CELEX: 51997PC0042(09)
Language: en
Date: 1997-02-05
Title: Proposal for a COUNCIL DECISION authorizing the Grand Duchy of Luxemburg to apply a measure derogating from Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                Brussels, 05.02.1997
                                                COM(97) 42 final
                                 Proposals for
                            COUNCIL DECISIONS
authorizing the 15 Member States to apply a measure derogating from Article 9
     of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
              laws of the Member States relating to turnover taxes
                         (presented by the Commission)
 ---pagebreak---  ---pagebreak---                                   Proposal for a
                               COUNCIL DECISION
authorizing the Kingdom of Belgium to apply a measure derogating from Article 9
      of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
               laws of the Member States relating to turnover taxes
                           (presented by the Commission)
                                         -2-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 10 September 1996, the
government of the Kingdom of Belgium requested authorization, under Article 27 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 - common system of value added tax: uniform basis
of assessment,1 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Kingdom of Belgium.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Kingdom of Belgium wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                      i-
 ---pagebreak---  Since the aim of the derogation requested is to alter the place of taxation and that same
 derogation is required by all the Member States, the Council's authorization would have an
 effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
 can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
 envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, and pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which Would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a ;directive amending the
 Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.
It is therefore necessary, first of all, to restrict the effects of the1 authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.                               !
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.                                                     j
                                                                          i
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essehtial to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                     H-
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                   - b -
 ---pagebreak---                                             Proposal for a
                                       COUNCIL DECISION
   Authorizing the Kingdom of Belgium to apply a measure derogating from Article 9 of
 the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States
                                     relating to turnover taxes       j
 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, and in particular Article 27 thereof,
 Having regard to the proposal from the Commission,
 Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
 on a proposal from the Commission, may authorize any Member State to introduce special
 measures for derogation from that Directive in order to simplify the procedure for charging the
 tax or to prevent certain types of tax evasion or avoidance;
"Whereas, by registered letter to the Commission dated 10 September 1996, the Kingdom of
 Belgium requested authorization to introduce a measure derogating from Article 9 of
 Directive 77/388/EEC;                                                 f
 Whereas the other Member States were informed on 20 December 1996 of the request made
 by the Kingdom of Belgium;
 Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
 number of Community taxable and non-taxable persons to purchase telecommunications
 services outside the Community solely in order to avoid payment of VAT;
                                                                       i
 Whereas it is desirable that the derogation should be granted until 31 December 1998, in order
 to allow the Council to adopt a general Community solution based on the Commission
 proposal,                                                            :
 HAS ADOPTED THIS DECISION:                                           !
                                                    -c -
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, tie Kingdom of Belgium is"
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community tp customers established in
the Community. In the case of a Member State making use of thi^ facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these services.
Telecommunications services shall be deemed to be services relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception'.
                                              Article 2
The authorisation specified in this decision shall expire on 31 Decern ber 1998.
                                              Article 3
This Decision is addressed to the Kingdom of Belgium.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                         1- -
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in ihe place of taxation of
telecommunications services should provide better coverage of consumption of this type of
service within the European Union.                                   I
However, it is impossible to quantity this increase in own resources.
                                                    s-
 ---pagebreak---                                    Proposal for a
                                COUNCIL DECISION
authorizing the Kingdom of Denmark to apply a measure derogating from Article 9
       of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
                laws of the Member States relating to turnover taxes
                            (presented by the Commission)
                                            - ^ -
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the Kingdom of Denmark requested authorization, under Article 27 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 - common system of value added tax: uniform basis
of assessment,1 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Kingdom of Denmark.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications seryices.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order^o
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Kingdom of Denmark wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145. 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996. p. 89).
                                                     - \o
 ---pagebreak--- Since the aim of the derogation requested is to alter the place 6f taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in' accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal'for a directive amending the Sixth Directive, that would hi presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a 'directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.                                                            ,
                                                                           i
It is therefore necessary, first of all, to restrict the effects of the! authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liab e for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a Mill deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The .best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                       l\
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transinission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                   -   \1
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
 Authorizing the Kingdom of Denmark to apply a measure derogating from Article 9 of
the Sixth Directive (77/388/EEC) on the harmonization of the lajws of the Member States
                                    relating to turnover taxes
                                 (presented by the Commission)
THE COUNCIL OF THE EUROPEAN UNION,                                   j
Having regard to the Treaty establishing the European Community, !
Having regard to the Sixth Council Directive (77/388/EEC) j 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,                   !
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cpuncil, acting unanimously
on a proposal from the Commission, may authorize any Member jState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         j
Whereas, by registered letter to the Commission dated 6 December 1996, the Kingdom of
Denmark requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 11996 of the request made
by the Kingdom of Denmark;                                           j
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be "ranted until 31 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                    - \2>'
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of Denmark is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of this facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these services.
Telecommunications services shall be deemed to be services relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998.
