CELEX: 51982PC0412
Language: en
Date: 1982-07-09
Title: Proposal for a COUNCIL REGULATION (ECSC, EEC, EURATOM) amending and extending the term of validity of Regulation (EEC, EURATOM, ECSC) No 2892/77 implementing in respect of own resources accruing from Value Added Tax the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (submitted to the Council by the Commission)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (82) 412
Vol. 1982/0137
 ---pagebreak--- Disclaimer
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                COM(82)412 final
                                                Brussels , 9 July 1982
                               Proposal for a
                       COUNCIL REGULATION ( ECSC , EEC , EURATOM )
 amending and extending the term of validity of Regulation ( EEC , EURATOM ,
 ECSC ) No 2892 / 77 implementing in respect of own resources accruing from
 Value Added Tax the Decision of 21 April 1970 on the replacement of
 financial contributions from Member States by the Communities * own resources
                  ( submitted to the Council by the Commission )
 COM ( 82 ) 412 final
 ---pagebreak---                                                          i '4 /. ' ?
                                                         '   t - <-
EXPLAKATORY_MEMOR ANTUM
Article 14 of Regulation No 2892/77 states that the Regulation should
apply from 1 January 1978 for a transitional period expiring on
31 December 1982 and that the Council , acting unanimously on a proposal
from the Commission , should adopt , before 30 June 1982 , the provisions
relating to the definitive uniform system for levying VAT resources and
the detailed rules for implementing this system .
I - THE TRANSITIONAL PERIOD MP THE CHOICE OF A SINGLE METHOD OF
       DETERMINING THE VAT OWN RESOURCES BASE
1.      Although the Council , when it adopted Regulation No 2892/77 t
considered it necessary to arrive at 'a uniform system for the levying of
VAT own resources , the Member States were given the choice of two
methods of determining the own resources base for a transitional period
of five years :
  ( i ) method A or returns method ( Section A of Title III of
        Regulation No 2892/77 ) where the base is determined by reference
        to the information contained in the returns made by taxable persons
        for a given year ;
 (ii ) method B or revenue method ( Section B of the same Title ), where the
        base is determined by applying a weighted average rate calculated
        essentially from statistical data to total revenue collected in a
        given year .
The five year transitional period was to be used for preparing the
                                                                  1
introduction of a definitive system; its content and the rules for its
 application at the end of this period should have been laid down on the
basis of a Commission proposal to the Council (fourth recital of
Regulation No 2892/77 )*
However , most of the Member States had difficulty introducing the
 Sixth VAT Directive * with effect from 1 January 1978 , and only two Member
 States did in fact manage to do so . A Ninth VAT Directive ** deferred by
 one year , i.e. to 1 January 1979 » "the deadline by which the other seven
 should implement it .
  ♦Council Directive 78/388/EEC of 17 May 1977 , 0J L 145 , 13.6.1977 .
 **Council Directive 78/583 /EEC of 26 June 1978 , 0J L 194 , 19.7.1978 .
 ---pagebreak---                                    w 2 -
For 1979 only four more Member States were able to comply .      The last
three Member States were unable to implement the Sixth Directive until
some time in 1979 or 1 January 1980 ,
 The derogation provided for in Article 4(2 ) of the Decision of
 21 April 1970* cculd be effective only if the uniform basis of assessment
was applied in at least three Member States ; this was not the case until
 1 January 1979 .   Effective application of Regulation No 2892/77 thus had
 to be deferred to 1 January 1979 in "the case of six Member States and to
 1 January 1980 in the case of the three others e
                                 /
2.    One of the consequences of the entry in force of the Sixth Directive
being staggered over three years has been to shorten – by two years in
the case of some Member States – the five years considered necessary by
the Council and provided for by Regulation No 2892/77 "to prepare for the
introduction of a definitive system for VAT own resources .
In addition to this delay in actually applying Regulation No 2892/77
 (two years in the case of three Member States and one year in the case of
six Member States ) 9 it should also be borne in mind that the Member
States are then allowed six months for preparing the statement of the
definitive base for a financial year (application of Article 10 of
Regulation No 2892/77 ) and the Commission needs time to perform its
inspections ( application of Article 12)®
For the purposes of assessing the operation of the new VAT own resources
system , the Commission did not therefore have full information concerning
all the Member States until it was able to check the first statements
from the three Member States which did not put the Sixth Directive in
effect until 1 January I98O0     The Commission received these statements
by 1 July 1981 and checked them in the third quarter of that year , but
not all the problems could be settled o
3«    Subject to the observations in point 2 , the Commission can already
draw some conclusions from its inspection activities . *
The revenue method has proved extremely complicated in practice ; to
implement it , the Commission has already had to give its interpretation
of many of the relevant Community rules , and the Mrs."!     1 • ■-< have had
to devote considerable effort to interpreting statistics,.
     L 94 , 28.4.1970
 ---pagebreak--- The Commission still maintains that the revenue metnod does not present
the same guarantees of consistency and accuracy as the returns method .
However , it must be added that the Commission 's experience of the
returns method is limited to Denmark and Ireland , and some problems of
application have arisen .
In this connection , the Commission is aware that , because of the
complexity of the revenue method , some Member States are considering
abandoning it in favour of the returns method .    Should they do so , the
Commission would then acquire wider experience of the returns method
and could give a more authoritative opinion on its operation .
