Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia to extend the application of a measure derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax
Date: 2024-11-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Latvia, VAT, derogation from EU law, provision of services, supply, taxpayer, wood product

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   EUROPEAN COMMISSION  Brussels, 21.11.2024  COM(2024) 542 final 2024/0300 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia to extend the application of a 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  tax  (‘the  VAT  Directive’1),  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  sent  on  29  April  2024  and  registered  with  the  Commission  on  2  May  2024,  the 
Republic  of  Latvia  (hereinafter  Latvia)  requested  the  authorisation  to  continue  to  apply  a 
measure  derogating  from  Article 193  of  the  VAT  Directive,  which  determines  the  person 
liable for the payment of VAT. With the same letter, Latvia sent a report on the application of 
that measure.  

By  letter  sent  on  4  July  2024  the  Commission  requested  additional  information,  to  which 
Latvia replied by letter registered with the Commission on 12 August 2024. 

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letters  dated  3 September 2024,  and  Italy  on  4  September  2024  of  the 
request  made by  Latvia. By letter  dated  5 September  2024, the Commission  notified  Latvia 
that it had all the information necessary to consider 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 normally 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. 

On  29  April  2024,  Latvia  requested  to  continue  to  apply  the  reverse  charge  mechanism  to 
timber  transactions  that  entails  to  make  the  person  to  whom  these  goods  or  services  are 
supplied liable for the payment of VAT. 

derogating  measure 

by 
The 
Council Decision 2006/42/EC2  until  31 December  2009  and  by  Council  Implementing 
Decision 2009/1008/EU3 until 31 December 2012. The authorisation to apply the derogation 
has  subsequently  been  extended  by  Council  Implementing  Decision  2013/55/EU4  until 
(EU)  2015/23965  until 
31 December 2015,  by  Council 

Implementing  Decision 

initially 

granted 

Latvia 

been 

had 

for 

1 
2 
3 
4 
5 

OJ L 347, 11.12.2006, p. 1. 
OJ L 25, 28.1.2006, p. 31. 
OJ L 347, 24.12.2009, p.30. 
OJ L 22, 25.1.2013, p.16. 
OJ L 332, 18.12.2015, p.142. 

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31 December 2018,  by Council Implementing Decision (EU) 2018/20066 until  31 December 
2021, and by Council Implementing Decision (EU) 2022/817 until 31 December 2024. 

According  to  Latvia,  the  timber  market,  which  is  one  of  the  most  important  sectors  of  its 
economy, is particularly sensitive to VAT fraud, because it is dominated by a great number of 
small  local  operators  and  individual  suppliers,  and  because  it  is  very  difficult  to  trace  the 
movements of materials and related transactions. The businesses active in the sector may be 
not due to fulfil recording obligations and this may lead to undeclared transactions of timber. 
Thus, there is a significant risk that some operators could evade payment of VAT. The nature 
of  the  market  and  of  businesses  involved  has  generated  VAT  fraud,  which  the  Latvian  tax 
authorities have found difficult to control. In order to combat this abuse, they have introduced 
the reverse charge mechanism to  timber transactions, which has proven to  be very effective 
and has decreased VAT fraud in this sector significantly. 

Moreover, this special measure does not have a negative impact on the total amount of VAT 
revenues  collected  at  the  final  stage  of  consumption  and  thus,  does  not  affect  the  Union's 
VAT own resources in a negative way, according to Latvia. 

Derogations  are  in  general  granted  for  a  limited  period  of  time  as  to  allow  an  assessment 
whether the special measure is appropriate and effective and in order to grant Member States 
time to introduce other conventional measures at  national level to monitor the movement of 
materials,  the payment of VAT, and the compliance of taxable persons  which should tackle 
the respective problem until the expiry of the derogating measure, thus making an extension 
of  the  derogation  redundant.  A  derogation  allowing  making  use  of  the  reverse  charge 
mechanism is only granted exceptionally for specific fraudulent areas and constitutes a means 
of last resort.  

Latvia requested the extension of the measure until 31 December 2027. Latvia is committed to 
apply  different  measures  to  tackle  VAT  fraud  in  the  sector.  It  is  planned  to  impose  an 
obligation  of  non-cash  payments,  and  a  specific  tracking  tool  that  will  help  to  control 
transactions  and  production  processes  more  efficiently,  finally,  by  2026  the  national 
authorities  plan  to  introduce  e-invoicing  requirement  for  B2B  transactions  for  companies 
registered  in  the  Republic  of  Latvia.  Taking  into  consideration  the  unchanged  legal  and 
factual situation, it is therefore proposed to extend the derogating measure, allowing Latvia to 
continue  to  apply  this  derogating  measure  until  31 December 2026.  Until  the  expiry  of  this 
derogation, Latvia should be able to implement other conventional measures at national level 
to  monitor the movement  of materials,  the payment  of VAT, and the compliance of taxable 
persons which would underpin the fight and prevent the VAT fraud in the sector of timber.  