                                              Article 3
This Decision is addressed to the Kingdom of Denmark.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                       - VH-
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have th|e effect of increasing the
Community's VAT own resources base since the change in {he place of taxation of
telecommunications services should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                       - l^ -
 ---pagebreak---                                   Proposal for a
                               COUNCIL DECISION
authorizing the Federal Republic of Germany to apply a measure derogating from
 Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
               laws of the Member States relating to turnover taxes
                           (presented by the Commission)
                                               - [it>
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the Federal Republic of Germany requested authorization, under Article 27 of
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Federal Republic bf
Germany.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place wherje
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Ur.ion. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States"
publicfinancesand is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Federal Republic of Germany wishes to be able to apply
different rules regarding the place of taxation and for that place to be regarded as that vvhere
the customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145. 13.6.1977. p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                    - 0-
 ---pagebreak---  Since the aim of the derogation requested is to alter the place o>f taxation and that same
 derogation is required by all the Member States, the Council's autl   authorization would have an
 effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
 can be made only in accordance with the Treaty ailes safeguarding the rights of the
 European Parliament and the Economic and Social Committee. Accordingly, the measure
 envisaged can be authorized only as an interim measure that meets the legitimate interests of
 the Member States, namely the need to combat tax avoidance, aid pending approval of a
 proposal for a directive amending the Sixth Directive, that would b ï presented to the Council
 at the same time. Similarly, the duration of the derogation must be limited to what is necessary
 for the adoption of Community legislation and its transposai into national law. A period of
 approximately two years would be sufficient in this regard, which would limit the validity of
 the derogation to 3 1 December 1998.
 As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a jdirective amending the
 Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.
It is therefore necessaiy, first of all, to restrict the effects of the; authorization to sei'vices
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liab e for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a lull deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications sei'vices
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                             is
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                       - H-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
   Authorizing the Federal Republic of Germany to apply a measure derogating from
   Article 9 of the Sixth Directive (77/388/EEC) 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member jState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         |
                                                                     i
Whereas, by registered letter to the Commission dated 6 December 1996, the Federal Republic
of Germany requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December! 1996 of the request made
by the Federal Republic of Germany;                                  |
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of y AT;
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                      -Jo
 ---pagebreak---                                                 Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC the Federal Republic of
Germany is hereby authorized to include, within Article 9 2)(e) of the Directive,
telecommunications services provided by suppliers not established in the Community to
customers established in the Community. In the case of a Member State making use of this
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these sei'vices.
Telecommunications sei'vices shall be deemed to be seivices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds of information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                                Article 2
The authorisation specified in this decision shall expire on 3 1 December 1998.
                                                Article 3                 :
This Decision is addressed to the Federal Republic of Germany.
Done at Brussels,
                                                                                      For the Council
                                                                                        The President
                                                          ~2\
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications services should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                       21
 ---pagebreak---                                 Proposal for a
                             COUNCIL DECISION
authorizing the Hellenic Republic to apply a measure derogating from Article 9
    of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
             laws of the Member Stales relating to turnover taxes
                         (presented by the Commission)
                                          -lb-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 2 September 1996, the
government of the Hellenic Republic requested authorization, under Article 27 of the
Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Hellenic Republic.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Hellenic Republic wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                               2l\-
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty 1*11 les safeguarding the rights of the
European Parliament and the Economic and Social Committee, Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 3 1 December 1998.
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well kjiown and that is therefore
easy to apply.
It is therefore necessaiy, first of all, to restrict the effects of the; authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.                                !
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to
non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications semces
provided by suppliers established outside the Community, it is essential to define the sei'vices
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure semces, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                     is
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort compétition. It is therefore preferable to distinguish betlween the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                                      i
                                                  - 2t
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
 Authorizing the Hellenic Republic to apply a measure derog:iting from Article 9 of the
  Sixth Directive (77/388/EEC) on the harmonization of the law s 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) jof 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, and in particular A(ticle 27 thereof,
                                                                     i
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 2 September 1996, the Hellenic
Republic requested authorization to introduce a measure derogating from Article 9 of
                                                                       r
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 996 of the request made
by the Hellenic Republic;
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                     - & -
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Hellenic Republic is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of thi^ facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity, for such transmission, emission or reception.
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998
                                              Article 3
This Decision is addressed to the Hellenic Republic.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                  - 2&
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.                                   I
                                                                      i
However, it is impossible to quantify this increase in own resources. !
                                               - 2°\
 ---pagebreak---                                  Proposal for a
                              COUNCIL DECISION
authorizing the Kingdom of Spain to apply a measure derogating from Article 9
     of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
              laws of the Member States relating to turnover taxes
                          (presented by the Commission)
                                           - 3o-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
 government of the Kingdom of Spain requested authorization, under Article 27 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 - common system of value added tax: uniform basis
 of assessment,1 to apply a measure derogating from Article 9 of that Directive.
 In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
 informed by letter dated 20 December 1996 of the request made by the Kingdom of Spain.
 That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
 According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Kingdom of Spain wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would bfc
fully achieved as regards telecommunications services.
         OJ No L 145. 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996. p. 89).
                                                 '   °^ >l -
 ---pagebreak---                                                                                         *,
Since the aim of the derogation requested is to alter the place if taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets! the legitimate interests of
the Member States, namely the need to combat tax avoidance, and pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.                                       j
                                                                           i
                                                                          j
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.
It is therefore necessary, first of all, to restrict the effects of the authorization to services
provided by a supplier established outside the Community, since only those sei'vices currently
escape taxation and lead to tax avoidance.                               i
                                                                          i
                                                                          I
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the seivice.                                    !
                                                                          I
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.                                                     (
                                                                          i
                                                                          I
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
                                                  »• • •                  I
                                                                          L
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications sei'vices. These
                                                  -2,2
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                - 33 ~
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
 Authorizing the Kingdom of Spain to apply a measure derogating from Article 9 of the
  Sixth Directive (77/388/EEC) 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, i
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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 December 1996, the Kingdom of
Spain requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;                                                ]
Whereas the other Member States were informed on 20 December 996 of the request made
by the Kingdom of Spain;
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,                                                            |
                                                                      i
HAS ADOPTED THIS DECISION:
                                                -&r
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of Spain is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of this facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception!.
