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: 2025-10-24
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, derogation from EU law, motor vehicle, tax relief

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.10.2025  COM(2025) 641 final 2025/0323 (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 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 31 March 2025, Italy requested an extension of 
the derogation from Article 26(1) point (a) and Article 168 of the VAT Directive in order to 
continue  to  limit  to  40%  the  right  to  deduct  input  VAT  charged  on  expenditure  related  to 
motorised road vehicles not wholly used for business purposes and not to treat as supplies of 
services for consideration the use for private purposes of vehicles included in the assets of a 
taxable person's business, where those vehicles have been subject to the aforesaid restriction 
of  the  right  to  deduct.  Together  with  the  request  for  extension,  Italy  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 29 and 30 July 2025 of the request  made by Italy. By letter 
dated 31 July 2025, 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 

Article 168 of the VAT Directive provides that a taxable person is entitled to deduct the 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.  Article  26(1)(a)  of  the  same  Directive  requires  the  use  of 
goods forming part of the assets of a business for private purposes of the taxable person or of 
his staff or, more generally, for purposes other than those of his business, to be treated as a 
supply  of  services  for  consideration  if  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 motorised road vehicles not wholly used for business purposes, this system is 
difficult to apply, 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. 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.  

The economic fabric of Italy is dominated by small companies with low annual turnover and 
with  very  few  or  no  employees  (94.5%  of  the  Italian  enterprises  are  micro-enterprises)  and 

1 

OJ L 347, 11.12.2006, p. 1. 

EN 

1 

  EN 

 
most of the company cars in circulation are owned by these kinds 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  a  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 charged on the purchase of a vehicle, 
including  contracts  of  assembly  and  the  like,  manufacture,  intra-Community  acquisition, 
importation, 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.  In 
addition, for vehicles subject to that 40 % limit, to avoid double taxation, Italy is authorised 
not to 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.  The  special  measures  cover  all  motorised  vehicles,  other  than 
agricultural  or  forestry  tractors,  which  are  normally  used  for  carrying  persons  or  goods  by 
road with a maximum authorised mass not  exceeding 3 500 kilograms and having not more 
than eight seats in addition to the driver's seat. The restriction of the right of deduction is not 
applicable to expenditure relating to vehicles falling into any of the following categories: the 
vehicle  forms  part  of  the  taxable  person's  stock-in-trade  in  the  exercise  of  his  activity;  the 
vehicle is used as a taxi; the vehicle is used for instruction by a driving school; the vehicle is 
used for hire or leasing; the vehicle is used by sales representatives.  

The authorisation for the special 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  special  measures  were  prolonged  five  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;  Council  Implementing  Decision  (EU)  2019/2138  of  5  December 
2019 for the period 1 January 2020 until 31 December 20226; and last Council Implementing 

2 

3 

4 

5 

6 

2007/441/EC:  Council  Decision  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 taks, OJ L 165, 27.6.2007, p. 33-34. 
2010/748/EU: Council Implementing Decision of 29 November 2010 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 taks, OJ L 318, 4.12.2010, p. 45 - 46. 
2013/679/EU: Council Implementing Decision of 15 November 2013 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 316, 27.11.2013, p. 37-38. 
Council Implementing Decision (EU) 2016/1982 of 8 November 2016 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 305, 12.11.2016, p. 30-31. 
Council Implementing Decision (EU) 2019/2138 of 5 December 2019 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 324, 13.12.2019, p. 7-8. 

EN 

2 

  EN 

 
Decision  (EU)  2022/2411  of  6  December  2022  for  the  period  1  January  2023  until  31 
December 20257. 

The  present  request  from  Italy  to  prolong  further  the  special  measures  until  31  December 
2028 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 of Council Decision 2007/441/EC. Italy considers that 
the  conditions  for  the  application  of  the  special  measures  continue  to  apply  and  that  the 
currently applied 40% input VAT deduction limit remains appropriate and reflects the current 
Italian economic circumstances. 

Given the positive impact of the special measures on the administrative burden of taxpayers 
and  tax  authorities  alike,  it  is  proposed,  to  authorise  the  extension  of  the  current  special 
measures. The authorisation should be valid for another limited period, i.e. until 31 December 
2028, in order to allow for a review of the necessity and effectiveness of the special measures 
and  whether  the  40%  restriction  is  still  a  correct  reflection  of  the  overall  apportionment 
between business and private use. Any further 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 2028. 

• 

Consistency with existing policy provisions in the policy area 

Similar  derogations,  although  at  the  rate  of  50%,  in  relation  to  the  right  of  deduction  have 
been  granted  to  other  Member  States  (Estonia8,  Hungary9,  Croatia10,  Poland11,  Latvia12  and 
Romania13).  