• 

Consistency with existing policy provisions in the policy area 

Similar derogations in relation to Article 193 of the VAT Directive have been granted to other 
Member States, Portugal8, Romania9 and Lithuania10. 

6 
7 
8 

OJ L 322, 18.12.2018, p. 20–21. 
OJ L 13, 20.1.2022, p. 49–50. 
Council  Implementing  Decision  (EU)  2019/1592  of  24  September  2019  authorising  Portugal  to 
introduce  a  special  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the  common 
system of value added tax, OJ L 248, 27.9.2019, p. 67–68. 

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The  proposed  measure  is,  therefore,  consistent  with  the  existing  provisions  of  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.  

• 

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 

This proposal is based on a request made by Latvia and concerns only this Member State. 

• 

Impact assessment 

The proposal for a Council Implementing Decision authorises Latvia to continue to apply the 
reverse  charge  mechanism  to  timber  transactions.  The  situation,  on  which  the  initial 
derogation was based, continues to exist. Latvia claims that despite the fact that there has been 
a reduction in the number of cases of fraud involving VAT and VAT evasion on the timber 
market since the introduction of the reverse charge procedure, the risk is not eliminated.  

9 

10 

Council  Implementing  Decision  (EU)  2019/1593  of  24  September  2019  amending  Implementing 
Decision  2013/676/EU  authorising  Romania  to  continue  to  apply  a  special  measure  derogating  from 
Article 193 of Directive 2006/112/EC on the common system of value added tax (OJ L 248, 27.9.2019, 
p. 69–70). 
Council  Implementing  Decision  (EU)  2018/1920  of  4  December  2018  amending  Implementing 
Decision  2010/99/EU  authorising  the  Republic  of  Lithuania  to  extend  the  application  of  a  measure 
derogating from Article 193 of Directive 2006/112/EC on the common system of value added tax (OJ L 
311, 7.12.2018, p. 34–35). 

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The measure has previously been authorised in the 2003 Act of Accession11, in particular in 
Chapter  7,  point  1(b)  of  Annex  VIII  thereto,  and  by  Decision  2006/42/EC12  under  the  then 
applicable  Sixth  Directive  77/388/EEC.  However,  over  time,  fraud  in  the  timber  sector  has 
moved to include transactions that were not subject to the VAT reverse charge procedure. For 
instance, transactions relating to wood by-products. Accordingly, the scope of application of 
the VAT reverse charge procedure was further broadened, in  order to  reduce the number of 
opportunities for fraud. Furthermore, as of 1 January 2020, the recipient of timber must pay 
for  the  goods  received,  and  the  recipient  of  services  for  the  services  rendered,  by  means  of 
non-cash payments. These modifications were made to standardise payment requirements in 
all cases where the reverse charge procedure is applied, in order to enhance the effectiveness 
of the measure aimed at combating VAT fraud. 

Latvia  submits  that  the  extension  of  the  derogating  measure  is  necessary  to  fight  fraud 
occurring in the timber sector.  

The forestry sector is one of the cornerstones of Latvia’s economy. In 2022, the declared net 
turnover of traders operating in the timber sector represented 7.4 % of the total net turnover 
declared in the annual accounts, i.e. EUR 6.3 billion. The export value of the forestry sector in 
2023 was around EUR 2.3 billion, or 12.4% of the country’s total exports, whilst the number 
of  people  employed  in  the  sector  in  2022  was  41  400,  or  4.8%  of  the  total  number  of 
employees in the national economy. 

The timber market in Latvia is dominated by small and medium-sized traders and individual 
suppliers  (represent  over  90%  of  the  total  number  of  enterprises  in  the  sector),  buying  or 
selling timber and providing or receiving related services. 

The  number  of  taxable  persons  in  the  timber  sector  was  11  713  at  the  beginning  of  2024. 
According to Latvia, in 2023, another 13 063 natural person was trading in the timber sector 
with a total revenue of EUR 219 million. 

The extension of this  measure will not  have a negative impact  on the total amount of VAT 
revenue collected at the final stage of consumption and thus, does not affect the Union's VAT 
own resources in a negative way. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication on the EU budget.  

5. 

OTHER ELEMENTS 

The proposal is limited in time. 

11 
12 

OJ L 236, 23.9.2003, p. 33. 
OJ L 25, 28.1.2006, p. 31. 

