CELEX: 52006PC0736
Language: en
Date: 2006-11-28
Title: Proposal for a Council Decision authorising Romania to apply a reduced rate of VAT to certain labour-intensive services referred to in Article 28(6) of Directive 77/388/EEC

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                     Brussels, 28.11.2006
                                                     COM(2006) 736 final
                                        Proposal for a
                                   COUNCIL DECISION
   authorising Romania to apply a reduced rate of VAT to certain labour-intensive services
                    referred to in Article 28(6) of Directive 77/388/EEC
                               (presented by the Commission)
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 ---pagebreak---                                EXPLANATORY MEMORANDUM
       1) BACKGROUND
          •
   110
               Grounds for and objectives of the proposal
          This proposal for a Decision is intended to implement, as far as Romania is concerned,
          the provisions of Directive 2006/18/EC, which was adopted on 14 February 2006 (OJ
          L 51, 22.02.2006, p. 12), from Romania's date of accession to the European Union. The
          Directive extends until 31 December 2010 the experiment of reduced rates for labour-
          intensive services and makes it possible for all Member States to take part in it under
          the same conditions. The purpose of this proposal is therefore to extend this possibility
          to Romania and authorise it to apply such a reduced rate once it joins the European
          Union, so as to ensure equal treatment for all Member States.
          •
   120
               General context
          1.      On 14 February 2006, the Council adopted Directive 2006/18/EC amending
          Directive 77/388/EEC with regard to reduced rates of value added tax, and in particular
          Article 28(6) thereof. Paragraph 6 was added by Council Directive 1999/85/EC of
          22 October 1999 (OJ L 277, 28.10.1999, p.34) and applied initially until 31 December
          2002. The provisions were then extended by Directive 2002/92/EC of 3 December
          2002 (OJ L 331, 7.12.2002, p.27) until 31 December 2003 and by
          Directive 2004/15/EC of 10 February 2004 (OJ L 52, 21.2.2004, p.61) until
          31 December 2005. To achieve a better understanding of the impact of reduced rates,
          the Council asked the Commission to prepare an assessment report on the impact of
          reduced rates applied to locally supplied services, notably in terms of job creation,
          economic growth and the proper functioning of the internal market.
          2.      Pending the outcome of that assessment, Directive 2006/18/EC extends the
          experiment of reduced rates for labour-intensive services until 31 December 2010. It
          also allows all Member States to take part in the experiment under the same conditions.
          3.      Member States wishing to avail themselves for the first time of the facility
          provided for in Article 28(6) of Directive 77/388/EEC and those wishing to amend the
          list of services to which they had applied that provision in the past had to submit a
          request to the Commission, together with the relevant particulars for the purpose of
          assessment, by 31 March 2006 and comply with the procedure and conditions laid
          down in Article 1(2) of Directive 2006/18/EC. On this basis, the Commission has
          presented the Council with a proposal for a Decision authorising 17 Member States to
          apply a reduced rate to certain labour-intensive services1.
          4.      By letter dated 31 March 2006, Romania also submitted a request to apply a
          reduced rate for certain services, referred to in points 1 and 4 of Annex K to Directive
          77/388/EEC, supplying the information necessary for an assessment.
          5.      Since all the Member States may temporarily apply a reduced rate to certain
          categories of labour-intensive services, the same possibility should be offered to the
   1
          COM(2006) 410 final.
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 ---pagebreak---        accession countries, authorising them to apply the reduced rate from their accession to
       the European Union, if they so request under the same procedure and conditions as the
       present Member States. Recital (3) of Directive 2006/18/EC states that one of the
       objectives of that Directive is to apply the same conditions to all Member States which
       wish to take part in the experiment of reduced rates for labour-intensive services. It is
       therefore appropriate to apply the fourth subparagraph of Article 28(6) of Directive
       77/388/EEC by analogy and mutatis mutandis to the accession countries, taking
       account of the specific legal situation of those States in the period leading up to
       accession.
       6.      Under Article 55 of the Act concerning the conditions of accession of the
       Republic of Bulgaria and Romania and the adjustments to the Treaties on which the
       European Union is founded (OJ L 157, 21.06.2005, p. 203), at the duly substantiated
       request of Bulgaria or Romania submitted to the Commission no later than the date of
       accession, the Council, acting on a proposal from the Commission, may take measures
       consisting of temporary derogations from acts of the institutions adopted between 1
       October 2004 and the date of accession. Under the same Article, moreover, the
       measures shall be adopted according to the voting rules governing the adoption of the
       act from which a temporary derogation is sought.
       7.      As Directive 2006/18/EC was adopted after 1 October 2004, the Council, acting
       on a proposal from the Commission, may take a decision on Romania's request
       according to the voting rules governing the adoption of the act from which a temporary
       derogation is sought. In the present case, the voting rules require a unanimous decision
       by the Council. Unanimity is required both by Article 93 of the Treaty establishing the
       European Community (the legal basis for the adoption of Directive 2006/18/EC) and
       by the first subparagraph of Article 28(6) of Directive 77/388/EEC.