However , the Commission at present has no information which would make it
go back on the position it took initially when , in its proposal to the
Council , it declared its preference for the returns method .    However ,
before all the Member States could adopt this method , some of them would
have to take internal measures , which would require some time to prepare .
4*    The Commission maintains that it has not been able to make uee of
 the full five years envisaged by the Council for establishing the content
 of the definitive system and the rules for its application .    However , it
 can be seen that this amount of time is in fact necessary since neither
 the Commission nor the Member States have yet come to any conclusion on
 the matter .   The Commission therefore feels that the choioe of a
 definitive system should be deferred and that the transitional period
 should be extended by at least the two years which were lost from the
 original five years specified by the Council .
 Three years are in fact requested to allow sufficient time to draft the
 necessary provisions .
 ---pagebreak---  II - AIM OP THE PROPOSAL
 5»    Since Regulation No 2892/77 expires on 31 December 1982 , the
 Commission must send the Council a proposal for a new regulation .
 The present proposal extends the existing provisions while improving
 or supplementing certain points «
 Although , for the reasons set out in section I above , the Commission has
been unable to propose a definitive uniform system , it has considered it
necessary , in requesting extension of the transitional period , to propose
important amendments to specific points of the existing provisions ,
mainly as regards application of the revenue method and the administration
of the system by the Commission.
To date there have been no proposals under Article 28(4 ) for amending the
transitional provisions of the Sixth VAT Directive .     The corresponding
provisions of Article 9 of Regulation No 2892/77 » which deal with the
determination of the VAT own resources base where these transitional
provisions are applied , have therefore not been amended either , except
for the deletion of the reference to paragraph 2 of Annex G to the
Sixth VAT Directive o
6c    As regards the follow-up to the findings of inspections*, it may be 1
noted that each inspection of VAT own resources so far conducted by the
Commission has led to observations by the Commission 's officials and that
these observations have nearly always had implications for the VAT own.
resources base .    The Commission , which implements the revenue side of
the Community budget , must be able to administer the VAT own resources .
Where the Commission 's inspectors make observations in their findings ,
one of two things can happen :
(i ) the Member State accepts the Commission's point of view and undertakes
     to modify this aspect of the method for determining its VAT own
     resources bases
* See the report annexed#
 ---pagebreak---         the Commission acts accordingly and adjusts the amount given by
        the Member State in the annual statement of the base ;
( ii ) the Member State does not accept the Commission 's point of view ,
        in which case the Commission must take any appropriate measures
        within its powers and its obligations to administer own resources .
The new provisions proposed in this field , contained essentially in
Article 10b , would enable the Commission :
  ( i ) to make these adjustments all together once a year ;
( ii ) in certain cases not covered by the existing provisions , to take an
        immediate decision to safeguard its rights , without having each time
        to bring a case before the Court of Justice ;
Given that the Commission 's inspections are annual , it is also proposed
that no corrections to the Member States' statements should be allowed
after three years have passed .
8 . As regards the calculation of the weighted average rate for the Member
States applying the revenue method , the inspections conducted by the
Commission 's officials have revealed just how complex are the operations
performed by the Member States' authorities to keep national statistics for
                               ι
the sole purpose of own resources .
The various methods applied in the Member States to determine taxable final
expenditure and break it down by rate have one feature in common : the
general economic statistics drawn from the national accounts and presented
in accordance with the European System of Integrated Economic Accounts must
be interpreted and broken down to reveal the actual tax situation which has
to be analysed . Furthermore , the statistics needed for this analysis are
not always available in time or for each year .
The provisions proposed in the new Article 7 are designed to provide a better
definition of final expenditure of year n–2 , which represents the Member
State 's assessment base for the year n . They also amend the existing
provisions for dealing with cases where the Member States have experienced
difficulties , e.g. to adjust for a change in VAT rates during the year or to
take account of the final consumption of flat-rate farmers ( consumption on
the farm and direct sales by these farmers ).
 ---pagebreak---  Ill - DETAILS OP THE PROPOSED ATTJIDMENTS
 The proposed amendments are presented below in the same order as in the
 original Regulation®
 9.    TITLE I - GENERAL PROVISIONS
The Commission is not proposing any amendments to this title .
 1° .   TITLE II - SCOPE
Article 2(3 )
                                *
Three changes to Article 2(3 ) should guarantee uniform application of the
Regulation and make it easier for the Kember States to determine the
correction , in their favour , of the VAT own resources "base in respect of
transactions performed "by taxable persons whose annual turnover does not
exceed 10 000 ECU :
(a ) this provision is made optional ;
(b ) a rule for converting the 10 000 ECU limit is proposed ;
( c ) a method of calculation is proposed which should put all the Kember States
      on an equal footing .  The correction must be calculated in such a way as
      to come into line , as regards own resources , with countries not applying
      the exemption arrangements .
11 .    TITLE III - METHODS OF CALCULATION
Article 3,
The only proposal concerning this article is a redrafting to remove the
reference to the first year in which the Regulation entered into force .
Article 4(3 )
The object of the proposal is to clarify the term "estimated assessment *,
since this type of assessment is not used solely in cases where there is an
absence of returns , owing to failure of the taxable person to fulfil his
                                                                    obligations .
Article 6
This article is redrafted so that the methods of calculation are harmonized .
 ---pagebreak--- The proposals relating to this article are some of the most important .
Having conducted inspections in all the Member States , in some of them for
two financial years , the Commission sees the need for amendments to the
provisions governing the determination of the weighted average rate so that
the calculation methods used "by the Member States VJill "be as uniform as possible .
