Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2015/2429 authorising Latvia 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
Date: 2024-10-23
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Latvia, VAT, derogation from EU law, motor car, tax relief

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   EUROPEAN COMMISSION  Brussels, 23.10.2024  COM(2024) 488 final 2024/0270 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2015/2429 authorising Latvia 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  
 
EXPLANATORY MEMORANDUM 

Pursuant to Article 395(1) of 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 
derogating  from  the  provisions  of  this  Directive,  in  order  to  simplify  the  procedure  for 
charging VAT or to prevent certain forms of tax evasion or avoidance. 

By letter registered with the Commission on 15 May 2024, Latvia requested an authorisation 
to continue to apply a measure derogating from point (a) of Article 26(1) and Articles 168 and 
168a  of  the  VAT  Directive  to  restrict  the  right  of  deduction  of  input  VAT  in  relation  to 
expenditure  on  certain  passenger  cars  not  wholly  used  for  business  purposes  and  to  relieve 
taxable persons from having to treat the private use of such vehicles as a supply of services 
for consideration. Together with the request for extension, Latvia submitted a report including 
a review of the percentage foreseen for the limitation of the right of deduction. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  10  September  2024  of  the  request  made  by  Latvia.  The 
Commission notified Latvia by letter dated 11 September 2024 that it had all the information 
necessary to consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article  168  of  the  VAT  Directive  provides  that  a  taxable  person  is  entitled  to  deduct  VAT 
charged on purchases made for the purpose of taxed transactions. Article 168a(1) of the VAT 
Directive provides that the VAT on expenditure related to immovable property forming part 
of  the  business  assets  of  a  taxable  person  and  used  both  for  business  and  non-business 
purposes shall be deductible only to the proportion of the property’s use for purposes of the 
taxable person’s business. Pursuant to Article 168a(2) of the VAT Directive Member States 
may also apply this rule in relation to expenditure related to other goods forming part of the 
business  assets  as  they  specify.  Point  (a)  of  paragraph  1  of  Article  26  of  that  Directive 
contains  a  requirement  to  account  for  VAT  when  goods  forming  part  of  the  assets  of  a 
business  are put  to  use for private purposes of the taxable person or for that  of his  staff or, 
more generally, for purposes other than those of his business, where the VAT on such goods 
was  wholly  or  partly  deductible.  This  system  allows  for  the  recovery  of  initially  deducted 
VAT in relation to the private use. 

In  the  case  of  passenger  cars,  this  system  is  difficult  to  apply,  in  particular  because  it  is 
difficult to identify the split between private and business use. Where records are kept, they 
add  an  additional  burden  to  both  the  business  and  the  administration  in  maintaining  and 
checking them.  

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. 

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OJ 347, 11.12.2006, p.1.  

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Latvia  is  currently  authorised  on  the  basis  of  Council  Implementing  Decision  (EU) 
2015/24292 to limit to 50% the right to deduct the VAT paid on the purchase, leasing, intra-
Community acquisition and importation of certain passenger cars, and expenditure related to 
the maintenance, repair and fuel for such cars, when those passenger cars are not wholly used 
for business purposes. The special measure also relieves taxable persons from having to treat 
the  non-business  use  of  such  passenger  cars  as  a  supply  of  services  for  consideration. 
Passenger cars covered by the special measure are those with a maximum authorised weight 
not exceeding 3 500 kilograms and having not more than eight seats in addition to the driver's 
seat.  Passenger  cars  which  are  used  for  certain  specific  activities  are  excluded  from  the 
restriction  on  the  right  to  deduct  VAT  and  would  be  treated  under  the  normal  rules:  cars 
purchased for resale, hire or lease; cars used for transportation of passengers (such as taxis) or 
goods; cars used for driving lessons; cars used for guard or emergency services; cars used as 
car sales demonstration vehicle. The period of validity of this special measure was extended 
by Council Implementing Decision (EU) 2018/1921 of 4 December3 until 31 December 2021 
and by Council Implementing Decision (EU) 2021/1968 of 9 November4 until 31 December 
2024. 

The  present  request  by  Latvia  to  prolong  further  the  special  measure  is  based  on  the  same 
grounds as those presented in the previous requests. The request is accompanied by a report 
including a review of the percentage limitation applied on the right of deduction, as required 
by Article 6(2) of Council Implementing Decision (EU) 2015/2429. Latvia considers that the 
conditions  for  the  application  of  the  special  measure  continue  to  apply  and  that  the  applied 
50% limit remains appropriate.  