       ASSESSMENT BY THE COMMISSION
       The Commission considers that Romania's request was presented according to a similar
       procedure to, and under the same conditions as, those laid down in Article 1 of
       Directive 2006/18/EC, which applies to the current Member States.
       Article 55 of the Act of Accession of Bulgaria and Romania enables the Council,
       referring to Article 28(6) of Directive 77/388/EEC, to ensure equal treatment for all the
       Member States, from the date of accession of Bulgaria and Romania, as regards the
       experiment of reduced rates for labour-intensive services.
       •
   130
           Existing provisions on the subject covered by the proposal
       The exercise involves the implementation of Article 28(6) of Directive 77/388/EEC, as
       last amended by Directive 2006/18/EC with regard to reduced rates of VAT for labour-
       intensive services. The legal basis for this implementation is Article 55 of the Act of
       Accession of Bulgaria and Romania.
       •
   140
           Consistency with the other policies and objectives of the Union
       Directive 1999/85/EC formed part of EU employment policy and was intended, in
       particular, to promote an increase in employment and reduce the level of undeclared
       labour. The problem of unemployment was so serious that those Member States
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 ---pagebreak---           wishing to do so were allowed to experiment with the operation and impact, in terms of
          job creation, of a reduction in the VAT rate on labour-intensive services not currently
          listed in Annex H to Directive 77/388/EEC.
          However, the introduction of such a targeted reduction in the VAT rate entails some
          risk to the proper operation of the internal market and tax neutrality; it was therefore
          necessary to adopt an experimental measure which Member States could opt to apply.
          Provision was also made for a specific authorisation procedure and for the scope of the
          Decision to be made subject to strict conditions so that it remained verifiable and
          limited. This is the background against which Directive 2006/18/EC, which extended
          this experiment for the third time, was adopted and this Decision is being proposed.
       2) CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT
          •    Consultation of interested parties
   219
          Directive 2006/18/EC is the result of negotiations in the Council on Commission
          proposal COM(2003) 397 final on the review of reduced rates of VAT. This proposal
          for a Decision is intended to apply the Directive to Romania, following its formal
          request to take part in the experiment. Interested parties have not therefore been
          consulted again.
          •    Collection and use of expertise
   229
          Outside expertise has not been required.
          •
   230
               Impact assessment
          This proposal for a Decision is intended to implement, as far as Romania is concerned,
          from the date of accession until 31 December 2010, the provisions of Directive
          2006/18/EC, which provides in particular for the extension of an existing provision.
          To achieve a better understanding of the impact of reduced rates, the Directive also
          lays down that the Commission must prepare an assessment report by 30 June 2007, on
          the basis of a study carried out by an independent economic think-tank, on the impact
          of reduced rates applied to locally supplied services, notably in terms of job creation,
          economic growth and the proper functioning of the internal market. At this stage, there
          is therefore no reason to examine other options.
       3) LEGAL ELEMENTS OF THE PROPOSAL
          •
   305
               Summary of the proposed action
          To enable Romania, which has made a request to this effect, to apply, from the date of
          accession, a reduced rate to certain labour-intensive services, pursuant to Article 28(6)
          of Directive 77/388/EEC.
          •
   310
               Legal basis
          Article 55 of the Act of Accession of Bulgaria and Romania, with reference to Article
          28(6) of Directive 77/388/EEC, as amended by Directive 2006/18/EC of 14 February
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 ---pagebreak---           2006.
          •
   329
              Subsidiarity principle
          The proposal falls under the exclusive competence of the Community. The subsidiarity
          principle therefore does not apply.
          •   Proportionality principle
          The proposal complies with the proportionality principle for the following reasons.
   331
          The Decision authorises Romania, which has specifically so requested, to apply a
          reduced rate of VAT for certain labour-intensive services. It therefore imposes no
          obligation.
   332
          Given the limited scope of the derogations provided for in the Decision, the special
          measure is proportionate to the aim pursued. The Decision involves no financial cost to
          the Community. Although the reduction in the rates of VAT may involve a reduction in
          revenue for States, those that have submitted requests expect that the effectiveness of
          the measure in increasing employment and reducing the scale of the shadow economy
          will offset this loss. VAT places no financial burden on economic operators, and
          consumers should, in principle, benefit from the reduction in rates, in so far as this will
          be reflected in final prices.
          •   Choice of instruments
   341
          Proposed instrument(s): other.
   342
          Other means would not be appropriate for the following reasons.
          Under Article 55 of the Act of Accession of Bulgaria and Romania, with reference to
          Article 28(6) of Directive 77/388/EEC, as amended by Directive 2006/18/EC of
          14 February 2006, derogation from the common VAT rules is only possible with the
          authorisation of the Council acting unanimously on a proposal from the Commission.