 (a ) In order to produce a more accurate statistical picture of final
        consumption for the year n-2 , the categories of consumption to be
        taken into consideration are more clearly defined .
 (b ) A notional rate is applied to final consumption corresponding to
        consumption on the farm and direct sales by flat–rate farmers in the
        calculation of the weighted average rate (new paragraph 3 ).
 ( c ) The sources of statistics are ranked so that preference can be given
        to figures from national accounts prepared in accordance with the
        European System of Integrated Economic Accounts (ESA ) for the
        penultimate year preceding the financial year .
        These national accounts prepared in accordance with the ESA should
        be the main source of data ;   internal national accounts or other
         sources should not be used unless adequate statistics of this type
        are not available .
         If the Member States have diff iculties obtaining the statistics for
        year n-2 in good time , they may , as in the past , seek authorization
         to use data relating to a previous year under the procedure laid
         down in Article 13 (new paragraphs 4 and 5 )«
  ( d ) A simpler method than the present one is proposed which would enable
         Member States to avoid having to calculate a new weighted average
         rate when VAT rates are changed during the reference year (new
         paragraph 7 ) •
  (e ) The provision for determining the weighting of each rate is redrafted .
 ---pagebreak---                                     - 8 -
  Article 8(2_)
  It is proposed that more detailed rules "be laid down for tne calculation
  of the undercompensation of flat~farmers for their input tax charge in
  some Member States .
  Since Article 8(2 ) of the Regulation refers to Article 25(3 ) of the
  Sixth Directive , it would be appropriate to point out that this is a
  restatement of the principle of the special scheme that Member States
  may undercompensate flat-rate farmers for their input tax charge .    But
  from the point of view of the calculation of the compensation , as with
  the calculation of any other compensation under the own resources
  arrangements , the exact effect of the structural undercompensation must
  be found for the year in question .   To do this , it is necessary to
  calculate the difference between the flat-rate percentage applied to the
, agricultural production of the flat-rate farmers and the input VAT
  charge for that year .
  The reference in the same article to the average of the three previous
  years is of relevance only for the calculation of the flat-rate
  compensation percentages which , being fixed in advance for the sales of
  the coming year , must relate to an average production figure in order to
  eliminate annual fluctuations , which are frequent in agriculture .
. Article 9
  It is proposed that the provision be adapted :
   (i ) to take into account the expiry of the three years specified in
        paragraph 2 of Annex G to the Sixth Directive ;
  (ii ) to specify the limited scope of paragraph 4 in line with the
        statement entered in the Council minutes ,
  12#   TITLE IV - PROVISIONS RELATING TO THE ACCOUNTING AND MAKING
        AVAILABLE OP OWN RESOURCES
  'Artide 10
                                     t
  It is proposed that the article be adapted :
  (i ) to clarify the obligations of the Member States as regards the
       content of the annual statement of the total final amount of the
       base :
 ---pagebreak--- ( ii ) to reflect the fact that all the Member States have chosen the
       calendar year as the twelve–month period#
Article 10a
Since most Member States have each year supplied an estimate of the value
of the base for each category of transaction qualifying for financial
compensation , this article sets out , in greater detail , the provisions
previously contained in Article 10(4 ) •
Article, 10b
It is proposed that the current paragraph 3 be replaced by an article
containing the same statement of principle as regards correction of the
VAT base , while two further paragraphs be added stating how the Commission
takes into account the corrections made to the annual statement on its
own initiative from information provided either by the Commission or by
the Member States .
The consequences of these corrections as regards the annual adjustment
of the VAT base of the Member States are dealt with in Regulation No 2891/77 *
 13 .  TITLE V - PROVISIONS CONCERNING MEASURES r
Article. j_1
It is proposed that the first paragraph of this article be redrafted as
regards the provisions for the entry in force of the Regulation .
Article 12
A third paragraph is added to indicate that the checks referred to in
Article 12 give rise , in most cases , to a correction of the VAT base of
the Member States as contained in the annual statement for a given financial
year .
                                         t
 Article 13
 Since the Commission may wish to draw conclusions from the checks relating
 to year n before proposing decisions relating to year n+1 , it is not realistic
 to allow only sixty days after receipt of the application . It is therefore
 proposed that this time limit be removed .
 ---pagebreak---                                      - 10 -
   14 .  TITLE VI - FINAL PROVISIONS
   Article J_4
/' The proposed amendments should enter into force on 1 January 19o3 «
      r'                 ,              ,
                                                                        -      ' *■
   For the reasons set out in the first   part of the explanatory memorandum ,
   it is proposed that the transitional period "be extended by three years to
   31 December 1985 »
                               I
 ---pagebreak---                                                              ANNEX
PRELIMINARY REPORT ON THE INSPECTION VISITS CONCERNED WITH VAT OWN RESOURCES
Article 12 of Regulation No 2892/77 describes the objectives and procedure
for the Commission 's associated inspections of own resources accruing from
VAT . These rules of procedure supplement those contained in Council Regulation
No 165/74 which apply to all the Communities' own resources .
A. These inspections mainly involve the examination and final verification
of the annual statement of VAT resources which each Member State must
send to the Commission ; they are not intended to ensure that the Member States
are applying the provisions of the Sixth VAT Directive correctly .       Nevertheless ,
establishment of the uniform VAT own resources base depends on the
correct application of this Directive .