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998
                                              Article
This Decision is addressed to the Kingdom of Spain.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                      2»^"
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                   -36'
 ---pagebreak---                                 Proposal for a
                             COUNCIL DECISION
authorizing the French Republic to apply a measure derogating from Article 9
    of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
             laws of the Member States relating to turnover taxes
                         (presented by the Commission)
                                      - 2>1-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the French Republic requested authorization, under Article 27 of the
 Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the French Republic.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.                                                                      *
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications service^
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the French Republic wishes to be able to apply different rules
regarding the place of taxation and for that place to be regarded as that where the customer
has established his business or has a fixed establishment for which the service is provided or,
failing that, the place where he has his permanent address or usually resides. In this way, the
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as
regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                    3s-
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. Hov/ever, such an amendment
can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal for a directive amending the Sixth Directive, that would bp presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessary to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.
It is therefore necessary, first of all, to restrict the effects of thej authorization to services
provided by a supplier established outside the Community, since only those services currently
                                                                         !
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and jnsurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
                               , .                                         i     .
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure sei'vices, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                     3iï-
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmiission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                    14.0
 ---pagebreak---                                            Proposal for a
                                     COUNCIL DECISION
  Authorizing the French Republic to apply a measure derogating from Article 9 of the
  Sixth Directive (77/388/EEC) on the harmonization of the lawjs 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) j 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, and in particular Article 27 thereof,
                                                                      i
Having regard to the proposal from the Commission,                   !
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member iState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 December 996, the French Republic
requested authorization to introduce a measure derogatin                   from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 1996 of the request made
by the French Republic;
Whereas the measure is necessary to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 j December 1998, in order
to allow the Council to adopt a general Community solution bjased on the Commission
proposal,                                                            !
FIAS ADOPTED THIS DECISION:                                          j
                                              - 4-1
 ---pagebreak---                                               Article
By way of derogation from Article 9(1) of Directive 77/388/EEC the French Republic is
hereby authorized to include, within Article 9(2)(e) of the Directive telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of thi$ facility, the provisions of
Article 9(3 )(b) of the Directive will also apply to these sei'vices.
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception^
                                              Article 2               j
The authorisation specified in this decision shall expire on 3 1 December 1998.
                                              Article 3
This Decision is addressed to the French Republic.
Done at Baissels,
                                                                                  For the Council
                                                                                    The President
                                                     cv2-
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in he place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                     M-3
 ---pagebreak---                             Proposal for a
                         COUNCIL DECISION
  authorizing Ireland to apply a measure derogating from Article 9
of the Sixth VAT Directive (77/388/EEC) on the han«ionization of the
         laws of the Member States relating to tin nover taxes
                     (presented by the Commission)
                                      LV^
 ---pagebreak---                              EXPLANATORY MEMORANDUM
 By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
 government of Ireland requested authorization, under Article 27 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 - common system of value added tax: uniform basis of assessment,1 to apply
 a measure derogating from Article 9 of that Directive.
 In accordance with Article 27(3) of the Sixth Directive, the other Member States were
 informed by letter dated 20 December 1996 of the request made by Ireland.
 That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
 According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
 established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
 consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, Ireland wishes to be able to apply different rules regarding the
place of taxation and for that place to be regarded as that where the customer has established
his business or has a fixed establishment for which the service is provided or, failing that, the
place where he has his permanent address or usually resides. In this way, the aim of VAT,
which is to tax all consumption within the Community, would be fully achieved as regards
telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                           4-^
 ---pagebreak---  Since the aim of the derogation requested is to alter the place of taxation and that same
 derogation is required by all the Member States, the Council's authorization would have an
 effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
 can be made only in accordance with the Treaty rules safeguarding the rights of the
 European Parliament and the Economic and Social Committee. Accordingly, the measure
 envisaged can be authorized only as an interim measure that meets the legitimate interests of
 the Member States, namely the need to combat tax avoidance, aid pending approval of a
 proposal for a directive amending the Sixth Directive, that would b i presented to the Council
 at the same time. Similarly, the duration of the derogation must be limited to what is necessary
 for the adoption of Community legislation and its transposai into national law. A period of
 approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
 As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a idirective amending the
 Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
 easy to apply.                                                            j
It is therefore necessaiy, first of all, to restrict the effects of thé authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to
non-taxable persons.                                                      :
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure sei'vices, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                       - Mr<o
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                      -   ^
 ---pagebreak---                                            Proposal for a
                                     COUNCIL DECISION
 Authorizing Ireland to apply a measure derogating from Article 9 of the Sixth Directive
     (77/388/EEC) on the harmonization of the laws of the Member States relating to
                                          turnover taxes
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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member jState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 December 1996, Ireland requested
authorization to introduce a measure derogating from Article 9 of Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 11996 of the request made
by Ireland;                                                          1
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order
to allow the Council to adopt a geneial Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                          H:% '
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, Ireland is hereby authorized
to include, within Article 9(2)(e) of the Directive, telecommunications services provided by
suppliers not established in the Community to customers established in the Community. In the
case of a Member State making use of this facility, the provisions of Article 9(3)(b) of the
Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, raclio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception^
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998.
                                              Article 3
This Decision is addressed to Ireland.
Done at Brussels,
                                                                                   For the Council
                                                                                     The President
                                                        - 4-1-
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in ihe place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                         SO    -
 ---pagebreak---                                 Proposal for a
                                                          !
