Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2021/1778 as regards an extension of the authorisation for Germany to apply a special measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2024-07-12
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU emission allowance, Germany, VAT, derogation from EU law, emission trading, fuel, tax avoidance, tax evasion, taxpayer

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   EUROPEAN COMMISSION  Brussels, 12.7.2024  COM(2024) 294 final 2024/0163 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2021/1778 as regards an extension of the authorisation for 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  19  February  2024,  Germany  requested 
authorisation  to  continue  to  apply  the  special  measure  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, extending 
the  application  of  the  special  measure  granted  by  Council  Implementing  Decision  (EU)  
2021/1778 of 5 October 20212, which derogates from Article 193 of the VAT Directive. In 
accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission  informed  the  other 
Member  States  by  letter  dated  27  March  2024  of  the  request  made  by  Germany.  By  letter 
dated  2  April  2024  the  Commission  notified  Germany  that  it  had  all  the  information  it 
considered necessary for appraisal of the request. 

1. 

• 

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 in 2021 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).  The  request  was  approved  by  Council  Implementing 
Decision(EU)  2021/1778 of 5 October 2021, which is set to expire on 31 December 2024. 

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 Community3 
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, 

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OJ L 347, 11.12.2006, p. 1. 
Council Implementing Decision (EU) 2021/1778 of 5 October 2021 authorising the Federal Republic of 
Germany  to  apply  a  special  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 360, 11.10.2021, p. 117–119). 
OJ L 275, 25.10.2003, p. 32-46. 

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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 
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. 

Similar to the experience in allowance trading in the scope of the EU ETS, it can 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. 

As  provided  by  Article  2  of  Council  Implementing  Decision  (EU)  2021/1778,  Germany 
submitted,  together  with  the  extension  request,  a  report  on  the  impact  of  the  measure. 
According to the German authorities, the special measure helped to prevent tax evasion and 
avoidance  in  the  sector  of  emissions  allowances  trading  and  they  find  good  reasons  to 
continue with such a procedure. 

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 appropriate to authorise Germany to continue to 
apply the reverse charge mechanism to the abovementioned transmissions until 31 December 
2026. 

In case Germany would consider an extension of the special measure beyond 2026, 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 2026 at the latest. This report shall include an 

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assessment of the impact  of the measure on the fight against VAT fraud and the number of 
traders and transactions affected by the measure. 

Pursuant  to  Article  199a(1)(a)  and  (b)  of  the  VAT  Directive,  the  possibility  to  apply  the 
reverse charge mechanism for trading in greenhouse gas emissions will end on 31 December 
2026.  The  Commission  will  assess  whether  the  trade  of  allowances  under  national  trading 
systems,  such  as  the  BEHG,  should  be  included  as  well  in  the  supplies  covered  by  reverse 
charge mechanism, should there be a new proposal in this respect. 

For this reason, the extension period of this derogation is limited to two years as to coincide 
with the date of 31 December 2026. 

• 

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  extension  of  a  special  measure  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. 

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 
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. 

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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 special measure will have a potential positive impact. 

Germany reported that no cases of VAT evasion was ascertained in the relevant period due to 
the  special  measure  in  the  trade  of  emission  allowances  issued  on  the  basis  of  the  Fuel 
Emissions Trading Act.  

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

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 2026. 

A report including a review of the measure should be submitted to the Commission together 
with the extension request and this no later than 31 March 2026. 

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2024/0163 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2021/1778 as regards an extension of the 
authorisation for 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) 

(5) 

Pursuant  to  Article  193  of  Directive  2006/112/EC,  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. 
In  accordance  with  Council  Implementing  Decision  (EU)  2021/17782,  Germany  was 
authorised  to  apply,  until  31  December  2024,  a  special  measure  derogating  from 
Article 193 of Directive 2006/112/EC (‘the special measure’), to designate the taxable 
person  receiving  transfers  of  emission  allowances  under  the  BEHG  as  liable  for 
payment of VAT. 

By  letter  registered  with  the  Commission  on  19  February  2024,  Germany  requested 
the  extension  of  the  special  measure  granted  by  Implementing  Decision  (EU) 
2021/1778  and  thereby  an  authorisation  to  continue  to  apply  the  special  measure 
beyond 31 December 2024 (‘the request’). 

Pursuant to Article 395(2), second subparagraph of Directive 2006/112/EC, by letters 
dated  27  March  2024,  the  Commission  transmitted  the  request  to  the  other  Member 
States  and,  by  letter  dated  2 April 2024,  it  notified  Germany  that  it  had  all  the 
information necessary to consider the request. 

According  to  the  information  provided  by  Germany,  the  factual  situation  which 
justified the application of the special measure has not changed. Germany submitted to 
the  Commission,  together  with  the  request,  a  report  on  the  overall  positive  practical 
experience that shows that the use of the reverse charge mechanism in the transfer of 
emission  allowances  under  the  BEHG  has  proved  its  worth  in  practice.  The 
arrangement is an important component in combating VAT fraud, whose importance is 
expected to increase in the coming years because of changing market conditions. 

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2 

OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
Council Implementing Decision (EU) 2021/1778 authorising the Federal Republic of Germany to apply 
a  special  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the  common  system  of 
value added tax (OJ L 360, 11.10.2021, p. 117, ELI: http://data.europa.eu/eli/dec_impl/2021/1778/oj). 

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(6) 

(7) 

It  is  therefore  appropriate  to  extend  the  authorisation  granted  in  Implementing 
Decision (EU) 2021/1778. The extension of the authorisation should be limited in time 
to  allow  for  an  evaluation  of  the  effectiveness  and  appropriateness  of  the  special 
measure. The derogating measure should therefore expire on 31 December 2026. 

If Germany wishes to extend that measure beyond 2026, it should submit a report to 
the Commission, including a review of the special measure together with the extension 
request by 31 March 2026 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. 

(8) 

The  special  measure  will  have  no  adverse  impact  on  the  Union's  own  resources 
accruing from VAT. 

(9) 

Implementing Decision (EU) 2021/1778 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 2 of Implementing Decision (EU) 2021/1778 is replaced by the following: 

Article 1 

This Decision shall expire on 31 December 2026. 

‘Article 2 

Any request for extension of the measure provided for in this Decision shall be submitted to 
the Commission by 31 March 2026 and shall be accompanied by a report which includes an 
assessment of the measure and of its impact 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 2 

For the Council 
The President 

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