Article 12 of Regulation No 2892/7? reads as follows ;
 "1 . As regai'ds VAT own resources , the Commission 's checks shall be carried
 out with the competent authorities in the Member States .      During those
 checks , the Commission shall ensure , in particular , that the operations to
 centralize the assessment basis and to determine the weighted average rate
 referred to in Articles 6 and 7 and also the total net VAT revenue collected
 have been carried out correctly , and shall ascertain that the data used were
 appropriate and that the calculations made to determine the amount of VAT
 resources resulting from the transactions referred to in Article 5 ( 2 ) and ( 3 ),
 and Articles 8 and 9 ( l ) to ( 4 ) comply with this Regulation .
 2 . Council Regulation (EEC , Euratom , ECSC ) No I65/74 of 21 January I974
 determining the powers and obligations of officials appointed by the Commission
 pursuant to Article 14 ( 5 ) of Regulation (EEC , Euratom , ECSC ) No 2/71 shall
 apply to checks relating to VAT own resources . For the purposes of applying
 Article 5 of that Regulation , it shall be understood that the information
 referred to therein may be communicated only to those persons who ,
 ---pagebreak---                                    -A 2 -
"by virtue of "their duties in making available and checking VAT resources ,
must have knowledge of such information ."
The wording of Article 12 shows that the inspection of VAT own resources
 is different in character from the inspection of traditional own resources .
 The VAT own resources "base iB determined as follows :
   (i)    under method A , the returns method , "fey reference to the particulars
          contained in the returns made by taxable persons for the year in question
 ( ii )   under method B , the revenue method , "by applying to the total revenue
          collected during the financial year in question a weighted average rate
          calculated mainly from statistics .
These VAT "bases must . "be corrected "by applying compensation as provided in
Article 9       Regulation Ho 2892/77 *
Only six Member States paid VAT own resources for 1979 » the others having
delayed application of the Sixth VAT Directive harmonizing the VAT base .
In July I98O the Commission received the statements of the 1979 VAT "base
 ( Article 10 of Regulation No 2892/77 ) from the six Member States concerned
and conducted the checks referred to in the above&emtioned Article 12 "between
September I98O and March I98I .
The statements of the I98O VAT bases for all nine Member States xvere available
from 1 July 1981 and the Commission innpected this second "batch betv;een         I
September I98I and March 1982 , beginning with the three Member States which had
not paid VAT own resources the previous year .
       In these first two years of operation for the VAT own resources system ,
the Commission concentrated on checking th© accuracy of the base calculated
by the Member States , i.e. all th© results of the calculations set out in
 ---pagebreak--- the annual statfimonts for 1979         19^0 .
In view of the differing nature of the operations described "below for . the
entry in the accounts and centralization of revenue and for the determination
of the weighted average rate , different national authorities generally deal
with these subjects : a special department specializing in the processing
of statistics is given the task of calculating the weighted average rate
while another department is responsible for determining the net revenue .
In some Member State3 , these two operations are even performed in two different
geographical locations .
The following aspects have thus been checked :
 1.     Centralization ( revenue or returns )
The entry in the accounta and centralization of revenue ( method B ) or returns
 ( Method A ) is an integral part of the national tax accountancy systems and ,
 as such , is generally subject to strict intei-nal checks .  However , it is
 important for the Commission, to examine the following aspects in detail :
       (i)   centralization ;
     ( ii )  comparison of accounting documents at central and local level ;
   ( iii )   correction procedures and their application ;
     ( iv )  analysis of the data-processing systems and inspection of computer
             output data .
 Regulation No 2892/77 does not expressly state that the Commission , as part
 of its ordinary inspections , must check the validity and accuracy of the
 individual returns made by taxable persons which determine the payment
  or refund of VAT. However , Regulation No 165/74 does not rule out such checks ,
  2.    The weighted average rate ( method B only )
  TCie weighting of the weighted average rate reflects the total value of the
  categories of transaction subject of the different national VAT rates ,
  themselves broken down into the five categories of consumption
 ---pagebreak---                                    -A4 -
  and investment specified in Article 7 of Regulation No 2892/77 . This
 "breakdown of final expenditure "by rate is derived from national accounts
  stati sties drawn up in accordance with the European System of Integrated
 Economic Accounts ; if necessary , appropriate data can "be used to produce
  this "breakdown .    The national accounts in question must relate to
  ih® penultimate year preceding the financial year in question .
  The object of the checks must therefore "be to establish :
      ( i ) whether the national accounts statistics used have actually
            "been drawn up in accordance with the European System of Integrated
            Economic Accounts (EBA ) ;
    ( ii ) whether the data used in the analysis of the national accounts actually
             were "appropriate data" within the meaning of Article 7(2 );
  ( iii ) whether all the categories of expenditure covered "by the VAT own
            resources "base have actually "been taken into account ;
    ( iv ) whether the "breakdown "by rate and "by category of expenditure has
            been effected correctly .
 The officials of tha Statistical Office (SCEC ) have the statistical documents
required and the specialist knowledge and the necessary experience of national
accounts to conduct inspections in this field in a competent manner .
Officials from the Office have therefor® taken part in these inspections .
                                                                                 I
3*       Adjustments and compensation provided for "by Regulation No 2892/ 77
Some articles of the Regulation provide for adjustment of revenue or the
base for various reasons .