                             COUNCIL DECISION            I
authorizing the Italian Republic to apply a measure derogating from Article 9
    of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
             laws of the Member States relating to turnover taxes
                         (presented by the Commission)
                                            - Si
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the Italian Republic requested authorization, under Article 27 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 - common system of value added tax: uniform basis
of assessment,1 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Italian Republic.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
publicfinancesand is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Italian Republic wishes to be able to apply different rules
regarding the place of taxation and for that place to be regarded as that where the customer
has established his business or has a fixed establishment for which the service is provided or,
failing that, the place where he has his permanent address or usually resides. In this way, the
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as
regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                 - SZ'
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty ailes safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal for a directive amending the Sixth Directive, that would hi presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 3 1 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a .directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.                                                            j
It is therefore necessaiy, first of all, to restrict the effects of the! authorization to services
provided by a supplier established outside the Community, since only those sei'vices currently
                                                                         !
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.
                                                                          i
However, it is not sufficient to provide a lax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to
non-taxable persons.                                                     !
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure sei'vices, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications sei'vices. These
                                                     53
 ---pagebreak--- other services can be supplied other than tlnough telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish betjween the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                   s*-
 ---pagebreak---                                            Proposal for a
                                     COUNCIL DECISION
  Authorizing the Italian Republic to apply a measure derogating from Article 9 of the
  Sixth Directive (77/388/EEC) 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, and in particular Article 27 thereof,
                                                                      i
Having regard to the proposal from the Commission,                   i
                                                                      |
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cbuncil, acting unanimously
on a proposal from the Commission, may authorize any Member (State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         i
Whereas, by registered letter to the Commission dated 6 December 996, the Italian Republic
requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December; 1996 of the request made
by the Italian Republic;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purbhase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 1 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                  - 5S-
 ---pagebreak---                                               Article
By way of derogation from Article 9(1) of Directive 77/388/EEC the Italian Republic is
hereby authorized to include, within Article 9(2)(e) of the Directive telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of this facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be services relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception[
                                              Article 2
The authorisation specified in this decision shall expire on 3 1 Decernber 1998.
                                              Article
This Decision is addressed to the Italian Republic.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                      SL'
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in he place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                        SV
 ---pagebreak---                                   Proposa! for a
                               COUNCIL DECISION
authorizing the Grand Duchy of Luxemburg to apply a measure derogating from
 Article 9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
               laws of the Member Stales relating to turnover taxes
                           (presented by the Commission)
                                                ss
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the Grand Duchy of Luxemburg requested authorization, under Article 27 of
the Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Grand Duchy of
Luxemburg.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Grand Duchy of Luxemburg wishes to be able to apply
different rules regarding the place of taxation and for that place to be regarded as that where
the customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                    ^ 5^
 ---pagebreak--- Since the aim of the derogation requested is to alter the place i f taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself However, such an amendment
can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, and pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a -directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.                                                                           .
It is therefore necessaiy, first of all, to restrict ihe effects of the! authorization to sei'vices
provided by a supplier established outside the Community, since onjy those services currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism mu$t be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.                                    !
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.
For the introduction of a specific rule governing the location of te ecommunications sei'vices
provided by suppliers established outside the Community, it is essential to define the sei'vices
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of services, such as advertising, information, recreational and
leisure sei'vices, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                     - Go -
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. \t is therefore preterable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                    -     <L\-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
    Authorizing the Grand Duchy of Luxemburg to apply a me; sure derogating from
  Article 9 of the Sixth Directive (77/388/EEC) 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,                   ;
Whereas, pursuant to Article 27(1) of Directive 77/38S/EEC, the Cbuncil, acting unanimously
on a proposal from the Commission, may authorize any Member (State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         '
Wliereas, by registered letter to the Commission dated 6 December 11996, the Grand Duchy of
Luxemburg requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 1996 of the request made
by the Grand Duchy of Luxemburg;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to pur:hase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order
to allow the Council to adopt a général Community solution based on the Commission
proposal,                                                             |
HAS ADOPTED THIS DECISION:                                           I
                                                     - CZ'
 ---pagebreak---                                                 Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Grand Duchy of
Luxemburg is hereby authorized to include, within Article 9(2)(e) of the Directive,
telecommunications services provided by suppliers not established in the Community to
customers established in the Community. In the case of a Member State making use of this
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                                Article 2
The authorisation specified in this decision shall expire on 3 1 December 1998.
                                                Article 3
This Decision is addressed to the Grand Duchy of Luxemburg.
Done at Brussels,
                                                                                      For the Council
                                                                                        The President
                                                        - 43
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, tliis proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in ihe place of taxation of
telecommunications services should provide better coverage of consumption of tliis type of
service within the European Union.
However, it is impossible to quantify this increase in own resources, j
                                                          (&<+
 ---pagebreak---                                      Proposal for a
                                  COUNCIL DECISION
authorizing the Kingdom of the Netherlands to apply a measure derogating from Article
        9 of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
                  laws of the Member States relating to turnover taxes
                              (presented by the Commission)
                                                  fcS-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
 By registered letter to the Commission's Secretariat-General dated 30 September 1996, the
 government of the Kingdom of the Netherlands requested authorization, under Article 27 of
 the Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
 In accordance with Article 27(3) of the Sixth Directive, the other Member States were
 informed by letter dated 20 December 1996 of the request made by the Kingdom of the
Netherlands.
