Proposal for a COUNCIL IMPLEMENTING DECISION authorising Estonia to apply a special 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
Date: 2025-02-04
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Estonia, VAT, derogation from EU law, hire purchase, motor car, provision of services, purchase, tax avoidance, tax evasion, tax relief

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   EUROPEAN COMMISSION  Brussels, 4.2.2025  COM(2025) 29 final 2025/0014 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Estonia to apply a special 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   
 
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  Directive1’),  the  Council,  acting  unanimously  on  a 
proposal from the Commission, may authorize any Member State to  apply special measures 
that  derogate  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  28  March  2024,  Estonia  requested  an 
authorisation to continue to apply a measure derogating from the overall principles governing 
the right of deduction of input VAT in relation to expenditure connected with passenger cars 
not  wholly  used  for  business  purposes  (the  “special  measure”).  The  Commission  requested 
more  information  on  3  April  2024.  Estonia  replied  on  28  June  2024.    The  Commission 
requested again additional clarification on 28 August 2024, which Estonia provided in a reply 
registered with the Commission on 24 September 2024.  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  17  October  2024  of  the  request  made  by  Estonia.  By  letter 
dated  18  October  2024,  the  Commission  notified  Estonia  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 

Articles 168 and 168a of the VAT Directive provide that a taxable person is entitled to deduct 
the VAT charged on purchases made for the purpose of taxed transactions. Article 26(1)(a) of 
the  same  Directive  requires  the  use  of  goods  forming  part  of  the  assets  of  a  business  for 
private  purposes  to  be  a  supply  of  services  for  consideration  if  the  VAT  on  the  goods  was 
eligible  for  deduction.  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 administrative burden to both the business and the administration in maintaining and 
checking them. Moreover, incorrect records keeping can lead to tax evasion or avoidance.  

Pursuant  to  Article  395  of  the  VAT  Directive,  Member  States  may  apply  special  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. 

Estonia  was  authorised  to  apply  such  a  special  measure  by  Council  Implementing  Decision 
2014/797/EU2. The validity of Council Implementing Decision 2014/797/EU was extended by 
Council  Implementing  Decision  2017/1854/EU3  until  31  December  2020.  The  special 

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OJ L 347, 11.12.2006, p.1. 
Council Implementing Decision 2014/797/EU of 7 November 2014 authorising the Republic of Estonia 
to 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 330, 15.11.2014, p. 48). 
Council Implementing Decision (EU) 2017/1854 of 10 October 2017 amending Implementing Decision 
2014/797/EU  authorising  the  Republic  of  Estonia  to  apply  a  measure  derogating  from  point  (a)  of 
Article  26(1)  and  Articles  168  and  168a  of  Directive  2006/112/EU  on  the  common  system  of  value 
added tax (OJ L 265, 14.10.2017, p. 17). 

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measure was then granted again in 2021 by Council Implementing Decision (EU) 2021/1998 
of 15 November 20214 and is valid until 31 December 2024.  

Estonia has requested to continue to apply the special measure after 31 December 2024 and 
informed the Commission that the grounds for granting the special measure are the same as 
set  out  in  the  original  request  that  led  to  the  Council  Implementing  Decision  2014/797/EU. 
Estonia  presented  data  suggesting  that,  from  the  moment  of  the  implementation  of  the 
derogation under Council Implementing Decision 2014/797/EU, the vast majority of company 
cars  continued  to  be  used  for  private  purposes,  confirming  that  the  derogation  is  justified. 
Estonia also indicated that limiting the deduction of input VAT simplifies the calculation of 
VAT for all parties, while preventing tax evasion resulting from incorrect accounting. 

