Explanatory Memorandum to COM(2011)235 - Authorisation of Romania to derogate from Article 193 of the VAT Directive - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2011)235 - Authorisation of Romania to derogate from Article 193 of the VAT Directive. |
|---|---|
| source | COM(2011)235  |
| date | 04-05-2011 |
Article 395 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘VAT Directive’) provides that the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures derogating from the provisions of that Directive in order to simplify the procedure for collecting value added tax (VAT) or to prevent certain forms of tax evasion or avoidance.
By letter registered at the Commission on 4 November 2009 Romania requested authorisation to introduce a special measure derogating from Article 193 of the VAT Directive in order to designate the taxable recipients of supplies of wheat, rye, barley, maize, soya, rapeseed and sunflower seed as the persons liable to pay VAT instead of the suppliers.
By letter registered at the Commission on 2 July 2010 Romania requested a further derogation to extend the scope of the measure to other products.
By letter registered at the Commission on 26 July 2010 Romania sought authorisation for a period of two years, and undertook not to request its extension.
By letter registered at the Commission on 20 December 2010 Romania again confined its derogation request to wheat, rye, barley and barley for malting, maize, soya, rapeseed, sunflower seed, and sugar beet.
In accordance with Article 395 i of the VAT Directive, the Commission notified the other Member States of Romania's requests by letter of 15 March 2011. By letter of 22 March 2011, the Commission notified Romania that it had all the information it considered necessary for appraisal of the requests.
In support of its request, Romania explained that it had found cases of tax evasion in the trade in certain cereals and oilseeds, usually carried out by setting up fly-by-night businesses. These businesses buy goods, without payment of VAT, either from suppliers outside Romania - and so their supplies are exempt under Article 138 of the VAT Directive - or from local producers covered by the tax exemption scheme for small enterprises provided for in Article 287 of the Directive, or do not declare their sales.
They then supply these goods to customers in Romania – wholesalers, exporters and processors – and invoice the VAT but disappear after delivery of the goods without paying the tax to the Treasury.
Their customers, however, are entitled to deduct the VAT as they are in possession of a valid invoice.
The special measure that is the subject of this proposal would make the customer the taxable person liable to the tax instead of the supplier, while still allowing the customer to deduct the tax in accordance with the ordinary rules. In this way the supplier would no longer be able to collect the VAT from its taxable customer without paying it back to the Treasury. Such a measure would put an immediate stop to this particular type of tax evasion.
During its application Romania would be able to introduce conventional anti-fraud measures that are compatible with the VAT Directive and designed to combat this type of VAT evasion after expiry of the authorisation.
This is nevertheless a radical measure that goes against the fractionated-payment principle of the VAT system and so carries the risk that evasion will shift to the stage when the raw materials are processed into industrial or food products, or to other sectors.
To forestall such risks Romania should, after a short application period, introduce appropriate declaration and control measures to run concurrently. The taxable persons covered by the measure will be required, in particular, to verify the taxable status of their customers before applying the measure, make separate reference to these operations in their VAT returns, and keep a list of customers for which the measure was applied at the disposal of the Romanian administration.
The Romanian authorities must also tighten up controls on taxable persons engaged in processing these products as, once they no longer incur VAT on their purchases of raw materials, they might be tempted not to declare the sales of their processed products.
Lastly, the Romanian authorities must ensure that the persons involved in the cases of evasion relating to the products covered by the special measure do not transfer their fraudulent activities to other agricultural products or other sectors of the economy.
The Commission must be notified of the measures adopted.
The taxable persons who, among other similar transactions involving agricultural products, are engaged in supplying the goods in question, together with the persons to whom these supplies are made, should be allowed to apply the special measure without incurring disproportionate administrative costs or running any risk as to legal certainty. The measure should apply only to unprocessed products, which are not normally used in the unaltered state for final consumption.
The goods targeted by the special measure can be determined accurately, avoiding any ambiguity, by using the combined nomenclature laid down in Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff.
Bearing in mind the provisions of Article 395 of the VAT Directive, the arguments put forward by Romania and the context in which the proposed special measure will be applied, the Commission believes that the derogation requested meets the conditions laid down in that article and, in particular, that it helps to prevent tax fraud, without affecting the amount of tax revenue collected at the stage of final consumption. Consequently, the Commission believes it must present the corresponding proposal to the Council.
Contents
The proposed decision concerns implementation of a measure to prevent tax fraud in connection with a number of products of a specific economic sector. It will therefore have a beneficial impact, particularly for honest taxable persons operating in that sector and for the Member State in question. There was no need to consult external experts or interested parties or to assess the impact of this decision. The impact will in any case be limited because of the narrow scope and limited period of application of the derogation.
The purpose of the proposed decision is to allow Romania to apply a special measure derogating from Article 193 of the VAT Directive for the purpose of shifting VAT liability away from the supplier to the taxable recipient of supplies of certain agricultural products on which VAT is due and the taxable amount of which is over a given threshold.
The legal basis of this decision is Article 395 of the VAT Directive, which was adopted pursuant to Article 113 of the Treaty on the Functioning of the European Union. Under this article, a Member State wishing to apply special measures derogating from the Directive must obtain an authorisation from the Council, which will take the form of a Council Implementing Decision. Since it is an implementing measure involving the harmonisation of legislation on turnover taxes, the principle of subsidiarity has been adhered to.
The proposal complies with the principle of proportionality and therefore does not go beyond what is necessary to achieve the objective of preventing tax fraud because it involves only a part of a specific, limited economic sector and a small number of taxable persons and transactions. Accordingly, it derogates from the principles of the VAT Directive, in particular the principle of fractionated payments, only to a limited and appropriate extent.
The proposal has no implications for the Union budget.