Article 9 of Regulation No 2892/77 , which refers to Article 28(3 ) of the
Sixth YlT Directive and the lists of exceptions to the uniform basis of
assessment (Annexes E , F and G ) provides that the Member States' VAT bases
should be adjusted to offset these exceptions during the transitional period laid
down by the Sixth Directive , Any Member State which makes use of the possibility
of taxing t during this transitional period f certain categories of transactions
exempted under the Directive is recruirad to calculate tk© VAT own resources base
 ---pagebreak---                                    -,\5 -
as if lhe»0o tranofietiena were - exempted ( Annex E)t on the other hand , any
Member State exempting certain categories of transactions which Bhould.
be "taxed roust calculate the VAT om resources "base as if these transactions
were taxed ( Annex F ).
Annex G allows Member States to opt "between exemption or taxation for
 certain restricted categories of taxpayer , but only for three years when
 it does not concern transactions listed in Annexes E and F.
 The object of the inspection was to ensure that the data sources and methods
 of caculation proposed by the Member StateB for finding these parts of
 the base could be considered appropriate .
  C.   The Member States were very cooperative and positive in their responses
  to the Commission 's requests in the three areas covered by the inspection
  ( see above ).  The degree of participation with the competent national authorities
  varied from one Kember State to another .     There can be no criticism whatsoever
  of the Member States , which have provided all the cooperation required for
  the inspections to be performed correctly .
  The Member States recognized the major difference between inspections of VAT
  own resources and those of traditional own resources , in that the officials
  designated by the Commission assume an administrative responsibility for
  VAT own resources which recjuiree them to find solutions with the national
  authorities to the problems encountered in all the areas of inspection in
   accordance with the complex procedures laid down in Articles 9 and 13 of
  Regulation No 289^/77 and elsewhere .     The inspectors were concerned v/ith all
   correctionsf whether to the advantage or the disadvantage of the Member States .
  The six statements for 1979 and the nine statements for I98O which have so
   far bean inspected have all needed changes following inspection . These
   changes related to all aspects of the statements , including the accuracy
   of the varioua calculations . The errors occurred even though the CoiLmission
  bad gone to great         "beforehand producing a standard form for the statement
   together with detailed annexes and arranging briefings before the actual
   inspection?! „ In e%eh Member State , the Commission officials were able to
   oheck each st i^e of the centralization process .
  Ihe errors found in centralization mainly concerned marginal aspects
  of the calculations , such as the adjustments or compensation
 ---pagebreak---                                  -Ί6 -
for which clear rules are laid down in Regulation No 2892/ 77 (e*g *
Article 2(3 ) or Article 8(l )) Taut for which the calculations in the
statements were approximate or incomplete .
Requests by Ge rraany and Luxembourg to reduce their net revenue for
reasons not allowed by the Regulation were not accepted .
The errors established in the determination of the weighted average
rate were mainly to do with the incorrect breakdown of transactions
by VAT rate , in particular where a large number of rates exist , or
a "distortion" caused by a change in the VAT rate at the beginning
of or during a year . Since the existing breakdown of statistical
series is not sufficient in such cases , appropriate data had to be
used ( Article 7(2 ) of the Regulation)®
The weighted average rates of several Member States had to be adjusted
following inspection ; in one case the Commission rejected the calculation
completely, the Netherlands being then required to determine a new
weighted average rate . Despite this recalculation , no major difference
is expected to result in this Member State 's VAT own resources base .
                                                                            !
Another aspect of the weighted average rate which proved unsatisfactory
on inspection was the breakdown of transactions into the categories la-id
down in Article 7(l ) of Regulation Ho 2892/'77® ^he breakdown given in the
Regulation was not applied in its entirety by any Member State . Each Member
State used its own definition of the categories depending on the extent to
which its national accounts are harmonised with the European System of
Integrated Economic Accounts (ESA ); they did , however, attempt to make ,
this breakdown for the total value of transactions which are taxable
under national legislation and constitute final expenditure .
The imperfections found in some aspects of the procedure for determining the
weighted average rate , such as the treatment of the final consumption of
flat-rate farmers (direct sales and on-the -farm consumption ) or changes
in VAT rates during the year , are due to the inadequacies of
Regulation No 2892/77 itself.
It was found that the methods used by some Member States for calculating
the compensation and other adjustments provided for by Regulation No 2892/7?
 ---pagebreak---                                     M7 -
(Article 5(2 ) and Article 9(3 )) were more accurate than those used by
others .    The Commission 's inspectors asked for many corrections to "be
made *
D.    In most of the cases where points were contested , the Member States and
the Commission were eventually able to agree on a revised calculation and
the Commission made a corresponding adjustment to the VAT bases of the
Member States concerned ..     But there are still a number of issues unresolved .
Many of these issues concern matters of - principle arising from the Member
States' interpretation of the provisions of the Sixth VAT Directive .
The following examples can be given ;
-   Germany : Exemption of the services of Federal Post Office carriers
                (Article 13A(l)(a ) of the Sixth VAT Directive
    Such an exemption is not covered by the Sixth VAT Directive since
    this is possible only for the services performed by the post office
    itself .
 -  United Kingdom : Exemption of certain services carried out by the
                       medical and paramedical professions : supply of
                        corrective spectacles (Article 13A(l)(c ) of the
                        Sixth VAT Directive )
     Under the Sixth VAT Directive only the supply of services in this
     sector can be exempted .
 -   Italy : Procedure for calculating the flat-rate compensation percentages
              for flat-rate farmers : pigmeat and beef
     The Sixth VAT Directive does not allow overcompensation of the input tax .