Latvia  confirms  that  the  special  measure  allows  administrative  burden  to  be  eased  for 
taxpayers  and  for  the  tax  administration  and  limits  the  evasion  of  VAT  through  incorrect 
record-keeping  of  journeys  made  in  connection  with  business  activities  and  incorrectly 
completed VAT returns. According to the data submitted by Latvia, in 2023 micro-enterprises 
and  SMEs  accounted  for    99.7%  of  economically  active  enterprises  which  complicates  the 
task of the tax authorities when verifying the business and private use of passenger cars. As of 
1 January 2024 the total number of registered traders in Latvia with one or two passenger cars 
was  23  627  or  80.6%  of  all  registered  traders  who  registered  passenger  cars.  Since 
microenterprises and SMEs make up 99.7% of all operators, Latvia maintains that most of the 
passenger cars are used for private purposes. According to the data provided, as of 1 January 
2024,  84.5%  of  all  passenger  cars  belonging  to  registered  traders  were  used  not  only  for 
business but also for private purposes.  

Given  the  positive  impact  of  the  special  measure  on  the  administrative  burden  of  taxpayers 
and of tax authorities, it is proposed to authorise the extension of the current special measure. 
The authorisation should be valid for another limited period, i.e. until 31 December 2027, in 
order  to  allow  for  a  review  of  the  necessity  and  effectiveness  of  the  special  measure  and 

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Council Implementing Decision (EU) 2015/2429 of 10 December 2015 authorising Latvia 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 334, 22.12.2015, p. 15-17.  
Council  Implementing  Decision  (EU)  2018/1921  of  4  December  2018  amending  Implementing 
Decision  2015/2429  authorising  Latvia  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 311, 7.12.2018, p. 36–37. 
Council  Implementing  Decision  (EU)  2021/1968  of  9  November  2021  amending  Implementing 
Decision (EU) 2015/2429 authorising Latvia 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 401, 12.11.2021, p. 1–2. 

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whether the 50% restriction is still a correct reflection of the overall apportionment between 
business  and  private  use.  Any  extension  request  should  be  accompanied  by  a  report  which 
includes  a  review  of  the  percentage  applied  and  should  be  sent  to  the  Commission  by  31 
March 2027. 

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to the right of  deduction have been granted to other Member 
States (Estonia5, Hungary6, Croatia7, Poland8, Italy9 and Romania10).  

Article 176 of the VAT Directive stipulates that the Council shall determine the expenditure 
on which the VAT is not deductible. Until such time, it authorises Member States to maintain 
exclusions  which  were  in  place  on  1  January  1979.  There  are  therefore  a  number  of  “stand 
still” provisions restricting the right to deduct VAT in relation to passenger cars.  

Notwithstanding previous initiatives to establish rules on which categories of expenditure may 
be  subject  to  a  restriction  on  the  right  to  deduct11,  such  derogation  is  appropriate  in  the 
awaiting of a harmonisation of these rules at EU level.  

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. 

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Council Implementing Decision (EU) 2021/1998 of 15 November 2021 authorising Estonia to apply a 
measure derogating from Article 26(1), point (a), and Articles 168 and 168a of Directive 2006/112/EC 
on the common system of value added tax, OJ L 408, 17.11.2021, p. 3–5. 
Council Implementing Decision (EU) 2021/1774 of 5 October 2021 amending Implementing Decision 
(EU)  2018/1493  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 360, 11.10.2021, p. 108–109. 
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)  2022/2385  of  6  December  2022  amending  Implementing 
Decision 2013/805/EU authorising the Republic of Poland to introduce measures 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 315, 7.12.2022, p. 87–88. 
Council Implementing Decision (EU) 2022/2411 of 6 December 2022 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, OJ L 317, 9.12.2022, p. 120–121. 
Council Implementing Decision (EU) 2024/1641 of 24 May 2024 authorising Romania to apply special 
measures  derogating  from  Article  26(1),  point  (a),  and  Article  168  of  Directive  2006/112/EC  on  the 
common system of value added tax, OJ L, 2024/1641, 6.6.2024. 
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)  

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Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued, i.e. to  simplify the procedure for collecting  the tax 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  50% 
restriction  would  simplify  the  VAT  collection  and  would  prevent  tax  evasion  inter  alia 
through incorrect record keeping and incorrectly completed VAT returns. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT provisions is 
only  possible  upon  authorisation  of  the  Council 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. This proposal is based on a request made by 
Latvia and concerns only this Member State.  

• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal is designed to simplify the procedure for charging tax by removing the need for 
taxable  persons  to  keep  records  on  the  private  use  of  specified  passenger  cars,  and,  at  the 
same  time,  to  prevent  certain  form  of  VAT  evasion  through  incorrect  record  keeping.  The 
proposed  measure  has,  therefore,  a  potential  positive  impact  for  both  businesses  and  tax 
administration.  The  solution  has  been  identified  by  Latvia  as  a  suitable  measure  and  is 
comparable to other past and present derogations.  

4. 

BUDGETARY IMPLICATIONS 

The proposal will not adversely affect the Union's own resources from VAT. 

5. 

OTHER ELEMENTS 

The proposal is limited in time and includes a sunset clause set at 31 December 2027.  

