Explanatory Memorandum to COM(2012)356 - Authorisation of Hungary to derogate from Article 193 of the VAT Directive - Main contents
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| dossier | COM(2012)356 - Authorisation of Hungary to derogate from Article 193 of the VAT Directive. |
|---|---|
| source | COM(2012)356  |
| date | 29-06-2012 |
Pursuant to Article 395 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax[1] (hereafter: VAT Directive), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation 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 with the Commission on 3 February 2012, Hungary requested, for a period of 2 years, to be authorised to introduce a measure derogating from Article 193 of the VAT Directive in order to designate the taxable recipient of supplies of wheat and meslin, rye, barley, oats, maize, triticale, soya beans, rape or colza seeds and sunflower seeds as the person liable to pay VAT to the tax authorities instead of the supplier (the so-called reverse charge).
In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 26 April 2012 of the request made by Hungary. By letter dated 2 May 2012, the Commission notified Hungary that it had all the information necessary for appraisal of the request.
Hungary explained that it has been confronted with several types of tax evasion which, in essence, involves the invoicing of supplies followed by the disappearance of the supplier without paying tax to the tax authorities but leaving the taxable customer in receipt of a valid invoice in respect of which he can claim a tax deduction. Evasion schemes have been discovered at national level as well as in relation to Intra-Community trade.
On the basis of information provided by Hungary, about 20% of all VAT deducted or reclaimed as regards the above-mentioned agricultural products would be of a fraudulent nature and, calculated at year 2010 prices, result in an estimated VAT loss for the Treasury of HUF 13,5 billion.
In reaction, Hungary would like to apply a reverse charge procedure, thus eliminating the possible fraud insofar as, in the absence of VAT being charged, the potential missing trader would not be able to keep the VAT received from his customer. The taxable recipient, insofar as being a taxable person with a full right of deduction, would declare and deduct the VAT in the same VAT return. This would have the effect of instantly preventing further significant revenue losses.
At the same time, Hungary should establish appropriate control measures and reporting obligations for taxable persons who are engaged in supplies of agricultural products to which the derogation applies in order to ensure the proper functioning of the measure and to prevent a shift of evasion to other stages (e.g. when the raw products are processed), agricultural products or sectors. The Commission should be notified of these measures.
During the 2-years application period of the measure, Hungary will be able to introduce conventional and more definitive control measures that are compatible with the VAT Directive and designed to combat this type of VAT evasion after expiry of the authorisation. In fact, Hungary has committed itself not to seek renewal of the measure.
The goods targeted by the derogating measure should be determined as accurately as possible as to avoid legal uncertainty and, therefore, the combined nomenclature laid down in Council Regulation (EEC) No 2658/87 should be used. The measure will only apply to unprocessed goods, which are normally not used in unaltered state for final consumption.
Contents
There was no need for consultation or external expertise.
The Decision proposal aims at combating VAT evasion in the agricultural market in Hungary and has therefore a potential positive impact.
Because of the narrow scope of the derogation, and its limited application in time, the impact will in any case be limited.
The Decision authorises Hungary to apply a derogating measure from the VAT Directive as regards the shifting of the VAT liability from the supplier to the taxable customer in relation to certain supplies of agricultural products.
This Decision is based on Article 395 of the VAT Directive.
The proposal falls under the exclusive competence of the EU. The subsidiarity principle therefore does not apply.
This Decision concerns an authorisation granted to a Member State upon its own request and does not constitute any obligation.
Given the strict limitation in time and scope, the special measure appears to be proportionate to the aim pursued.
Under Article 395 of the VAT Directive, derogation from the common VAT rules is only possible on the authority of the Council acting unanimously on a proposal from the Commission. A Council Decision is the only suitable instrument since it can be addressed to an individual Member State.
The proposal has no implications for the Union budget.
5. ADDITIONAL INFORMATION
The proposal includes a sunset clause.