Explanatory Memorandum to COM(2022)648 - Amendment of Implementing Decision (EU) 2018/1904 authorising the Netherlands to derogate from Article 285 of the VAT Directive - Main contents
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| dossier | COM(2022)648 - Amendment of Implementing Decision (EU) 2018/1904 authorising the Netherlands to derogate from Article 285 of the VAT ... |
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| source | COM(2022)648  |
| date | 23-11-2022 |
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 introduce 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 23 August 2022, the Netherlands requested an authorisation to extend a measure derogating from Article 285 of the VAT Directive allowing the exemption from VAT of taxable persons whose annual turnover does not exceed EUR 25 000.
In accordance with Article 395(2) of the VAT Directive, the Commission informed all Member States, except Spain, on 25 August 2022 and Spain on 26 August 2022, of the request made by the Netherlands. By letter dated 29 August 2022 the Commission notified the Netherlands 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 Member States to apply special schemes to small enterprises, including the possibility to exempt taxable persons whose annual turnover does not exceed a certain threshold from VAT. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, cannot deduct VAT on the inputs.
Under the first paragraph of Article 285 of the VAT Directive, Member States which have not exercised the option under Article 14 of the Second Council Directive 67/228/EEC 2 may exempt from VAT taxable persons whose annual turnover does not exceed EUR 5 000. Pursuant to the second paragraph of Article 285 of the VAT Directive, those Member States may also grant graduated tax relief to taxable persons whose annual turnover exceeds the ceiling fixed by them for its application.
The Netherlands were authorised to introduce such a special measure by Council Implementing Decision (EU) 2018/1904. The measure which will end on 31 December 2022 is optional for taxable persons.
In that context, the Netherlands requested an extension of the special measure for two additional years.
The Netherlands indicated that the special measure reduces administrative burden for both taxable persons and the tax authority and that it contributes to the simplification of tax collection. According to the Netherlands, the effect on the State budget of the special measure is around 0,1%. It also indicated that the extension of the special measure would only have a negligible impact on total VAT-revenue collected at the stage of final consumption. Such effects being in line with the requirements of the second subparagraph of Article 395(1) of the VAT Directive.
Furthermore, the extension of the special measure until 31 December 2024 complies with the requirements of Council Directive (EU) 2020/285 of 18 February 2020 amending Directive 2006/112/EC on the common system of value added tax as regards the special scheme for small enterprises which set a maximum VAT turnover threshold for small businesses across the EU as from 1 January 2025.
It is therefore proposed to allow the Netherlands to extend the special measure until 31 December 2024.
• Consistency with existing policy provisions in the policy area
Similar derogations exempting from VAT taxable persons whose annual turnover is below a certain threshold, as provided for in Articles 285 and 287 of the VAT Directive, have been granted to other Member States. Recently, for example, Slovenia was granted the right to extend the use of a threshold of EUR 50 000 3 , Poland a threshold of EUR 40 000 4 , Hungary a threshold of EUR 48 000 5 , Belgium a threshold of EUR 25 000 6 , Malta a threshold of EUR 30 000 7 , and Czech Republic was granted a threshold of EUR 85 000 8 .
The derogating measure is in line with the objectives of Directive (EU) 2020/285 amending Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises 9 , which resulted from the VAT action plan 10 , and aims to create a modern, simplified scheme for those businesses. In particular, it seeks to reduce VAT compliance costs and distortions of competition both domestically and at EU level, reduce the negative impact of the threshold effect, and facilitate business compliance as well as monitoring by tax administrations.
Moreover, the threshold of EUR 25 000 is consistent with Directive (EU) 2020/285, insofar as it allows Member States to set the annual turnover threshold required for an exemption from VAT at a level no higher than EUR 85 000 (or the equivalent in national currency).
• Consistency with other Union policies
The Commission has been consistently stressing the need for simpler rules for small enterprises. In this respect, the Commission adopted in March 2020 an SME Strategy for a sustainable and digital Europe 11 , where it committed to continue to work on reducing the burden on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars of that strategy. This special measure is in line with such objectives, as far as fiscal rules are concerned. It is also consistent with the 2020 Action Plan on fair and simple taxation supporting the recovery strategy 12 , which acknowledges that tax compliance costs remain high in the EU, and that compliance costs are typically substantially higher for small than for large companies.
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 it is based, the subsidiarity principle has already been applied at the level of the VAT Directive.
• 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. to simplify the tax collection for small taxable persons and for the tax administration.
• Choice of the instrument
The instrument proposed is a Council Implementing Decision.
Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only possible upon authorisation by the Council, which is 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
No stakeholder consultation has been conducted. The present proposal is based on a request made by the Netherlands and concerns only this particular Member State.
• Impact assessment
The proposal for a Council Implementing Decision aims at continuing for another two years a simplification measure for taxable persons whose annual turnover does not exceed EUR 25 000. Taxable persons whose annual turnover does not exceed the threshold are released from many of the general VAT obligations and the administrative burden on them will reduce as a result of this measure as well. It also simplifies tax collection for the Dutch tax authorities.
According to the Netherlands, the extension of the EUR 25 000 threshold will not have any substantial impact on the total tax revenue at the stage of final consumption. Approximately 6% of taxpayers are expected to use the exemption threshold, which corresponds to an impact on the budget of around 0.1%. 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.
• Fundamental rights
The proposal does not have any consequences for the protection of fundamental rights.
4. BUDGETARY IMPLICATIONS
The special measure introduced by Council Implementing Decision (EU) 2018/1904 had no significant implications on the EU budget because the Netherlands carried out a compensation calculation in accordance with Article 6 of Council Regulation (EEC EURATOM) 1553/89. Following entering into force of Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax 13 , there will be no compensation calculation carried out by the Netherlands as of VAT own resource statement for the financial year 2021 onwards. The proposal for Council Implementing Decision which aims at extending the special measure of Council Implementing Decision (EU) 2018/1904 will not have either any significant implications on the EU budget. The corrections and compensations have historically had a negligible impact on the VAT-based own resource amount. Therefore their removal will not have a significant budgetary implication.