In case Latvia would consider another extension of the special measure beyond 2027, a report 
including  a  review  of  the  percentage  limit  should  be  submitted  to  the  Commission  together 
with the extension request no later than 31 March 2027. 

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2024/0270 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2015/2429 authorising Latvia 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 

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), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

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Articles  168  and  168a  of  Directive  2006/112/EC  establish  taxable  persons’  right  to 
deduct value added tax (VAT) charged on supplies of goods and services received by 
them  for  the  purposes  of  their  taxed  transactions.  Article  26(1),  point  (a),  of  that 
Directive contains a requirement to account for VAT when a business asset is put to 
use  for  private  purposes  of  taxable  persons  or  their  staff  or,  more  generally,  for 
purposes other than those of their business. 
Council  Implementing  Decision  (EU)  2015/24292,  as  amended  by  Council 
Implementing Decision (EU) 2021/19683, authorises Latvia, until 31 December 2024, 
to limit to 50% the right to deduct VAT on expenditure on passenger cars not wholly 
used for business purposes and authorises Latvia to not treat as supplies of services for 
consideration the use for private purposes of a passenger car inlucded in the assets of a 
taxable  person’s  business,  where  that  car  has  been  subject  to  a  limitation  authorised 
under Article 1 of that Decision (‘the special measure’). 

By letter registered by the Commission on 15 May 2024, Latvia submitted a request, 
in  accordance  with  Article  395(2),  first  subparagraph,  of  Directive  2006/112/EC,  to 
the Commission to continue to apply the special measure (‘the extension request’).  

In  accordance  with  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC, 
the  Commission  transmitted  the  extension  request  to  the  other  Member  States  by 
letters  of  10  September  2024.  By  letter  of  11  September  2024,  the  Commission 

OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj.  
Council Implementing Decision (EU) 2015/2429 of 10 December 2015 authorising Latvia 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  334,  22.12.2015,  p.  15, 
ELI: http://data.europa.eu/eli/dec_impl/2015/2429/2022-01-01). 
Council  Implementing  Decision  (EU)  2021/1968  of  9  November  2021  amending  Implementing 
Decision (EU) 2015/2429 authorising Latvia 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 401, 12.11.2021, p. 1, ELI: http://data.europa.eu/eli/dec_impl/2021/1968/oj). 

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(5) 

(6) 

(7) 

(8) 

(9) 

notified  Latvia  that  it  had  all  the  information  necessary  to  consider  the  extension 
request. 

In  accordance  with  Article  6(2)  of  Implementing  Decision  (EU)  2015/2429,  Latvia 
submitted,  together  with  the  extension  request,  a  report  including  the  review  of  the 
percentage set for the limitation of the right to deduct VAT referred to in Article 1 of 
that  Implementing  Decision.  Based  on  currently  available  information,  namely  tax 
audit experience and statistical data relating to private use of passengers cars, Latvia 
claims that the limit of 50% is still justifiable and remains appropriate. 

Given the positive impact of the special measure on the administrative burden of the 
taxpayers  and  of  tax  authorities  by  simplifying  VAT  collection  and  preventing  tax 
evasion  through  incorrect  record  keeping,  the  Commission  therefore  considers  it 
appropriate to authorise Latvia to continue to apply the special measure. 

It is  appropriate to limit the extension of the special measure in time to  allow for an 
evaluation  of  its  effectiveness  and  of  the  appropriate  percentage.  Latvia  should 
therefore  be  authorised  to  continue  to  apply  the  special  measure  until  31  December 
2027. 

The special measure is proportionate to the objectives pursued, namely, to simplify the 
procedure  for  collecting  VAT  and  to  prevent  certain  forms  of  tax  evasion  or 
avoidance, since it is limited in time and scope. In addition, the special measure does 
not  give  rise  to  the  risk  that  fraud  would  shift  to  other  sectors  or  to  other  Member 
States. 

In  the  event  that  Latvia  considers  that  a  further  extension  of  the  special  measure  is 
necessary  beyond  2027,  it  should  submit  to  the Commission  a  report  that  includes  a 
review  of  the  percentage  applied,  together  with  the  extension  request,  by  31  March 
2027. 

(10)  The  special  measure  will  only  have  negligible  effect  on  the  overall  amount  of  tax 
revenue collected at the stage of final consumption and will have no adverse impact on 
the Union's own resources accruing from VAT. 

(11) 

Implementing Decision (EU) 2015/2429 should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 6 of Implementing Decision (EU) 2015/2429 is replaced by the following: 

Article 1 

1. This Decision shall expire on 31 December 2027. 

'Article 6 

2.  Any  request  for  the  extension  of  the  authorisation  provided  for  in  this  Decision  shall  be 
submitted to the Commission by 31 March 2027 and shall be accompanied by a report which 
includes a review of the percentage set out in Article 1.'. 

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This Decision is addressed to the Republic of Latvia. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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