 Othor disputes involving .application of Regulation No 2892/77 *
                                         r
  -  Denmark:    Taxation of certain services which the State and the local
                 authorities supply to themselves ( first paragraph of Article 6
                 of Regulation Ho 2892/77
  Since these transactions are subject to VAT , Denmark must include them in
  its calculation of the base .     It has in fact now done so .
 ---pagebreak---                                       -Λ8 -
- Denmark : Exemption 01 transactions relating to "buildings and building
             land (Article 9(3 ) of Regulation No 2892/77 )
   The Commission finds the method of calculating the compensation
   provided for in Article 9 of Regulation No 2892/77 unsatisfactory.
~ France ? Exemption of the domestic section of international passenger
            transport operations ( Articles 9 and 11 of Regulation Ho 2892/77 )
   France may exempt operations of this type under point 17 of Annex F to
   the Sixth Directive provided that they are included in the French VAT
   own resources base , which is not the case D
-  France ; Exclusion of passenger transport between Corsica and France
            from the scope of VAT (Articles 9 and 11 of Regulation Ho 2892/77 )
   France may exempt operations of this type under point 17 of Annex F to
   the Sixth Directive provided that they a,re included in the French VAT
 ■ own resources base , which is not the case .
                                 \
   Exclusion of these operations from the scope of VAT , instead of exemption ,
   is in itself a presumed infringement of the Sixth Directive .
- United Kingdoms Refusal to allow deductions for the use of company cars
                     (Article 9(4) of Regulation No 2892/77 and Article 7(6 )
                    and . ( 7 ) of the Sixth VAT Directive )
   The Commission finds the method of calculating the compensation provided
   for. in Article 9 of Regulation No 2892/77 unsatisfactory®
                                         3E
                                   3£        S
Article 6 of Regulation No 165/74 states that the Member States may submit
observations on the results of the Commission 's inspection measures ; this
procedure is still in progress for the 1980 base .,     Whatever the outcome of
current contacts with the Member States to try and settle the problems
outstanding it would be desirable for the Commission to present a more
definitive version of the report as soon as it has drawn all the conclusions
from its inspection of VAT own resources for 1979 and 1980®
 ---pagebreak---                                 -A9 -
The conclusions outlined above may be summed up as follows :
-  The first checks revealed imperfections in the system ; to remedy this ,
   the Commission is proposing amendments to the current provisions of
   Regulation No 2892/77 .
-  After the first checks the Commission had to ask for many corrections
   to the statements presented by the Member States for 1979 and 1980 .
   In most cases the Member States accepted these corrections and the VAT
   bases have already been adjusted accordingly,
-  Less frequently the Member States have refused the corrections requested
   by the Commission in cases where there is disagreement about the
   interpretation of the Sixth VAT Directive and Regulation No 2892/77 *
    In these cases the Member States' figures for their VAT bases are too
    low . The Commission is endeavouring the resolve the disputes , where
    necessary by initiating the infringement procedure against the Member States .
 ---pagebreak---  PROPOSAL FOR A COUNCIL REGULATION (ECSC , EEC , EUR A TOM") AMENDING AND EXTENDING
THt TEkii UF VALIDITY OF KEGULATION ( EEC , EURATOM , 'Ease ) NO 2892 / 77
 IMPLEMENTING IN RESPECT OF CM RESOURCES ACCRUING FROM VALUE ADDED TAX THE
DECISION OF 21 APRIL 1970 ON THE REPLACEMENT OF FINANCIAL CONTRIBUTIONS FROM
MEMBER STATES BY THE COMMUNITIES' OV,N RESOURCES
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to Council Decision 70 / 243 / ECSC ^ EEC Euratom of 21 April 1970
 on the replacement of financial contributions from Member States by the Com-
                          1
 liiunities' own resources , hereinafter referred to as " the Decision of 21 April
 1970 , and in particular Article 6(2 ) thereof ;
Having regard to the proposal from the Commission ,
                                                               2
Having regard to the opinion of the European Parliament ,
Having regard to the opinion of the Court of Auditors"^,
Whereas .the conciliation procedure provided for in tho joint declaration of
 4 March 1975 ^.y the European. Parliament , the Council and the Commission^ has
taken place in the Conciliation Committee ;
Whereas Article 14 of           . Regulation (EEC, Euratom, SCSC ) No 2892/7T5
 states that that Regulation shall apply from 1 January 1978 for a transitional
 period expiring on 31 December 1982 ;
 Whereas , because of the delay in the entry into force in the Member States
of the Sixth Council Directive 77/388/EEC of 17 May 1977 0-1 the harmonization
of the laws of the Member States relating to turnover taxes - Common system
   OJ L 94, 28.4.1970, p e 19 .
 2
3
5)JC 89, 22,4.1975 * P. 1 .
