EU, authorising Austria to continue to derogate from Articles 168 and 168a of the VAT Directive - Main contents

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dossier	COM(2018)539 - Amendment of Implementing Decision 2009/1013/EU, authorising Austria to continue to derogate from Articles 168 and 168a of ...
source	COM(2018)539
date	18-07-2018

1. CONTEXT OF THE PROPOSAL

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ("the VAT Directive ¹ "), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures derogating from the provisions of this Directive, in order to simplify the procedure for charging VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 23 March 2018, Austria requested an authorisation to continue to apply a measure derogating from Articles 168 and 168a of Directive 2006/112/EC, in order to exclude from the right of deduction the VAT borne on goods and services which are used for more than 90 % by the taxable person for his private use or for that of his employees, or in general, for non-business purposes or non-economic activities. By letter registered with the Commission on 4 April 2018, Austria sent a report on the application of this measure including a review of the apportionment rate applied on the right to deduct VAT as required by Article 2 of Implementing Decision 2009/1013/EU ² as amended by Council Implementing Decision (EU) 2015/2428 ³ .

In accordance with Article 395(2) of Directive 2006/112/EC, the Commission informed the other Member States by letters dated 11 April 2018 of the request made by Austria. The Commission notified Austria by letter dated 12 April 2018 that it had all the information necessary to consider the request.

General context

Article 168 of Directive 2006/112/EC provides that a taxable person is entitled to deduct the VAT charged on purchases made and services received for the purpose of his taxed transactions. Article 168a(1) of Directive 2006/112/EC provides that the VAT on expenditure related to immovable property forming part of the business assets of a taxable person and used both for business and non-business purposes shall be deductible only up to the proportion of the property's use for purposes of the taxable person's business. Pursuant to Article 168a(2) of Directive 2006/112/EC Member States may also apply this rule in relation to expenditure related to other goods forming part of the business assets as they specify.

The measure pursued by Austria deviates from those principles and entirely excludes from the right of deduction the VAT borne on goods and services that are used by a taxable person for more than 90% for private or non-business purposes, including non-economic activities.

The derogating measure for Austria had initially been granted by Council Decision 2004/866/EC of 13 December 2004 ⁴ for a period until 31 December 2009 and was again granted by Council Implementing Decision 2009/1013/EU of 22 December 2009 ⁵ until 31 December 2012 and by Council Implementing Decision 2012/705/EU of 13 November 2012 until 31 December 2015 ⁶ and by Council Implementing Decision (EU) 2015/2428 of 10 December 2015 until 31 December 2018 ⁷ .

In its current request, Austria informed the Commission that it has been applying this special measure successfully until now, indicating that the measure is very useful in terms of simplifying VAT collection and preventing tax evasion and avoidance as well as enhancing fairness in taxation thus resulting in an increase of tax compliance. The abolition of the derogation would lead to an unjustified cash flow benefit for a taxable person who uses a good or service only marginally for business purposes and who is allowed to deduct VAT for this minor business use compared to a taxable person who uses the good or service for business purposes only. A subsequent minimal change in the ratio of private and business use of a good or service only marginally used for business purposes would lead to an adjustment of the VAT deducted. This minor adjustment would be disproportionate both from the taxpayer's and tax administration's perspective.

Derogations are in general granted for a limited time as to allow an assessment whether the special measure is appropriate and effective. In this respect, based on the information provided by Austria, the Commission understands that the 90% - 10% apportionment between business and non-business use still represents a sound basis to sort out transactions in respect of which the business use can be considered as negligible.

As a consequence, the special measure in question provides a facilitation for both tax administrations and businesses as there is no need for any monitoring of the subsequent use of the goods and services to which the exclusion from deduction applied at the time of their acquisition, particularly with respect to a possible taxation of private use pursuant to Articles 16 or 26 of Directive 2006/112/EC or adjustments to the deduction as required under Articles 184 – 192 of that Directive. An extension of the derogating measure is therefore appropriate.

However, any extension should be limited in time in order to assess whether the conditions, on which the derogation is based, would still be valid. Therefore, it is proposed to extend the derogation until the end of 2021 and to request Austria to present, together with the extension request, a report by 31 March 2021 at the latest including a review of the applied apportionment between business and non-business use on which the exclusion from deduction is based in case a further extension would be envisaged beyond 2021.

Existing provisions in the area of the proposal

Article 176 of Directive 2006/112/EC stipulates that the Council shall determine the expenditure on which the VAT is not deductible. Until such time, it authorises Member States to maintain exclusions, which were in place on 1 January 1979. There are therefore a number of 'stand still' provisions restricting the right to deduct for taxable persons.

Notwithstanding previous initiatives to establish rules on which categories of expenditure may be subject to a restriction on the right to deduct ⁸ , such derogation is appropriate in the awaiting of a harmonisation of these rules at EU level.

2. RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of interested parties

Not relevant.

Collection and use of expertise

There was no need for external expertise.

Impact assessment

The proposal is designed to simplify the procedure for collecting VAT and has, therefore, a potential positive impact for both businesses and administrations. The solution has been identified by Austria as a suitable measure and is comparable to other past and present derogations.

3. LEGAL ELEMENTS OF THE PROPOSAL

Summary of the proposed action

The proposal aims to authorise Austria to continue to apply a measure derogating from Articles 168 and 168a of Directive 2006/112/EC so as to completely exclude from the right of deduction the VAT borne on goods and services which are used by the taxable person for more than 90 % for his private use or for that of his employees, or in general, for non-business purposes or non-economic activities.

The apportionment rate and the necessity for the derogating measure are to be reviewed and reported on by Austria upon any request for an extension.

Legal basis

Article 395(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.

Subsidiarity principle

Considering the provision of Council Directive 2006/112/EC on which the proposal is based, the subsidiarity principle does not apply.

Proportionality principle

The proposal complies with the proportionality principle for the following reasons:

This Decision concerns an authorisation granted to a Member State on its own request and does not constitute any obligation.

Given the narrow scope of the derogation, the special measure is proportionate to the aim pursued. It will reduce administrative burden and only slightly increase the tax burden for those taxable persons using the goods or services for up to 10% for business purposes.

Choice of instruments

Proposed instruments: Council Implementing Decision.

Other means would not be adequate for the following reasons:

Under Article 395 of Council Directive 2006/112/EC, a derogation from the common VAT rules is only possible upon authorisation of the Council acting unanimously on a proposal from the Commission. A Council Implementing Decision is the only suitable instrument since it can be addressed to individual Member States.

4. BUDGETARY IMPLICATION

The proposal will not adversely affect the Union's own resources from VAT.

5. OPTIONAL ELEMENTS

The proposal is limited in time and includes a review clause.