This  special  measure  applies  to  the  purchase,  leasing,  intra-Community  acquisition,  and 
importation of certain passenger cars as well as certain expenditure related thereto when those 
cars  are  not  wholly  used  for  business  purposes.  In  turn,  the  businesses  are  relieved  from 
accounting for VAT on  private use. The special  measure should apply  to all passenger  cars 
with a maximum of eight seats in addition to the driver’s seat, not exceeding 3 500 kilograms, 
and which are not used exclusively for business purposes. However, passenger cars which are 
used for certain specific activities would be treated under the normal rules: cars purchased for 
resale, hire or lease, cars used for transportation of passengers for a fee (such as taxis), and 
cars used for driving lessons. 

According to Estonia, the deduction limit of the special measure should remain fixed at 50%. 
To justify this, Estonia indicates that the situation has remained unchanged compared to when 
the special measure was firstly introduced in 2014 and that there is no reason to believe that 
this pattern will change in the coming years. It also indicates that the private use of company 
cars that are not used exclusively for business purposes, accounts for approximately 60% of 
their total use and that based on indirect evidence and assumptions available to the Estonian 
tax authorities, a 50 % input VAT deduction limit is considered the most appropriate, in order 
to exclude the possibility of overestimating the proportion of private use of passenger cars. 

• 

Consistency with existing policy provisions in the policy area 

Special  measures  derogating  from  the  provisions  of  the  VAT  Directive,  and  further 
extensions,  in  relation  to  the  right  of  deduction,  similar  to  the  one  whose  extension  is  here 
requested by Estonia, have been granted to other Member States (Hungary5, Latvia6, Croatia7, 
Poland8, Italy9 and Romania10).  

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The validity of Council Implementing Decision 2014/797/EU had expired before Estonia submitted, in 
February  2021,  the  request  to  further  extend  its  temporal  scope.  The  request  of  February  2021  was 
therefore  treated  as  an  original  request  to  apply  a  measure  derogating  from  the  overall  principles 
governing the right to deduct input VAT in relation to expenditure connected with passenger cars not 
wholly  used  for  business  purposes.  It  is  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) that granted the authorisation to Estonia. 
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)  2021/1968  of  9  November  2021  amending  Implementing 
Decision (EU) 2015/2429 authorising Latvia to introduce a special measure derogating from point (a) of 

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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 proposal 
falls under the exclusive competence of the European Union as the granting of the extension 
of the special measure cannot be achieved by Estonia. The intervention of the Commission is 
necessary  to  present  a  proposal  to  the  Council,  who  may  authorise  Estonia  to  extend  the 
special measure.  

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

The special measure is limited in its scope and therefore proportionate to the aim pursued, i.e. 
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 secure the VAT collection in a specific sector. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Under  Article  395  of  Council  Directive  2006/112/EC,  the  granting  of  a  special  measure 
derogating from the provisions of the VAT Directive  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 
Estonia and concerns only this Member State. 

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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). 
Council  Implementing  Decision  (EU)  2024/2884  of  5  November  2024  amending  Implementing 
Decision (EU) 2018/1994 authorising Croatia 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, 2024/2884, 13.11.2024).  
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). 

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• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal is designed to simplify and secure 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  VAT  evasion  through  incorrect  record  keeping.  It  has, 
therefore, a potential positive impact for both businesses and tax administrations. The solution 
has  been  identified  by  Estonia  as  a  suitable  measure  and  is  comparable  to  other  past  and 
present special measures derogating from the provisions of the VAT Directive. 

4. 

BUDGETARY IMPLICATIONS 

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

5. 

OTHER ELEMENTS 

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

In  case  Estonia  would  consider  another  extension  of  the  special  measure  beyond  2027,  a 
report including a review of the percentage limit of deduction right must be submitted to the 
than  31  March  2027.
the  extension  request  no 
Commission 

together  with 

later 

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2025/0014 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Estonia to apply a special 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 

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) 

