CELEX: 51997PC0074
Language: en
Date: 1997-02-27
Title: Proposal for a COUNCIL DECISION authorizing the French Republic to extend the application of a measure derogating from Article 17 of 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

COMMISSION OF THE EUROPEAN COMMUNITIES
                                        Brussels, 27.02.1997
                                        COM(97) 74 final
REPORT FROM THE COMMISSION TO THE COUNCIL
            presented in accordance with Article 2 of
      Council Decision 93/109/EEC of 15 February 1993
    (application of a measure derogatingfromArticle 17 of
     the Sixth Directive 77/388/EEC on the harmonization
           of the laws of the Member States relating
                       to turnover taxes)
                          Proposal for a
                     COUNCIL DECISION
         authorizing the French Republic to extend the
      application of a measure derogatingfromArticle 17
of 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
                 (presented by the Commission)
 ---pagebreak---  ---pagebreak--- REPORT FROM THE COMMISSION TO THE COUNCIL
        presented in accordance with Article 2 of
   Council Decision 93/109/EEC of 15 February 1993
  (application of a measure derogatingfromArticle 17
of the Sixth Directive 77/388/EEC on the harmonization
            of the laws of the Member States
                relating to turnover taxes)
 ---pagebreak---                                    I. INTRODUCTION
By Decision 89/488/EEC of 28 July 1989,1 the Council authorized France, on the basis of
Article 27 of the Sixth Directive, to take special measures derogating from Article 17(2)
of that Directive. The authorization was valid until 31 December 1992.
The derogation consists in excluding altogether from the right to deduct VAT that
charged on expenditure on goods and services in cases where non-business use of those
goods and services accounts for more than 90% of their total use.
On the basis of a Commission report on the application of this derogation, the
authorization was extended until 31 December 1996 by Council Decision 93/109/EEC2 of
15 February 1993. Under the terms of the authorization, any proposal to extend it has to
be accompanied by a report on its application.
The purpose of this report is to give an account of this derogation from the time of its
extension to the present date and to examine the application for an extension submitted by
France by letter registered by the Secretariat-General on 19 November 1996.
                       II. APPLICATION OF THE DEROGATION
As indicated above, the application of the derogation has already been the subject of a
Commission report drawn up at the end of 1992,3 which described in detail the
background, objectives and operation of the derogation. As these aspects have not
changed in the meantime, the present report simply outlines a number of developments
which have occurred since the previous report.
First of all, following the Commission's comments in the previous report, France has
amended its national legislation relating to the derogation to make it clear that the special
measure covers any non-business use that exceeds 90% of the total use of the goods and
services (the legislation governing the initial derogation covered only private use).
France also points out in its request for an extension that no special difficulty in applying
the derogation has been reported to the French tax authorities over the period from 1993
to 1996.
On the contrary, experience has confirmed that the arrangements introduced have
simplified the administration of the tax both for the tax authorities and for taxpayers.
1
    OJ No L 239, 16.8.1989, p. 22.
2
    OJ No L 43, 20.2.1993, p. 42.
3
    COM(92) 591, 22.12.1992.
                                                   3
 ---pagebreak--- France is therefore requesting that the authorization be extended until the new common
VAT system is adopted.
              HI. OPINION OF THE COMMISSION DEPARTMENTS
The Court of Justice has ruled that a taxable person who uses goods for the purposes of
an economic activity is entitled to deduct the input tax paid in accordance with the rules
laid down in Article 17, however small the proportion of business use. A rule imposing a
general restriction on the right of deduction in cases where there is limited business use
constitutes a derogation from Article 17 and is valid only if the requirements of Article 27
of the Sixth Directive are met (see judgment of 11 July 1991 in Case C-97/90).
Article 27 permits special measures derogating from the Sixth Directive to be introduced
either to simplify the procedure for charging the tax or to prevent certain types of tax
evasion or avoidance.
As already indicated in the previous report, the Commission's departments consider that
the introduction of the special measure in question, which is designed to prevent
'consumption without taxation", is justified under Article 27 of the Sixth VAT Directive
because it simplifies administration of the tax by relieving the tax authority of the need to
oversee exercise of the right to deduct the VAT charged on expenditure on goods and
services in cases where non-business use of those goods and services accounts for more
than 90% of their total use.
As regards the period of validity of the authorization, the Commission's departments
would point out that on 10 July 1996 the Commission adopted a work programme4 for
the introduction of a common VAT system which provides for step-by-step progress
towards the new system.
As the final package of proposals is scheduled for presentation in mid-1999, the
Commission's departments take the view that no derogation should be extended beyond
31 December 1999.
It would seem appropriate to assess then whether the derogation is consistent with the
approach adopted under the new common system of VAT.
