CELEX: 51997PC0215
Language: en
Date: 1997-05-14
Title: Proposal for a Council Decision authorizing the French Republic to extend the application of measures derogating from Article 17 and Article 22(3), (4) and (5) of the sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes

COMMISSION OF THE EUROPEAN COMMUNITIES
                                              Brussels, 14.05.1997
                                              COM(97) 215 final
                   COMMISSION REPORT TO THE COUNCIL
                      presented in accordance with Article 2 of
                Council Decision 92/544/EEC of 23 November 1992
(application of measures derogating from Article 17 and Article 22(3), (4) and (5)
              of the Sixth Directive 77/388/EEC on the harmonization
                      of the laws of the Member States relating
                                  to turnover taxes)
                                    Proposal for a
                               COUNCIL DECISION
                    authorizing the French Republic to extend the
 application of measures derogating from Article 17 and Article 22(3), (4) and (5)
           of the Sixth Council Directive (77/388/EEC) of 17 May 1977
                       on the harmonization of the laws of the
                      Member States relating to turnover taxes
                           (presented by the Commission)
 ---pagebreak---  ---pagebreak---                 COMMISSION REPORT TO THE COUNCIL
                   presented in accordance with Article 2 of
             Council Decision 92/544/EEC of 23 November 1992
(application of measures derogating from Article 17 and Article 22(3), (4), (5)
           of the Sixth Directive 77/388/EEC on the harmonization
                       of the laws of the Member States
                           relating to turnover taxes)
 ---pagebreak---                                       I. INTRODUCTION
By Decision 92/544/EEC of 23 November 1992,1 the Council authorized France, on the
basis of Article 27 of the Sixth Directive, to take special measures derogating from
Article 17 and Article 22(3), (4) and (5) of that Directive. The authorization was valid
until 31 December 1996.
This derogation allowed a special scheme to be applied the purpose of which was to
reduce the obligations of authors who receive royalties paid by publishers, royalty
collection and distribution companies or producers.
The special scheme involves withholding at source the tax payable by authors and the
calculation of deductible input tax on a flat-rate basis.
Article 2 of the said Decision lays down that the Commission should present to the
Council a report on its application accompanied, where appropriate, by a proposal for a
Decision extending its validity.
The purpose of this report is to give an account of the application of this derogation and
to examine the request for an extension submitted by France by letter registered by the
Commission's Secretariat-General on 14 February 1997.
                        II. APPLICATION OF THE DEROGATION
 1.       Historical background to the derogation
 Up to I October 1991, France made use of the option provided for in Article 28(3)(b) of
 the Sixth Directive to continue exempting the services of authors, artists and performers
 from VAT (Annex F, point 2 of the said Directive).
 Out of a concern to bring its legislation into line with the general rules of the common
 system of VAT, France made the services of authors and performers subject to VAT with
 effect from 1 October 1991.
 However, application of the Community rules governing the collection of tax proved
 difficult, in particular as far as authors were concerned.
 This was because the persons concerned made it known that application of the tax in their
  respect did not procure any revenue to the Treasury because the tax was always
  deductible by publishers, producers, etc., and that the only purpose of the new
  administrative obligations imposed on them would, in the absence of any revenue, be the
  formal one of bringing the rules into line with Community legislation.
      OJ No L 351. 2.12.1992. p. 32.
                                                   J3
 ---pagebreak--- In order to make tax liability more acceptable to authors, France introduced the special
scheme in question.
2.       Essential characteristics of the scheme
Under the scheme, the tax payable by authors is charged by being withheld at source
where royalties are paid by publishers, royalty collection and distribution companies or
producers. In other words, it does not apply unless the payer is a taxable person identified
by the tax authorities.
Authors' deductible input tax is calculated by applying a 0.80% flat rate to their royalties.
The amount determined in this way is exclusive of any other deduction.
An enterprise paying royalties to an author must pay to the Treasury the VAT due on
royalties minus the VAT deductible from that amount calculated on the basis of this flat
rate.
For transactions carried out under this scheme, authors are exempted from the obligation
to issue an invoice, submit a return and pay the tax.
Finally, any author may waive his inclusion in the scheme by opting for application of
VAT in accordance with the general rules.
3.       Opinion of the French administration on the application of the scheme
The French authorities consider that the scheme offers the best guarantees for the proper
charging of VAT owed by persons who can be expected to know little about the
formalities relating to turnover taxes (musicians, writers, composers, etc.).
 In addition, the scheme has the massive support of authors since only 5% of them have
 expressed a wish to be excluded from it by exercising the option referred to above.
 Finally, the French authorities note that the tax authorities have observed no anomaly in
 the scheme's application.
                           HI. OPINION OF THE COMMISSION
 Article 27 of the Sixth Directive permits special measures derogating from it to be
 introduced either to simplify the procedure for charging the tax or to prevent certain types
 of tax evasion or avoidance.
 The Commission takes the view that the scheme in question allows administrative
 obligations to be reduced in a very specific sector and that, consequently, it meets the
 criterion of simplification of the procedure for charging the tax laid down by Article 27.