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Articles 168 and 168a of Directive 2006/112/EC establish a right for taxable persons 
to deduct value added tax (VAT)  charged on supplies to them of goods and services 
that  are  used  for  the  purposes  of  their  taxed  transactions.  Pursuant  to  Article  26(1), 
point (a), of that Directive, the use of business assets for private use of taxable persons 
or their staff or, more generally, for purposes other than those of their business is to be 
treated as a supply of services. 
Council  Implementing  Decision  (EU)  2021/19982  authorised  Estonia,  until  31 
December 2024, to limit to 50 % the right to deduct VAT on expenditure on passenger 
cars  not  wholly  used  for  business  purposes  where  that  expenditure  covers  the 
purchase,  leasing,  intra-Community  acquisition  or  importation  of  passenger  cars  not 
wholly  used  for  business  purposes,  as  well  as  on  expenditure  related  to  the 
maintenance  and  repair  of  such  cars  and  to  the  purchase  of  fuel  for  them.  It  also 
authorised  Estonia  to  not  treat  as  supplies  of  services  for  consideration  the  use  for 
private  purposes  of  a  passenger  car  included  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  28  March  2024,  Estonia  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’).  By  letter  dated  3  April  2024,  the  Commission  requested  more 
information.  Estonia  replied  on  28  June  2024.  By  letter  dated  28  August  2024,  the 
Commission  requested  additional  clarification,  which  Estonia  provided  by  letter 
registered by the Commission on 24 September 2024.  

OJ L 347, 11.12.2006, p.1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
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 
3, 
added 
system 
ELI: http://data.europa.eu/eli/dec_impl/2021/1998/oj). 

17.11.2021, 

common 

(OJ  L 

value 

408, 

tax 

the 

of 

p. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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 letter 
dated  17  October  2024.  By  letter  dated  18  October  2024,  the  Commission  notified 
Estonia that it had all the information necessary to consider the extension request. 

In  accordance  with  Article  4  of  Implementing  Decision  (EU)  2021/1998,  Estonia 
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, Estonia 
claims that the limit of 50% is still justifiable and remains appropriate. 

The  special  measure  authorised  by  Implementing  Decision  (EU)  2021/1998  have 
expired on 31 December 2024. Given the positive impact 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 considers it appropriate 
to grant the special measure. 

The special measure should be limited to the time needed to evaluate its effectiveness 
and  the  appropriateness  of  the  percentage  limitation.  Estonia  should  therefore  be 
authorised 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 Estonia considers that an extension of the authorisation beyond 2027 
is necessary, it should, by 31 March 2027, submit to the Commission a request for an 
extension  accompanied  by  a  report  that  includes  a  review  of  the  percentage  limit 
applied. 

(10)  The  special  measure  will  only  have  a  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, 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Articles  168  and  168a  of  Directive  2006/112/EC,  Estonia  is 
authorised  to  limit  to  50  %  the  right  to  deduct  the  value  added  tax  on  expenditure  on 
passenger  cars  not  wholly  used  for  business  purposes  where  that  expenditure  covers  the 
purchase,  leasing,  intra-Community  acquisition  or  importation  of  passenger  cars  not  wholly 
used for business purposes, as well as on expenditure related to the maintenance and repair of 
such cars and to the purchase of fuel for them. 

Article 2 

By way of derogation from Article 26(1), point (a), of Directive 2006/112/EC, Estonia shall 
not  treat  as  supplies  of  services  for  consideration  the  use  for  non-business  purposes  of  a 
passenger car included in  the assets of a taxable person’s business, where that car has been 
subject to a limitation authorised under Article 1 of this Decision. 

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1. 

2. 

(a) 

(b) 

(c) 

1. 

2. 

3. 

Article 3 

This Decision shall apply only to passenger cars with a maximum authorised weight 
not  exceeding  3 500 kilograms  and having  not  more than  eight seats  in addition  to 
the driver’s seat. 

This Decision shall not apply to the following categories of passenger cars: 

cars purchased for resale, hire or lease; 

cars used for the transportation of passengers for a fee, including taxi services; 

cars used for the provision of driving lessons. 

Article 4 

This Decision shall take effect on the date of its notification. 

This Decision shall apply until 31 December 2027.  

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.  

This Decision is addressed to the Republic of Estonia. 

Done at Brussels, 

Article 5 

For the Council 
The President 

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