EC authorising Poland to derogate from Article 287 of the VAT Directive - Main contents

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dossier	COM(2018)713 - Amendment of Decision 2009/790/EC authorising Poland to derogate from Article 287 of the VAT Directive.
source	COM(2018)713
date	26-10-2018

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereafter ‘the 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 VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 15 May 2018, Poland requested an authorisation to continue to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 40 000. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 20 July 2018 except from Spain which was informed by a letter dated 23 July 2018. By letter dated 23 July 2018, the Commission notified Poland that it had all the information necessary to consider the request.

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, he cannot deduct the VAT on his input.

Under Article 287(14) of the VAT Directive, Poland may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 10 000.

By Council Decision 2009/790/EC ¹ the Council authorised Poland to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 30 000 until 31 December 2012. By Council Implementing Decision 2012/769/EU ² , the derogation was extended until 31 December 2015 and subsequently by Council Implementing Decision 2015/1173/EU ³ until 31 December 2018. Council Implementing Decision (EU) 2016/2090 ⁴ increased the exemption threshold to the equivalent in national currency of EUR 40 000.

Poland requested an extension of that measure for another limited period. Poland indicated that the reasons for the derogation request remain largely unchanged. The special measure simplifies the burden on business for a higher number of taxable persons who have a limited business activity and stimulates the development of such small businesses. At the same time the measure results in the reduction of the administrative burden on the tax administration by limiting the need to control small taxable persons, which is relatively costly in comparison to the amount of VAT at stake. It also allows strengthening the control activities towards larger taxable persons. The measure is and will remain fully optional for taxable persons.

Given a potential positive impact on the reduction of administrative burden for businesses and tax administration without a major impact on the total VAT revenue, it is proposed to extend the derogation for another limited period, until 31 December 2021. The Commission has recently launched a proposal ⁵ modifying Articles 281 to 294 of Directive 2006/112/EC governing the special scheme for small enterprises. It is thus possible that a directive amending those Articles enters into force and sets a date from which Member States are to apply national provisions to implement it. If this date is set before the derogation expires on 31 December 2021, this Decision should cease to apply.

• Consistency with existing policy provisions in the policy area

Similar derogations have been granted to other Member States. Luxembourg ⁶ was granted a threshold of EUR 30 000, Estonia ⁷ a threshold of EUR 40 000, Italy ⁸ a threshold of EUR 65 000, Croatia ⁹ a threshold of EUR 45 000, Latvia ¹⁰ a threshold of EUR 40 000 and Romania ¹¹ a threshold of EUR 88 500.

Derogations from the VAT Directive should always be limited in time so that their effects can be assessed. Moreover, the provisions of Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises are currently subject to review. As announced in the VAT Action Plan ¹² , and the 2017 Commission Work Programme ¹³ , the Commission's proposal on the SMEs scheme ¹⁴ has recently been presented.

It is therefore proposed to grant the derogating measure until 31 December 2021 or until the date from which Member States are to apply any national provisions that they are required to adopt in the event that a directive is adopted amending Articles 281 to 294 of Directive 2006/112/EC.

• Consistency with other Union policies

The measure is in line with the Union's objectives for small businesses, as laid down in the Commission Communication 'Think small first' – a 'Small Business Act' for Europe" ¹⁵ which calls on the Member States to take account of the special features of SMEs when designing legislation and, therefore, to simplify the existing regulatory environment.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

Article 395 of the VAT Directive.

• Subsidiarity (for non-exclusive competence)

Considering the provision of the VAT Directive on which the proposal is based, the subsidiarity principle does not apply.

• Proportionality

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

Given the limited scope of the derogation, the special measure is proportionate to the aim pursued, i.e. simplification for an additional number of small taxable persons and for the tax administration.

• Choice of the instrument

Proposed instrument: Council Implementing Decision.

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 most suitable instrument since it can be addressed to an individual Member State.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Stakeholder consultations

This proposal is based on a request made by Poland and concerns only this Member State.

• Collection and use of expertise

There was no need for external expertise.

• Impact assessment

The proposal for a Council Implementing Decision aims at continuing for another three years a simplification measure which removes many of the VAT obligations for businesses operating with an annual turnover no higher than the equivalent in national currency of EUR 40 000 and therefore has a potential positive impact on the reduction of administrative burden for businesses and tax administration without a major impact on the total VAT revenue. Because of the narrow scope of the derogation and its limited application in time, the impact of the measure will in any case be limited.

4. BUDGETARY IMPLICATIONS

The proposal has no implication for the EU budget because Poland will carry out a compensation calculation in accordance with Article 6 of Council Regulation (EEC EURATOM) 1553/89.

5. OTHER ELEMENTS

The proposal includes a sunset clause; an automatic time limit.