CELEX: 51992PC0184
Language: en
Date: 1992-05-07
Title: Proposal for a COUNCIL DECISION authorizing the Netherlands to apply a measure derogating from Article 21 (1) (a) of the Sixth Directive (77/388/EEC) on the harmonization of the laws of the Member States relating to turnover taxes

COMMISSION OP THE EUROPEAN COMMUNITIES
1                                                 C0M(92) 184 final
1                                                 Brussels, 7 May 1992
I
                                 Proposal for a
                                COUNCIL DECISION
      authorizing the Netherlands to apply a measure derogating from
       Article 2 K D ( a ) 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)
 ---pagebreak---                           EXPLANATORY MEMORANDUM
1. By letter officially received on 11 February 1992 the
   Netherlands Government submitted to the Commission a request for a
   derogation pursuant to Article 27 of the sixth VAT Directive,1 to
   enable it to$ntroduce a scheme to combat evasion of VAT In the ready-
   to-wear clothing Industry.    The scheme would be part of a package of
   measures concerning taxes and social security contributions, designed
   to combat VAT fraud in that Industry.    The intention Is to extend to
   the ready-to-wear clothing industry the tax-shiftIng scheme whereby
    liability for the payment of VAT is shifted from subcontractors to
   contractors; the Council approved the Introduction of such a scheme In
   the building, structural steelwork and shipbuilding industries by
   decision of 20 June 1982.2
2.  In support of its request, the Netherlands Government points out that
    large stores often purchase clothes from ready-to-wear clothing firms,
   which themselves manufacture the clothes.    However, these firms
   frequently put the work out, as contractors, to small ready-to-wear
   workshops (the subcontractors).
   The fraud takes place in the relationship between the workshop and the
   firm.   The former charges the latter VAT, but does not pay it over to
   the tax authorities, while the latter deducts it.
1  0J No L 145, 13.6.1977.
2  OJ No C 197, 31.7.1982.
 ---pagebreak---    The Netherlands Government argues that this type of evasion, which Is
   now very frequent In the ready-to-wear clothing industry, is difficult
   to combat under the current system of collecting VAT.   Ready-to-wear
   workshops are generally small firms which Just own their machinery and
   are established in rented business premises or In residential
   property.   The statutory provisions concerning social security
   contributions, taxation and working conditions are often disregarded.
   Many of these workshops change hands frequently. Under the
   circumstances, if fraud Is discovered, the tax authorities have little
   chance of recovering the tax.   The Netherlands Government takes the
   view that this fraud can be conclusively defeated only by applying the
   tax-shifting scheme to this Industry as well.
3. Under the tax-shifting scheme, the VAT normally payable by the
   subcontractor by virtue of Article 21(1)(a) of the Sixth VAT Directive
    Is collected from the contractor.
    In the building, structural steelwork and shipbuilding industries, the
   authorized tax-shifting scheme Is applied only when the subcontracted
   work is carried out away from the subcontractor's place of business.
   However, when operating the scheme in the ready-to-wear clothing
    industry, the Netherlands Government wishes to Include contract work
   carried out on the subcontractor's business premises. The
    Justification given Is that In the ready-to-wear clothing Industry the
   tax authorities have less chance of recovering VAT than in the other
   sectors, for the reasons given In point 2 above.
 ---pagebreak---                               - 3 -
The Netherlands authorities consider that the scheme does not result
In a reduction in the amount of VAT payable at the final consumption
stage or In the basis of assessment for VAT own resources.
The authorization will remain In force until 31 December 1996; before
that date, the Commission Is to report to the CounciI on the
application of the authorization.
In accordance with Article 27(3) of the Sixth VAT Directive, the other
Member States were Informed by letter dated 10 March 1992 of the
Netherlands' request.
 ---pagebreak---                                     _ 4 -
                               Proposal for a
                              COUNCIL DECISION
       authorizing the Netherlands to apply a measure derogating from
        Article 21(1)(a) 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 COMMUNITIES,
Having regard to the Treaty establishing the European Economic Community,
Having regard to the Sixth Council Directive (77/388/EEC) on the
harmonization of the laws of the Member States relating to turnover taxes -
Common system of value added tax: uniform basis of assessment,1 and in
particular Article 27 thereof,
Having regard to the proposal from the Commission,
Whereas, under Article 27(1) of the Sixth Directive, 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 the Netherlands, by letter received by the Commission on
11 February 1992, requested authorization to Introduce In the ready-to-wear
clothJng industry a special measure for derogation from Article 2 K D ( a ) of
the Sixth Directive;
     OJ No L 145, 13.6.1977, p. 1.
 ---pagebreak---                                     - 5 -
Whereas the purpose of the measure Is to combat fraud occurring in the
relationship between ready-to-wear clothing firms worklr.y for large stores
on the one hand, and small workshops (subcontractors) to which those firms
have put the work out on the other; whereas this type of fraud, which
consists In the subcontractor  Invoicing VAT to the contractor but not
paying it over to the tax authorities, while the contractor deducts the
tax, is difficult to combat under the present system of collecting VAT;
Whereas the scheme planned by the Netherlands Involves, In the
ready-to-wear clothing industry, collecting from the contractor the VAT
normally due from the subcontractor under Article 21 of the Sixth VAT
Direct ive;
Whereas the derogation will not have a negative effect on the
European Community's own resources accruing from value added tax;
Whereas the scheme will be temporary, which will permit an assessment of
the effects of the derogation after a period of application;
Whereas the Commission will present a report to the Council before
31 December 1996 on the application of this authorization, accompanied,
where appropriate, by a proposal for a Decision to extend the said
author izat ion;
Whereas the other Member States were informed of the Netherlands' request
on 10 March 1992;
HAS ADOPTED THIS DECISION:
 ---pagebreak---                                    - 6 -
                                 Article 1
By way of derogation from Article 21(1)(a) of the Sixth Directive,
the Netherlands is hereby authorized to apply until 31 December 1996 in the
ready-to-wear clothing industry a scheme for shifting the obligation to pay
over VAT to the tax authorities from the subcontractor to the clothing firm
(the contractor).
                                 Article 2
In the light of a report from the Commission on the application of the
authorization referred to In Article 1, accompanied, where appropriate, by
a proposal for a Decision extending the said authorization, the Council,
acting on the basis of that proposal, shall decide, before
31 December 1996, whether the said authorization is to be extended.
                                 Article 3
This decision is addressed to the Netherlands.
 ---pagebreak---  ---pagebreak---                                                                      T
                                                                      SSN 0254-1475
                                       ~ -r•—
                                                               COM(92)184fine:
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                                 Catalogue number: CB-CO-92-201-EN-C
                                                             ISBN 92-77-43898-3
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