 That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services
 According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment ifi
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Kingdom of the Netherlands wishes to be able to apply
different rules regarding the place of taxation and for that place to be regarded as that where
the customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                     - GG -
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well kiown and that is therefore
easy to apply.
It is therefore necessary, first of all; to restrict the effects of thej authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.                                     \
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a flill deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications services supplied to
non-taxable persons.                                                     I
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
                                                                           i
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications sei'vices. These
                                                    -  CT-
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                  - £&
 ---pagebreak---                                           Proposal for a
                                     COUNCIL DECISION
    Authorizing the Kingdom of the Netherlands to apply a measure derogating from
  Article 9 of the Sixth Directive (77/388/EEC) 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) jof 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member (State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         j
                                                                      I
Whereas, by registered letter to the Commission dated 30 September 1996, the Kingdom of
the Netherlands requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;                                                ;
Whereas the other Member States were informed on 20 December 996 of the request made
by the Kingdom of the Netherlands;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of y AT;
                                                                      i
Whereas it is desirable that the derogation should be granted until 3 I December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:                                           I
                                                  - G^
 ---pagebreak---                                                 Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Kingdom of the
Netherlands is hereby authorized to include, within Article 9(2)(e) of the Directive,
telecommunications sei'vices provided by suppliers not established in the Community to
customers established in the Community. In the case of a Member State making use of this
facility, the provisions of Article 9(3 )(b) of the Directive will also apply to these services.
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                                Article 2
The authorisation specified in this decision shall expire on 31 December 1998.
                                                Article 3
This Decision is addressed to the Kingdom of the Netherlands.
Done at Brussels,
                                                                                      For the Council
                                                                                        The President
                                                 - 3o-
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications sei'vices should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                            - =H~
 ---pagebreak---                                  Proposal for a
                              COUNCIL DECISION
authorizing the Republic of Austria to apply a measure derogating from Article 9
     of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
              laws of the Member States relating to turnover taxes
                          (presented by the Commission)
                                        =12-
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 September 1996, the
government of the Republic of Austria requested authorization, under Article 27 of the
Sbcth 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 to apply a measure derogatingfromArticle 9 of that Directive.
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Republic of Austria.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
                                                                                                  t
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without tfye
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Republic of Austria wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be,
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as hist amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996. p. 89).
                                               - 73-
 ---pagebreak---  Since the aim of the derogation requested is to alter the place of taxation and that same
 derogation is required by all the Member States, the Council's authorization would have an
 effect equivalent to an amendment of the Sixth Directive itself. Hoyever, such an amendment
 can be made only in accordance with the Treaty rules safeguarding the rights of the
 European Parliament and the Economic and Social Committee. Accordingly, the measure
 envisaged can be authorized only as an interim measure that meets the legitimate interests of
 the Member States, namely the need to combat tax avoidance, and pending approval of a
 proposal for a directive amending the Sixth Directive, that would be presented to the Council
 af the same time. Similarly, the duration of the derogation must be limited to what is necessary
 for the adoption of Community legislation and its transposai into national law. A period of
 approximately two years would be sufficient in this regard, which would limit the validity of
 the derogation to 31 December 1998.
 As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
 tax avoidance and, notwithstanding the proposal for a directive amending the
 Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
 easy to apply.
 It is therefore necessaiy, first of all, to restrict the effects of the! authorization to services
provided by a supplier established outside the Community, since only those services currently
 escape taxation and lead to tax avoidance.                                |
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liah e for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunications sei'vices supplied to
non-taxable persons.                                                      j
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
                                                                           !
Even though a growing number of services, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                    *v-
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                               - ^fs-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
 Authorizing the Republic of Austria to apply a measure deroga ing from Article 9 of the
  Sixth Directive (77/388/EEC) on the harmonization of the hilWS 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, and in particular Article 27 thereof,
                                                                      i
Having regard to the proposal from the Commission,                   I
                                                                      i
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Cbuncil, acting unanimously
on a proposal from the Commission, may authorize any Member iState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 September 1996, the Republic of
Austria requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;                                                ]
Whereas the other Member States were informed on 20 December 11996 of the request made
by the Republic of Austria;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order
to allow the Council to adopt a général Community solution biased on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                  TG>-
 ---pagebreak---                                               Article 1
By way of derogatiomfrom Article 9(1) of Directive 77/388/EEC, the Republic of Austria is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of thi^ facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these services.
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998
                                              Article 3
This Decision is addressed to the Republic of Austria.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                    TÏ
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, tliis proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications semces should provide better coverage of consumption of tliis type of
service within the European Union.
However, it is impossible to quantity this increase in own resources.
                                                  38-
 ---pagebreak---                                   Proposal for a
                               COUNCIL DECISION
authorizing the Portuguese Republic to apply a measure derogating from Article 9
      of the Sixth VAT Directive (77/388/EEC) on the harmpniz ation of the
               laws of the Member Stales relating to turnover taxes
                           (presented by the Commission)
                                              ^
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
 government of the Portuguese Republic requested authorization, under Article 27 of the
 Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
                                                                                                 • *
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Portuguese Republic.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications service^
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Portuguese Republic wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996. p. 89).
                                                  -So '
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty rules safegiarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, aid pending approval of a
proposal for a directive amending the Sixth Directive, that would b^ presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a 'directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well kpown and that is therefore
easy to apply.                                                            !
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services
provided by a supplier established outside the Community, since only those sei'vices currently
escape taxation and lead to tax avoidance.