    COM(96)328,22.7.1996.                       4-
 ---pagebreak---                          Proposal for a
                    COUNCIL DECISION
          authorizing the French Republic to extend
   the application of a measure derogatingfromArticle 17
of 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
                (presented by the Commission)
                                s
 ---pagebreak---                            EXPLANATORY MEMORANDUM
By letter registered by the Commission's Secretariat-General on 19 November 1996, the
French Government submitted a request for an extension of the derogation initially
authorized up to 31 December 1992 by Council Decision 89/488/EEC of 28 July 19891
and extended until 31 December 1996 by Council Decision 93/109/EEC of
15 February 1993.2
This derogation from Article 17(2) of the Sixth VAT Directive consists in excluding
altogether from the right to deduct VAT that charged on expenditure on goods and
services where the use of such goods and services for the private purposes of the taxable
person or his staff or more generally for non-business purposes exceeds 90% of their total
use.
Article 2 of the above-mentioned Decision 93/109/EEC states that, in the light of a
Commission report on France's application of the Decision, the Council may, on the basis
of a Commission proposal, authorize the extension of that Decision.
The Commission's report on the application of the Decision over the period from 1993 to
1996 concludes that it is appropriate for the application of its provisions to be extended
until 31 December 1999.
On 10 July 1996 the Commission adopted a work programme for the introduction of a
common VAT system3 which provides for step-by-step progress towards the new system.
As the final package of proposals is scheduled for presentation in mid-1999, it would
seem appropriate not to extend the period of validity beyond 31 December 1999 so as to
enable an assessment to be made of the necessity of the derogation and its consistency
with the overall approach adopted under the new common system of VAT.
In accordance with Article 27(3) of the Sixth VAT Directive, the other Member States
have been informed by letter of 18 December 1996 of the French request.
1
    OJ No L 239, 16.8.1989, p. 22.
2
    OJNoL43, 20.2.1993, p. 42.
3
     COM(96)328,22.7.1996.
 ---pagebreak---                                         Proposal for a
                                      Council Decision
           authorizing the French Republic to extend the application of a measure
                  derogating from Article 17 of 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
                                (presented by the Commission)
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community,
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 assessment,1 and in particular Article 27
thereof,
Having regard to the previous Council Decisions 89/488/EEC of 28 July 19892 and
93/109/EEC of 15 February 1993,3
Having regard to the Commission report on the application of the above-mentioned
Decision over the period from 1993 to 1996,
Having regard to the Commission proposal arising from that report,
Whereas, under Article 27(1) of the Sixth VAT Directive, the Council, acting
unanimously on a proposal from the Commission, may authorize any Member State to
introduce or extend special measures derogating from that Directive in order to simplify
the procedure for charging tax or to prevent certain types of tax evasion or avoidance;
Whereas, by letter registered by the Secretariat-General of the Commission on
19 November 1996, the French Government requested authorization to extend the
application of the derogation previously granted to it for limited periods by
Council Decisions 89/488/EEC and 93/109/EEC;
Whereas the other Member States were informed on 18 December 1996 of the request for
an extension submitted by the French Government;
1
    OJ No L 145, 13.6.1977, p. 1; Directive last amended by Directive 96/95/EC (OJNoL338,
    28.12.1996, p. 89).
2
    OJ No L 239, 16.8.1989, p. 22.
3
    OJNoL43, 20.2.1993, p. 42.
 ---pagebreak--- Whereas tb.t. said measure consists in excluding altogether from the right to deduct VAT
that charged on expenditure on goods and services in cases where the use of such goods
and services for the private purposes of the taxable person or his staff or more generally
for non-business purposes exceeds 90% of their total use;
Whereas the special measure combats certain forms of consumption without taxation
while at the same time simplifying the VAT treatment of certain transactions;
Whereas the said measure constitutes a derogation from Article 17(2) of the Sixth
Directive under which a taxable person is entitled to deduct the VAT charged on goods
and services used for the purposes of his taxed transactions;
Whereas the Commission adopted on 10 July 1996 a work programme and a timetable of
proposals providing for gradual, step-by-step progress towards a common VAT system
for the single market;
Whereas, as thefinalpackage of proposals is scheduled for mid-1999, the authorization is
to be granted until 31 December 1999 so as to enable an assessment to be made of the
derogation's consistency with the overall approach of the new common system of VAT;
Whereas this derogation will not have a negative effect on the European Communities'
own resources accruingfromVAT,
HAS ADOPTED THIS DECISION:
                                               2
 ---pagebreak---                                           Article 1
By way of derogation from Article 17(2) of Directive 77/388/EEC, the French Republic is
hereby authorized to exclude from the right to deduct VAT that charge i on expenditure
on goods and services in cases where the use of such goods and services for the private
purposes of the taxable person or his staff or more generally for non-business purposes
exceeds 90% of their total use.
                                          Article 2
This authorization shall be granted until 31 December 1999.
                                          Article 3
This Decision is addressed to the French Republic.
Done at Brussels,
                                                                        For the Council
                                                                          The President
 ---pagebreak---  ---pagebreak---                                                                    ISSN 0254-1475
                                                             COM(97) 74 final
                                             DOCUMENTS
EN                                                              09 06 08       10
                                    Catalogue number : CB-CO-97-066-EN-C
                                                              ISBN 92-78-16230-2
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