30J L 336f 27.12.1977 , p. 8,
 ---pagebreak--- of value added tax : uniform "basis of assessment , the Commission has not
hdcr the Benefit of the five-year transitional perioa Laid duwn by the Council for
-establishing provisions relating to the definitive uniform system for
 levying VAT own resources and the detailed rules for its implementation ;
 Whereas this transitional period should "be extended to 31 December 1985
 and the provisions of Regulation    tEEC , Euratom , ECSC ) No 2392 / 77 should
remain in force for the time being so that the Commission can draw up these
measures ;
 Whereas the practical application of Regulation ( EEC , Euratom , ECSC)' No 2892 / 77
since its entry into force has revealed the need to adapt and supplement several
 its    provisions , even before a definitive uniform system is chosen ;
 Whereas , in particular , it is necessary to eliminate the difficultj.es in
  establishing a weighted average rate encountered by the Member States which
  apply the revenue method ;
  Whereas provisions must be added to Regulation' ( EEC , Euratom , ECSC ) No 2892 / 77
 for the correction of the annual summary accounts of VA^ own resources ;
  HAS ADOPTED THIS REGULATION:
  10J L 145» 13.6.1977, p. 1 .
 ---pagebreak---                                           - II-
                                     Article 1
 Regulation ( EEC - Euratom , ECSC ) No 2892 / 77 is hereby amended as follows .
      Article 2 ( 3 ) is replaced by the following :
"3 .   By way of derogation from paragraph 1 , Member States shall have t>e option of
leaving out of account , for the purpose of determining VAT own resources ,
transactions performed "by taxable persons whone annual turnover ,
determined according to the rules la.id dovm in Article 24(4 ) of
Directive 77/388/SZE , does not exceed 10 000 ECU converted into the
national currencies at the average rate for the financial year.
Member States may round upwards or downwards "by up to 10fc the
equivalent sum in the national currency.
Member States which exercise this option shall calculate the
 own resources basis as though taxaDle persons who
 ma y be            eligible for exemption voider Article 24(2 ) of the said
Directive were subject to the normal rules laid dovm therein for the
application of value added tax",,
 ---pagebreak---                                            -o -
        2.   Article 3    is amended as follows :
 (a ) The following is added to the first paragraph :
                informing the Commission of the method they propose to apply."
 ( b) The second paragraph is deleted.
 ( c ) The last t paragraph is replaced by the following :
        " The Commission shall communicate the information referred to in the first
        and second paragraphs to the Member States ." .
      • 3.         In Article 4(3 )    the    words :
              , in the absence of any such returns , owing to failure of the
        taxable person to fulfil his obligations , from the estimated assessment
        made by the competent authority of the Member State are replaced by the
        words : "... derived from the estimated assessment made by the competent authority
        of the member State ".
        4 . Article 6 is replaced by the following :
          Article 6
          For a given year , and without prejudice to Article 9 » "the VAT own
         resources basis shall be calculated "by reference to the total net VAT
         revenue collected and the rate at which VAT is levied during the same
         year .
         If several VAT rates are applied in a Member State , the VAT own resources
         baais shall be calculated by reference to the total net VAT revenue
         collected and the weighted average rate of VAT. In this case , the Member
         S'5ute shall determine the weighted average rate per hundred currency
         units by applying the common method of calculation defined in Article 7 »
         the result being rounded off to four decimal places ."
        ?>. Article 7 is amended as follows :
\.i ) Tho second subparagraph of paragraph 1 is replaced by the following :
        "The VAT rates used for the purposes of such calculation shall be those in
          force in the Member State for the year in question"*
 ---pagebreak---  Paragraphs                  2 , 3 and 4 are replaced by the following paragraphs
  2 to 7 :
 "2» The "breakdown "by rate of VAT shall be applied to the following
 statistical categories :
                                             »
 (a) the following categories of transaction subject to non-deductible VA T :
       – final consumption of households , including consumption on the
          farm and direct sales "by flat-rate farmers , on the territory
          referred to in Article 3 of Directive 77/388/EEC for the Member
         State in question ;
      – intermediate consumption of general government , private non-profit
         institutions , insurance enterprises and credit institutions ;
      «- gross fixed-capital formation of general government , private
         non-profit institutions , insurance enterprises and credit
         institutions ;
(b ) the following categories of transaction where they are subject to
      non-deductible VAT :
      – intermediate consumption of non-financial corporate and
         quasi–corporate enterprises ;                                          '
      – gross fixed-capital formation of non-financial corporate, and
         quasi-corporate enterprises ;
( c ) transactions corresponding to the sale of building land .
3® For the purposes of the breakdown by rate of VAT referred to in the
preceding paragraph , transactions relating to consumption on the farm
and direct sales by flat-rate farmers which are not subject to VAT shall
be classified at a notional rate which would produce revenue equivalent to
the value added tax charge on inputs .
4« The breakdown of transactions by statistical category shall be effected
by means of data taken from national accounts prepared in accordance with
the European system of integrated economic accounts (ESA ). In order to
calculate the VAT o;»n resources basis for any given financial year reference
shall be made to the national accounts relating to the penultimate year
preceding that financial year®
 ---pagebreak---  Member States may be authorized under the procedure laid down in Article 13
  to use data relating to an earlier year. .
 5. For the purposes of identifying transactions subject to non-deductible
 VAT and effecting the breakdown by rate of VAT Member States may in
 addition refer to data taken from sources other than the ESA , and in
 particular from internal national accounts if they provide the necessary
 breakdown , or in the absence of stlch. accounts , to any other appropriate
 source .
 6.   In order to determine the weighting of each rate , Member States shall
 calculate the ratio between the value of the transactions to which that
 rate applies and the aggregate value of all relevant transactions .