                                                                           i
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number, of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be aclueved by applying the rules
 in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.                                    I
                                                                           i
However, it is not sufficient to provide a tax solution purely for services supplied to taxable
 persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
 Article 9(3)(b) must be made compulsory for télécommunications services supplied to
 non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications sei'vices
 provided by suppliers established outside the Community, it is essential to define the sei'vices
 covered. The best solution is to use a definition which is already well established at
 international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of sei'vices, such as advertising, information, recreational and
 leisure sei'vices, are currently supplied through telecommunications networks, it is not
 appropriate to include them in the definition of telecommunications services. These
                                                      €1-
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                               -82
 ---pagebreak---                                            Proposal foi- a
                                      COUNCIL DECISION
  Authorizing the Portuguese Republic to apply a measure derogating from Article 9 of
the Sixth Directive (77/388/EEC) 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,                   !
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member iState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 December 1996, the Portuguese
Republic requested authorization to introduce a measure derogating from Aiticle 9 of
Directive 77/388/EEC;                                                j
Whereas the other Member States were informed on 20 December: 1996 of the request made
by the Portuguese Republic;                                          j
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to pur:hase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order
to allow the Council to adopt a geneial Community solution based on the Commission
proposal,                                                             |
                                                                      i
                                                                      j
HAS ADOPTED THIS DECISION:                                           I
                                                - S3
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Portuguese Republic is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of this facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                              Article 2               j
The authorisation specified in this decision shall expire on 31 December 1998.
                                              Article 3
Tliis Decision is addressed to the Portuguese Republic.               ;
Done at Brussels,
                                                                       !
                                                                       i          For the Council
                                                                       i
                                                                       i
                                                                       i            The President
                                                - *Si\.
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, tliis proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in :he place of taxation of
telecommunications services should provide better coverage of consum ption of this type of
service within the European Union.
However, it is impossible to quantity this increase in own resources.
                                             - gs-
 ---pagebreak---                                  Proposal for a
                              COUNCIL DECISION
authorizing the Republic of Finland to apply a measure derogating from Article 9
     of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
              laws of the Member States relating to turnover taxes
                          (presented by the Commission)
                                           - s& -
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the Republic of Finland requested authorization, under Article 27 of the
Sbcth 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 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the Republic of Finland.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has hi^
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications seivices
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Republic of Finland wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. la
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145. 13.6.1977. p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996. p. 89).
                                                    - 8Ï
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty rules safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, and pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.                                       j
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well kpown and that is therefore
easy to apply.
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.                                j
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.                                     j
                                                                           i
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover sei'vices purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsory for telecommunicatipns services supplied to
non-taxable persons.                                                      j
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the sei'vices
covered. The best solution is to use a definition which is already well established at
 international level. Such a definition is provided by the Melbourne Convention.
Even though a growing number of sei'vices, such as advertising, information, recreational and
 leisure services, are currently supplied through telecommunications networks, it is not
 appropriate to include them in the definition of telecommunications sei'vices. These
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules wliich differ according to the mediLim of transmission used might well
distort competition. It is therefore preferable to distinguish betjween the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                        <
                                                  -       §°[-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
Authorizing the Republic of Finland to apply a measure derogating from Article 9 of the
  Sixth Directive (77/388/EEC) 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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
                                                                      I
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member iState to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         j
Whereas, by registered letter to the Commission dated 6 December 1996, the Republic of
Finland requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 996 of the request made
by the Republic of Finland;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,                                                            |
                                                                     i
HAS ADOPTED THIS DECISION:
                                                  - ^O -
 ---pagebreak---                                               Article 1
By way of derogation from Article 9(1) of Directive 77/388/EEC, the Republic of Finland is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of tliis facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications services shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception!.
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998
                                              Article 3
This Decision is addressed to the Republic of Finland.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                  -     ^ \ -
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in ihe place of taxation of
telecommunications sei'vices should provide better coverage of consumption of tliis type of
service within the European Union.                                    j
However, it is impossible to quantify this increase in own resources.
                                                 - 92-
 ---pagebreak---                                   Proposal for a
                               COUNCIL DECISION
authorizing the Kingdom of Sweden to apply a measure derogating from Article 9
      of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
               laws of the Member States relating to turnover taxes
                           (presented by the Commission)
                                              ^3
 ---pagebreak---                              EXPLANATORY MEMORANDUM
 By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
 government of the Kingdom of Sweden requested authorization, under Article 27 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 - common system of value added tax: uniform basis
 of assessment,1 to apply a measure derogating from Article 9 of that Directive.                   •
 In accordance with Article 27(3) of the Sbcth Directive, the other Member States were
 informed by letter dated 20 December 1996 of the request made by the Kingdom of Sweden.
 That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
 According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established his business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establishment, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without thje
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in this activity sector is simply one of tax avoidance.
In order to remedy this situation, the Kingdom of Sweden wishes to be able to apply different
rules regarding the place of taxation and for that place to be regarded as that where the
customer has established his business or has a fixed establishment for which the service is
provided or, failing that, the place where he has his permanent address or usually resides. In
this way, the aim of VAT, which is to tax all consumption within the Community, would be
fully achieved as regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                         *H
 ---pagebreak--- Since the aim of the derogation requested is to alter the place of taxation and that same
derogation is required by all the Member States, the Council's authorization would have an
effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
can be made only in accordance with the Treaty ailes safeguarding the rights of the
European Parliament and the Economic and Social Committee. Accordingly, the measure
envisaged can be authorized only as an interim measure that meets! the legitimate interests of
the Member States, namely the need to combat tax avoidance, and pending approval of a
proposal for a directive amending the Sixth Directive, that would be presented to the Council
at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
approximately two years would be sufficient in this regard, which would limit the validity of
the derogation
         'ol
                 to 31 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a directive amending the
Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.