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 are a number 

7 

8 

9 

10 

11 

12 

13 

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)  2025/539  of  18  March  2025  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 2025/539, 21.3.2025. 
Council  Implementing  Decision  (EU)  2024/3205  of  10  December  2024  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 2024/3205, 19.12.2024. 
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)  2024/3206  of  10  December  2024  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, 2024/3206, 19.12.2024.  
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. 

EN 

3 

  EN 

 
of  ‘stand  still’  provisions  restricting  the  right  to  deduct  VAT  in  relation  to  motorised  road 
vehicles not wholly used for business purposes.  

Previous initiatives to establish rules on which categories of expenditure may be subject to a 
restriction on the right to deduct have failed14. Until those rules are harmonised at EU level, 
special measures such as the present ones are considered appropriate. 

The  proposed  special  measures  are  therefore  consistent  with  the  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 measures are 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. 

• 

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 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 Italy and concerns only this particular Member State. 

14 

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). 

EN 

4 

  EN 

 
• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

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

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 2028. 

In  case  Italy  would  consider  a  further  extension  of  the  special  measures  beyond  2028,  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 2028.  

EN 

5 

  EN 

 
2025/0323 (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 Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas:  

(1) 

(2) 

(3) 

(4) 

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 which, subsequently, is subject to VAT. 
Council Decision 2007/441/EC2 authorises Italy, until 31 December 2025, to limit to 
40%  the  right  to  deduct  VAT  on  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 
is required not to treat their private use as supplies of services for consideration.  

By  letter  registered  with  the  Commission  on  31  March  2025,  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 2028. 

In accordance with Article 6 of Decision 2007/441/EC, Italy submitted, together with 
the request,  a report including  the review of the  percentage  restriction  applied to the 
right  to  deduct  VAT  referred  to  in  Article  1  of  that  Decision.  Based  on  currently 
available information, Italy claims that the limit of 40% is still justifiable and remains 
appropriate. 

1 
2 

OJ L 347, 11.12.2006, p. 1, ELI: http://data.europa.eu/eli/dir/2006/112/oj. 
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, ELI: http://data.europa.eu/eli/dec/2007/441/oj). 

EN 

6 

  EN 

 
 
(5) 

(6) 

(7) 

(8) 

(9) 

In  accordance  with  Article  395(2),  second  subparagraph,  of  Directive  2006/112/EC, 
the Commission transmitted the request made by Italy to the other Member States by 
letters  dated  29  and  30  July  2025.  By  letter  dated  31  July  2025,  the  Commission 
notified Italy that it had all the information necessary for the appraisal of the request. 

Given the positive impact of the special measures 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 Italy to continue to apply the special measures. 

It is appropriate to limit the extension of the special measures in time to allow for an 
evaluation  of  its  effectiveness  and  the  appropriateness  of  the  percentage  restriction 
applied to the right to deduct VAT. Italy should therefore be authorised to continue to 
apply the special measures until 31 December 2028. 

The special measures are 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 measures  do 
not  give  rise  to  the  risk  that  fraud  would  shift  to  other  sectors  or  to  other  Member 
States. 

In  the  event  that  Italy  considers  that  a  further  extension  of  the  special  measures  is 
necessary  beyond  2028,  it  should  submit  to  the Commission  a  report  that  includes  a 
review  of  the  percentage  applied,  together  with  the  extension  request,  by  31  March 
2028. 

(10)  The  application of the special measures beyond  31 December 2025 will  only  have a 
negligible effect on the overall amount of tax revenue that Italy collects at the stage of 
final  consumption  and  will  not  adversely  affect  the  Union’s  own  resources  accruing 
from VAT. 

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

HAS ADOPTED THIS DECISION:  

Decision 2007/441/EC is amended as follows: 

(1) Article 6 is replaced by the following:  

Article 1 

‘Article 6 

Any  request  for  an  extension  of  the  authorisation  provided  for  in  this  Decision  shall  be 
submitted  to  the  Commission  by  31  March  2028.  Such  request  shall  be  accompanied  by  a 
report including a review of the percentage limitation applied on the right to deduct VAT on 
the basis of this Decision.’. 

(2) Article 7 is replaced by the following: 

This Decision shall expire on 31 December 2028.’. 

‘Article 7 

EN 

7 

  EN 

This Decision is addressed to the Italian Republic. 

Article 2 

Done at Brussels, 

For the Council 
The President 

EN 

8 

  EN