduct 
VAT on the basis of this Decision.’; 

2) Article 7 is replaced by the following: 

‘Article 7 

This Decision shall expire on 31 December 2025.’. 

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This Decision is addressed to the Italian Republic. 

Article 2 

Done at Brussels, 

For the Council 
The President 

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