It is therefore necessaiy, first of ail, to restrict the effects of the authorization to services
provided by a supplier established outside the Community, since only those services currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liable for payment of the tax is
the taxable recipient of the service.                     .               j
                                                                           I
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and jnsurance companies, and
would not cover sei'vices purchased by individuals. In order to fill tliis gap, application of
 Article 9(3)(b) must be made compulsory for telecommunications services supplied to
 non-taxable persons.
For the introduction of a specific rule governing the location of telecommunications services
 provided by suppliers established outside the Community, it is essential to define the services
 covered. The best solution is to use a definition which is already well established at
 international level. Such a definition is provided by the Melbourne Convention.
 Even though a srowinsi number of services, such as advertising, information, recreational and
 leisure services, are currently supplied through telecommunications networks, it is not
 appropriate to include them in the definition of telecommunications sei'vices. These
                                                         ^s
 ---pagebreak--- other services can be supplied other than through telecommunidations networks, and the
development of tax rules which differ according to the medium of transmission used might well
distort competition. It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                      e
                                                        \f0-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
  Authorizing the Kingdom of Sweden to apply a measure derogating from Article 9 of
the Sixth Directive (77/388/EEC) on the harmonization of the lajws of the Member States
                                    relating to turnover taxes
                                 (presented by the Commission)
THE COUNCIL OF THE EUROPEAN UNION,                                   j
Having regard to the Treaty establishing the European Community, j
                                                                      |
Having regard to the Sixth Council Directive (77/388/EEC) jof 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, and in particular Article 27 thereof,
                                                                      i
Having regard to the proposal from the Commission,                   !
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;         j
                                                                      I
Whereas, by registered letter to the Commission dated 6 December 1996, the Kingdom of
Sweden requested authorization to introduce a measure derogating from Ailicle 9 of
                                                                     !
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December1! 1996 of the request made
by the Kingdom of Sweden;                                            ;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
                                                                      j
Whereas it is desirable that the derogation should be granted until 3 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION.
                                                      9r\~
 ---pagebreak---                                               Article
By way of derogation from Ailicle 9(1) of Directive 77/388/EEC, the Kingdom of Sweden is
hereby authorized to include, within Article 9(2)(e) of the Directive, telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of tlii^ facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these services.
Telecommunications sei'vices shall be deemed to be services relhtin g to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception.
                                              Article 2
The authorisation specified in this decision shall expire on 31 December 1998.
                                              Article 3
This Decision is addressed to the Kingdom of Sweden.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                     - ^8-
 ---pagebreak---                                  FINANCIAL STATEMENT
Once adopted, this proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommujriications sei'vices should provide better coverage of consumption of this type of
service within the European Union.                                   I
However, it is impossible to quantify this increase in own resources.
                                                   - ^n
 ---pagebreak---                                 Proposal for a
                             COUNCIL DECISION
authorizing the United Kingdom to apply a measure derogating from Article 9
    of the Sixth VAT Directive (77/388/EEC) on the harmonization of the
             laws of the Member States relating to turnover taxes
                         (presented by the Commission)
                                         - lOO     -
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By registered letter to the Commission's Secretariat-General dated 6 December 1996, the
government of the United Kingdom requested authorization, under Article 27 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 - common system of value added tax: uniform basis
of assessment,1 to apply a measure derogating from Article 9 of that Directive.
In accordance with Article 27(3) of the Sixth Directive, the other Member States were
informed by letter dated 20 December 1996 of the request made by the United Kingdom.
That request involves a change to the rules governing the place of taxation of the supply of
telecommunications services.
According to the legislation in force (Article 9(1) of the Sixth Directive), the place where
telecommunications services are supplied is deemed to be the place where the supplier has
established hi?; business or has a fixed establishment from which the services are supplied or, in
the absence of such a place of business or fixed establisiunent, the place where he has his
permanent address or usually resides.
This rule poses problems regarding the effective taxation of telecommunications services
consumed within the Community. Its application means that telecommunications services
provided by a supplier established outside the European Union are outside the scope of the tax
even if those services are actually consumed within the Union. Community consumers are
increasingly turning to suppliers of services established outside the European Union in order to
avoid payment of VAT. The problem of the effective taxation of telecommunications services
arose following the development of technical means of providing such services without the
supplier needing to use a network belonging to him or another form of fixed establishment in
his customer's country. This development is leading to tax revenue losses for Member States'
public finances and is also undermining the competitiveness of European telecommunications
companies. The situation in tliis activity sector is simply one of tax avoidance.
In order to remedy this situation, the United Kingdom wishes to be able to apply different rules
regarding the place of taxation and for that place to be regarded as that where the customer
has established his business or has a fixed establishment for which the service is provided or,
failing that, the place where he has his permanent address or usually resides. In this way, the
aim of VAT, which is to tax all consumption within the Community, would be fully achieved as
regards telecommunications services.
         OJ No L 145, 13.6.1977, p. 1. Directive as last amended by Directive 96/95/EC (OJ No L 338,
         28.12.1996, p. 89).