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2024/0300 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2009/1008/EU authorising the Republic of Latvia to 
extend the application of a 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 value added tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

1 
2 

3 

4 

Council  Decision  2006/42/EC2  authorised  Latvia  to  apply  a  special  measure 
derogating  from  Article  21(1),  point  (a),  of  Council  Directive  77/388/EEC3,  to 
designate the recipient as the person liable to pay value added tax (VAT) on the supply 
of timber or on the provision of related services until 31 December 2009. By Council 
Implementing Decision 2009/1008/EU4 Latvia was, by way of derogation from Article 
193  of  Directive  2006/112/EC,  authorised  to  continue  to  designate  the  recipient  of 
timber  or  related  services  as  the  person  liable  to  pay  VAT  in  the  case  of  timber 
transactions  until  31 December 2012  (‘the  special  measure’).  Following  the  last 
amendment  to  Implementing  Decision  2009/1008/EU,  that  authorisation  is  due  to 
expire on 31 December 2024.  

By  letter  registered  with  the  Commission  on  2  May  2024,  Latvia  requested  the 
authorisation  to  continue to  apply  the special  measure. Along with that  letter, Latvia 
submitted a report on the application of that special measure. 

In  accordance  with  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC, 
the Commission informed the other Member States by letter dated 3 September 2024, 
and  Italy  on  4  September  2024  of  the  request  made  by  Latvia.  By  letter  dated  5 

OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
Council  Decision  2006/42/EC  of  24  January  2006  authorising  Latvia  to  extend  the  application  of  a 
measure derogating from Article 21 of the Sixth Council Directive 77/388/EEC on the harmonisation of 
the  laws  of  the  Member  States  relating  to  turnover  taxes  (OJ  L  25,  28.1.2006,  p.  31,  ELI: 
http://data.europa.eu/eli/dec/2006/42(1)/oj). 
Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member 
States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ 
L 145, 13.6.1977, p. 1, ELI: http://data.europa.eu/eli/dir/1977/388/oj). 
Council Implementing Decision 2009/1008/EU of 7 December 2009 authorising the Republic of Latvia 
to  extend  the  application  of  a  measure  derogating  from  Article  193  of  Directive  2006/112/EC  on  the 
30,  ELI: 
tax 
of 
common 
http://data.europa.eu/eli/dec_impl/2009/1008/oj). 

24.12.2009, 

(OJ  L 

system 

added 

value 

347, 

p. 

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September  2024,  the  Commission  notified  Latvia  that  it  had  all  the  information 
necessary to consider the request.  

According to Latvia, the timber market, which is one of the most important sectors of 
its economy, is particularly sensitive to VAT fraud, because it is dominated by a great 
number of small local operators and individual suppliers. The nature of the market and 
of  businesses  involved  has  generated  VAT  fraud,  which  the  Latvian  tax  authorities 
have  found  it  difficult  to  control.  In  order  to  combat  that  abuse,  the  Latvian  tax 
authorities have introduced the reverse charge mechanism for the payment of VAT in 
timber transactions, which has proven to be very effective and has decreased fraud in 
that market significantly according to the report submitted by Latvia.  

Derogations are in general granted for a limited period of time to allow an assessment 
of  whether  the  special  measure  is  appropriate  and  effective.  Derogations  grant 
Member  States  time  to  introduce  other  conventional  measures  at  national  level  to 
monitor  the  movement  of  materials,  the  payment  of  VAT,  and  the  compliance  of 
taxable  persons  which  should  tackle  the  respective  problem  until  the  expiry  of  the 
derogating  measure,  thus  making  an  extension  of  the  derogation  redundant.  A 
derogation allowing the making use of the reverse charge mechanism is only granted 
exceptionally for specific fraudulent areas and constitutes a means of last resort.  

Latvia is committed to applying different measures to tackle VAT fraud in the sector. 
It intends to impose an obligation of non-cash payments, and a specific tracking tool 
that  will  help  to  control  transactions  and  production  processes  more  efficiently. 
Furthermore,  by  2026,  the  national  authorities  plan  to  introduce  e-invoicing 
requirement for B2B transactions for companies registered in Latvia.  

Therefore,  before  the  expiry  of  the  extension  of  the  special  measure  under  this 
Decision, Latvia should be able to implement other conventional measures to fight and 
prevent  VAT  fraud  in  the  timber  market,  so  that  another  extension  of  the  special 
measure would not be necessary.    

Latvia  should  therefore  be  authorised  to  apply  the  special  measure  only  until 
31 December 2026.  

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

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

Implementing Decision 2009/1008/EU should therefore be amended accordingly, 

HAS ADOPTED THIS DECISION:  

Article 2 of Implementing Decision 2009/1008/EU is replaced by the following:  

Article 1 

This Decision shall apply until 31 December 2026.’ 

‘Article 2 

This Decision is addressed to the Republic of Latvia. 

Article 2 

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Done at Brussels, 

For the Council 
The President 

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