                                             M
 ---pagebreak--- Moreover, the possibility which authors have of opting for taxation in accordance with the
general rules allows them to exercise fully their right to deduction where they consider
that the flat-rate deduction provided for under the special scheme is not appropriate to
their specific situation.
The Commission therefore considers that it would be justified to extend application of the
special scheme on the basis of Article 27 of the Sixth Directive.
As regards the period of validity of the authorization, the Commission's would point out
that, on 10 July 1996, it adopted a work programme2 for the introduction of a common
VAT system which provides for step-by-step progress towards the new system.
As the final package of proposals is scheduled for presentation in mid-1999, the
Commission takes the view that no derogation should be extended beyond 31 December
 1999
It would seem appropriate to assess then whether the derogation is consistent with the
approach adopted under the new common system of VAT.
 2
     C O M ( 9 6 ) 32X Final. 22.07.1996.
                                                S
 ---pagebreak---                                   Proposal for a
                              COUNCIL DECISION
                  authorizing the French Republic to extend the
application of measures derogating from Article 17 and Article 22(3), (4) and (5)
          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
 ---pagebreak---                              EXPLANATORY MEMORANDUM
By letter registered with the Commission's Secretariat-General on 14 February 1997, the
French Government submitted a request for an extension of the derogation authorized by
Council Decision 92/544/EEC of 23 November 1992.1
Article 2 of the above-mentioned Decision states that, in the light of a Commission report
on France's application of the derogation, the Council may, on the basis of a Commission
proposal, authorize the extension of that Decision.
The Commission's report on the application of the Decision concludes that it is
appropriate for the application of its provisions to be extended until 31 December 1999.
On 10 July 1996 the Commission adopted a work programme for the introduction of a
common VAT system2 which provides for step-by-step progress towards the new system.
As the final package of proposals is scheduled for presentation in mid-1999, it would
seem appropriate not to extend the period of validity beyond 31 December 1999 so as to
enable an assessment to be made at that time of the derogation's consistency with the
overall approach adopted under the new common system of VAT.
In accordance with Article 27(3) of the Sixth VAT Directive, the other Member States
have been informed by letter of 13 March 1997 of the French request.
 1
    O I N o L 35J, 2.12.1992, p. 32.
2
    COM(96) 328 final, 22.07.1996.
                                                3
 ---pagebreak---                                    -•"•"Proposal for a
                                   COUNCIL DECISION
                       authorizing the French Republic to extend the
   application of measures derogating from Article 17 and Article 22(3), (4) and (5)
              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
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community,
Having regard to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the
harmonization of the laws of the Member States relating to turnover taxes - Common
system of value added tax: uniform basis of assessment,1 and in particular Article 27
thereof,
Having regard to the previous Council Decision 92/544/EEC of 23 November 1992,2
Having regard to the Commission report on the application of the above-mentioned
Decision,
Having regard to the Commission proposal arising from that report,
Whereas, under Article 27(1) of the Sixth VAT Directive, the Council, acting
unanimously on a proposal from the Commission, may authorize any Member State to
introduce or extend special measures derogating from that Directive in order to simplify
the procedure for charging tax or to prevent certain types of tax evasion or avoidance;
Whereas, by letter registered by the Secretariat-General of the Commission on
 14 February 1997, the French Government requested authorization to extend the
application of the derogation previously granted to it for a limited period by
Council Decision 92/544/EEC;
Whereas the other Member States were informed on 13 March 1997 of the request for an
extension submitted by the French Government;
 1
     OJ No L 145. 13.06.1977. p. 1; Directive last amended by Directive 96/95/EC (OJ No L 338,
     28.12.1996. p. 89).
 2
     OJ No L 351. 2.12.1992. p. 32
                                              8
 ---pagebreak--- Whereas the Commission's report on the application of the derogation indicates that the
special measures meet the conditions for application of Article 27 of the said Directive;
Whereas the Commission adopted on 10 July 1996 a work programme' and a timetable of
proposals providing for gradual, step-by-step progress towards a common VAT system
for the single market;
Whereas, as presentation of the final package of proposals is scheduled for mid-1999, the
authorization is to be granted until 31 December 1999 so as to enable an assessment to be
made at that time of the derogation's consistency with the overall approach of the new
common system of VAT;
Whereas this derogation will not have any effects on the European Communities' own
resources accruing from VAT,
HAS ADOPTED THIS DECISION:
     COM(96) 328 final. 22.07.1996.
 ---pagebreak---                                         Article I
By way of derogation from Article 17 and Article 22(3), (4) and (5) of Directive
77/388/EEC, the French Republic is hereby authorized, until 31 December 1999,
- to apply arrangements for withholding at source the tax payable by authors where the
   royalties they receive are paid by publishers, royalty collection and distribution
   companies or producers,
- to calculate authors' deductible input tax by applying a flat rate of 0,80 % to their
   royalties. The amount determined in this way shall be exclusive of any other deduction.
                                        Article 2
This Decision is addressed to the French Republic.
Done at Brussels,
                                                                           For the Council
                                                                             The President
                                                   A<$
 ---pagebreak---                                                                   ISSN 0254-1475
                                                           COM(97) 215 final
                                              DOCUMENTS
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