          A Council Decision is the only suitable instrument.
       4) BUDGETARY IMPLICATIONS
   409
          The proposal has no implication for the Community budget.
       5) ADDITIONAL INFORMATION
          •   Review/revision/sunset clause
   533
          The proposal includes a sunset clause on all or part of the legislative act if predefined
          conditions are met.
          •
   570
              Detailed explanation of the proposal by chapter or by article
          Article 1
          Article 1 provides that, under Article 55 of the Act of Accession of Bulgaria and
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 ---pagebreak---    Romania and with reference to the first and fourth subparagraphs of Article 28(6) of
   Directive 77/388/EEC, Romania is authorised to apply, from accession to the European
   Union, a reduced rate of VAT for certain labour-intensive services.
   Article 2
   The purpose of Article 2 is to authorise Romania to apply the reduced rates laid down
   in the third subparagraph of Article 12(3)(a) of Directive 77/388/EEC to the services
   for which it has submitted a request under a similar procedure to that provided for in
   the fourth subparagraph of Article 28(6) of that Directive and which are mentioned
   therein.
   Articles 3 to 4
   These Articles concern the period of application of the provisions under Article 28(6)
   of Directive 77/388/EEC and the addressee of the Decision.
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 ---pagebreak---                                                   Proposal for a
                                           COUNCIL DECISION
   authorising Romania to apply a reduced rate of VAT to certain labour-intensive services
                         referred to in Article 28(6) of Directive 77/388/EEC
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty establishing the European Community,
   Having regard to the Treaty of Accession of Bulgaria and Romania2, and in particular Article
   4(3) thereof,
   Having regard to the Act of Accession of Bulgaria and Romania3, and in particular Article 55
   thereof,
   Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the
   harmonization of the laws of the Member States relating to turnover taxes - Common system
   of value added tax: uniform basis of assessment4, and in particular Article 28(6) thereof,
   Having regard to the proposal from the Commission5,
   Whereas:
   (1)     Under Article 28(6) of Directive 77/388/EEC, the Council may authorise a Member
           State to apply a reduced rate of VAT to certain labour-intensive services.
   (2)     The services concerned must meet the conditions provided                                   for    in
           Directive 77/388/EEC and be included in the list given in Annex K thereto.
   (3)     Article 28(6) of Directive 77/388/EEC, as amended by Directive 2006/18/EC,
           extended the period of application of the reduced rates of VAT to 31 December 2010.
           It also enables Member States wishing to avail themselves for the first time of the
           facility provided and those which want to change the list of services to which they
           have applied the said provision in the past to submit their request to the Commission.
   (4)     The said Article is intended to make it possible for all Member States to take part
           under the same conditions in the experiment of reduced rates for labour-intensive
           services. It is therefore appropriate to grant the acceding States, from their accession to
   2
           OJ L 157, 21.6.2005, p. 11.
   3
           OJ L 157, 21.6.2005, p. 203.
   4
           OJ L 145, 13.6.1977, p.1. Directive as last amended by Directive No 2006/69/EC (OJ L 221, 12.8.2006,
           p. 9).
   5
           OJ C […], […], p. […].
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 ---pagebreak---            the European Union, the same possibility of applying a reduced rate of VAT to certain
           labour-intensive services.
   (5)     By letter dated 31 March 2006, Romania submitted a request to apply a reduced rate of
           VAT to certain labour-intensive services referred to in the fourth subparagraph of
           Article 28(6) of Directive 77/388/EEC.
   (6)     To ensure equality among the Member States, this Decision should apply from the
           date of entry into force of the Treaty of Accession of Bulgaria and Romania.
   (7)     This Decision will have no impact on the Communities' own resources derived from
           VAT,
   HAS ADOPTED THIS DECISION:
                                                Article 1
   Under Article 55 of the Act of Accession of Bulgaria and Romania read in conjunction with
   the first and fourth subparagraphs of Article 28(6) of Directive 77/388/EEC, Romania is
   authorised to apply, from the entry into force of the Treaty of Accession of Bulgaria and
   Romania until 31 December 2010, the reduced rates provided for in the third subparagraph of
   Article 12(3)(a) to the services mentioned in Article 2.
                                                Article 2
   Romania is authorised for the following two services, referred to in points 1 and 4 of Annex K
   to Directive 77/388/EEC:
             (a) small services of repairing clothing and household linen (including mending
             and alteration),
             (b)   domestic care services.
                                                Article 3
   This Decision shall apply subject to, and from the date of entry into force of, the Treaty of
   Accession of Bulgaria and Romania and shall cease to have effect on 31 December 2010.
                                                Article 4
   This Decision is addressed to Romania.
   Done at Brussels,
                                                  For the Council
                                                  The President
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