                                                      \o[-
 ---pagebreak---  Since the aim of the derogation requested is to alter the place Of taxation and that same
 derogation is required by all the Member States, the Council's authorization would have an
 effect equivalent to an amendment of the Sixth Directive itself. However, such an amendment
 can be made only in accordance with the Treaty ailes safeguarding the rights of the
 European Parliament and the Economic and Social Committee. Accordingly, the measure
 envisaged can be authorized only as an interim measure that meets the legitimate interests of
the Member States, namely the need to combat tax avoidance, a id pending approval of a
 proposal for a directive amending the Sixth Directive, that would hi presented to the Council
 at the same time. Similarly, the duration of the derogation must be limited to what is necessary
for the adoption of Community legislation and its transposai into national law. A period of
 approximately two years would be sufficient in this regard, which would limit the validity of
the derogation to 31 December 1998.
As this is a safeguard measure, it is necessaiy to limit it to what is strictly needed for combating
tax avoidance and, notwithstanding the proposal for a [directive amending the
 Sixth VAT Directive, to use a tax mechanism that is already well known and that is therefore
easy to apply.                                                            !
                                                                           I
It is therefore necessaiy, first of all, to restrict the effects of the authorization to services
provided by a supplier established outside the Community, since only those sei'vices currently
escape taxation and lead to tax avoidance.
As regards the definition of the place of taxation, a mechanism must be chosen which creates
the least number of specific tax obligations for suppliers established outside the Community
and thus does not prejudge the tax arrangements to be adopted in connection with the
amendment of the Sixth Directive. These objectives can best be achieved by applying the rules
in Article 9(2)(e) of the Sixth Directive, under which the person liabi e for payment of the tax is
the taxable recipient of the service.
However, it is not sufficient to provide a tax solution purely for sei'vices supplied to taxable
persons. Such a solution would cover only the final consumption of taxable persons not
benefiting from a full deduction entitlement, notably banks and insurance companies, and
would not cover services purchased by individuals. In order to fill this gap, application of
Article 9(3)(b) must be made compulsoiy for telecommunications services supplied to
non-taxable persons.                                                     j
For the introduction of a specific rule governing the location of telecommunications services
provided by suppliers established outside the Community, it is essential to define the services
covered. The best solution is to use a definition which is already well established at
international level. Such a definition is provided by the Melbourne Convention.
                                                                          i
                                                                          i
Even though a growing number of servicer, such as advertising, information, recreational and
leisure services, are currently supplied through telecommunications networks, it is not
appropriate to include them in the definition of telecommunications services. These
                                                 -   Vol
 ---pagebreak--- other services can be supplied other than through telecommunications networks, and the
development of tax rules wliich differ according to the medium of transmission used might well
distort competition. ,It is therefore preferable to distinguish between the transmission of
messages and their content.
This proposal for a Council decision is identical to the proposals presented by the Commission
to the Council on the same date in respect of the fourteen other Member States.
                                                - I03-
 ---pagebreak---                                            Proposal for a
                                      COUNCIL DECISION
  Authorizing the United Kingdom to apply a measure derog;iitihg from Article 9 of the
  Sixth Directive (77/388/EEC) on the harmonization of the hiws 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, j
                                                                     i
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, and in particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously
on a proposal from the Commission, may authorize any Member State to introduce special
measures for derogation from that Directive in order to simplify the procedure for charging the
tax or to prevent certain types of tax evasion or avoidance;
Whereas, by registered letter to the Commission dated 6 December 1996, the United Kingdom
requested authorization to introduce a measure derogating from Article 9 of
Directive 77/388/EEC;
Whereas the other Member States were informed on 20 December 996 of the request made
by the United Kingdom;
Whereas the measure is necessaiy to counter the tax avoidance effects that have led a growing
number of Community taxable and non-taxable persons to purchase telecommunications
services outside the Community solely in order to avoid payment of VAT;
Whereas it is desirable that the derogation should be granted until 31 December 1998, in order
to allow the Council to adopt a general Community solution based on the Commission
proposal,
HAS ADOPTED THIS DECISION:
                                                  -   VOi^
 ---pagebreak---                                               Article
By way of derogation from Article 9(1) of Directive 77/388/EEC! the United Kingdom is
hereby authorized to include, within Article 9(2)(e) of the Directive telecommunications
services provided by suppliers not established in the Community to customers established in
the Community. In the case of a Member State making use of thi$ facility, the provisions of
Article 9(3)(b) of the Directive will also apply to these sei'vices.
Telecommunications sei'vices shall be deemed to be sei'vices relating to the transmission,
emission or reception of signs, signals, writing, images and sounds or information of any nature
by wire, radio, optical or other electromagnetic systems, including the transfer or assignment of
the right to use capacity for such transmission, emission or reception
                                              Article 2               ;
The authorisation specified in this decision shall expire on 31 December 1998.
                                              Article 3               !
This Decision is addressed to the United Kiimdom.
Done at Brussels,
                                                                                  For the Council
                                                                                    The President
                                                      io^> -
 ---pagebreak---                                 FINANCIAL STATEMENT
Once adopted, tliis proposal for a Council decision will have the effect of increasing the
Community's VAT own resources base since the change in the place of taxation of
telecommunications services should provide better coverage of consumption of this type of
service within the European Union.
However, it is impossible to quantify this increase in own resources.
                                                 - VOCo
 ---pagebreak---                                                                    ISSN 0254-1475
                                                             COM(97) 42 final
                                             DOCUMENTS
EN                                                                   09 06 10
                                    Catalogue number : CB-CO-97-038-EN-C
                                                              ISBN 92-78-15521-7
Office for Official Publications of the European Communities
L-2985 Luxembourg