 7 . Should a Member State during a financial year amend the VAT rate
-applicable to all or some transactions or the tax treatment for certain
 transactions in such a way as to affect the VAT revenue collected during
 the calendar year in question , it shall calculate a new weighted average
 rate. The new weighted average rate shall be applied to the revenue
 derived from application of the amended rate or tax treatment
By way of derogation from the foregoing subparagraph , the Member State
 may calculate a single weighted average rate ; transactions in respect
 of which the rate or treatment has been changed shall then be allocated
 to the old and new rates or to the old and new treatments pro rata
  temporis ,    account being    taken   of    the '
 average period of time elapsing between entry into force of the new
 rate or treatment and the collection of revenue resulting therefrom "
  6 . Article 8(2 ) is replaced Dy the following :
 "2. The revenue actually collected by a Member State shall be reduced
                                            *
by an amount corresponding to the total input tax , with the exception
 of that relating to consumption on the farm and direct sales to final
 consumers , which flat-rate farmers have not recouped by virtue of the
 application by that Member State of the option to reduce the flat-rate
 ---pagebreak---      compensation perceniages^calculated in accordance with Article 2 5(3 ) of
     Directive 77/388/EEC , applicable to transactions carried out by flat-
     rate farmers *
        The amount of input taxes and the amount of compensation shall be those
      relating to the year in question®
      This provision may be applied only where the flat-rate percentages fixed
      in accordance with Article 25(3 ) of Directive 77/388/EEC do not provide
      full compensation in respect of a three-year average of the value added
      tax charge on inputs expressed as a percentage rounded down to the nearest
      half-point , calculated in accordance with the method described in Annex C
      of the said Directive "
      7.     Article y is amended as follows :
<a > In the third indent of paragraph 2 the words "paragraphs 1 (a) and (2 )" are
      replaced by the words "paragraph l(a)"»
* b ) The second subparagraph of paragraph 3 is"del'eted G
      The following second subparagraph is added to paragraph 4 .*
       " The preceding subparagraph shall apply in relation to the second subparagraph of
      Article 17(6 ) only in respect of the purchase of petroleum products
      and passenger cars used for business purposes ," ■
 ---pagebreak---        8.            10 is amended as follows :
Ca )        second subparagraph of paragraph 1 is replaced "by the following ;
       "The summary account shall contain all the data "used to determine
       the "basis which are required for the checks referred, to in Article 12.
       It shall     indicate    separately      the    basis
       resulting from the transactions referred to in Article 5(l )» ( 2 )
       and ( 3 ) and Articles 8 and 9 ( l ) "to (4 )."
( b ) The third subparagraph of paragraph 1 is deleted .
( c ) In the first indent of the first subparagraph of paragraph 2 , the
       words "... or any other continuous 12-month period to be determined
       by the Member States " are deleted .
Cd ) In the second indent of the first subparagraph of paragraph 2 ,
       the words "... or any other contirfiQis 12-month period to be determined
       by the Member States " are deleted .
 ( e ) The third subparagraph of paragraph 2 is deleted .
 ( f ) Paragraph     4 is deleted .
 9.    The following new Articles 10a and 1l)b are inserted :
                                     "Article 10a
       Member States shall forward to the Commission "by 30 April each
       year an estimate of the VAT own resources basis for the following
       financial year . They shall inter alia give an estimate of the basis
       of assessment for each of the categories of transaction referred
       to in Article 5(2 ) and ( 3 ) and Articles 8 and 9(1 ) to (4 ).".
 ---pagebreak---                                      -M -
                       "Article < Go
 Corrections to th© sufe*t*ry account reifVffsd to in Artist *? TOO )
 shall be made by the Cctowission and shall be Sneon>oAi)«tj in a
 summary estimate adopted on 30 June .,
 The Commission nay? however, by sr«2io*iiS<3 decision^ call on rteaber
 States to wake.- such corrections tiithit". thre® Kscnths .
 Ho further corrections »ay be «€«e to th© annual suftfe&ry ssttount
 referred to in Article 10<1 > after thr«e y©«rs h#ve el3j#&e<i frosa
 the end of a given financial year, unt®as they concern poirsts
 previously notified either by th® Co&ssission or by the ^isfebsr
 State concerned ."
                                                                                 <
The first and second subparagraphs of Article 11(1 ) are replaced by the
following :
"      Member States shall inform the Commission by 30 April of each financial
year of the solutions they propose to adopt in order to determine the VAT
own resources basis for each of the categories of transaction referred to
in Article 5(2 ) and (3 ) and Articles 3 and 9(l ) to (4 )1 indicating , where
applicable , the nature of the data which they consider appropriate and
an - estimate of the value of the assessment basis for each of these
categories of transaction .
 They shall            < inform the Commission                  of the modifications
they intend to make to the solutions adopted under Article 13 for previous
financial years, subject to the same conditions ".
 ---pagebreak---                                           - 29 -
11 . The following paragraph 3 is added to Article 12 :
        " 3 . Following the checks referred to in paragraph 1 the annual summary
        account for a given financial year shall be corrected by the Commission
        in accordance with Article 10b ."
12 . In the second subparagraph of Article 13(2 ), the words "... and not later
than 60 days after receipt of the application ..." are deleted .
13 .    Article 14 is amended as follows :
 ( a ) In the second paragraph , " 1982 " is replaced by " 1985 ".
 ( b ) In the third paragraph . " 1982 " is replaced by " 1985 ".
                                          Arti c le 2
      i
 This Regulation shall enter into force on the day following that of its publi­
 cation in the Official Journal of the European Communities .       It shall apply
  from 1 January 1983 .
 This Regulation shall be binding in its entirety and directly applicable in
  all Member States .