Considerations on COM(2024)542 -

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dossier COM(2024)542 - .
document COM(2024)542
date November 21, 2024
 
(1) Council Decision 2006/42/EC2 authorised Latvia to apply a special measure derogating from Article 21(1), point (a), of Council Directive 77/388/EEC3, to designate the recipient as the person liable to pay value added tax (VAT) on the supply of timber or on the provision of related services until 31 December 2009. By Council Implementing Decision 2009/1008/EU4 Latvia was, by way of derogation from Article 193 of Directive 2006/112/EC, authorised to continue to designate the recipient of timber or related services as the person liable to pay VAT in the case of timber transactions until 31 December 2012 (‘the special measure’). Following the last amendment to Implementing Decision 2009/1008/EU, that authorisation is due to expire on 31 December 2024.

(2) By letter registered with the Commission on 2 May 2024, Latvia requested the authorisation to continue to apply the special measure. Along with that letter, Latvia submitted a report on the application of that special measure.

(3) In accordance with Article 395(2), second subparagraph, of Directive 2006/112/EC, the Commission informed the other Member States by letter dated 3 September 2024, and Italy on 4 September 2024 of the request made by Latvia. By letter dated 5 September 2024, the Commission notified Latvia that it had all the information necessary to consider the request.

(4) According to Latvia, the timber market, which is one of the most important sectors of its economy, is particularly sensitive to VAT fraud, because it is dominated by a great number of small local operators and individual suppliers. The nature of the market and of businesses involved has generated VAT fraud, which the Latvian tax authorities have found it difficult to control. In order to combat that abuse, the Latvian tax authorities have introduced the reverse charge mechanism for the payment of VAT in timber transactions, which has proven to be very effective and has decreased fraud in that market significantly according to the report submitted by Latvia.

(5) Derogations are in general granted for a limited period of time to allow an assessment of whether the special measure is appropriate and effective. Derogations grant Member States time to introduce other conventional measures at national level to monitor the movement of materials, the payment of VAT, and the compliance of taxable persons which should tackle the respective problem until the expiry of the derogating measure, thus making an extension of the derogation redundant. A derogation allowing the making use of the reverse charge mechanism is only granted exceptionally for specific fraudulent areas and constitutes a means of last resort.

(6) Latvia is committed to applying different measures to tackle VAT fraud in the sector. It intends to impose an obligation of non-cash payments, and a specific tracking tool that will help to control transactions and production processes more efficiently. Furthermore, by 2026, the national authorities plan to introduce e-invoicing requirement for B2B transactions for companies registered in Latvia.

(7) Therefore, before the expiry of the extension of the special measure under this Decision, Latvia should be able to implement other conventional measures to fight and prevent VAT fraud in the timber market, so that another extension of the special measure would not be necessary.

(8) Latvia should therefore be authorised to apply the special measure only until 31 December 2026.

(9) The special measure will have no adverse impact on the Union's own resources accruing from VAT.

(10) Implementing Decision 2009/1008/EU should therefore be amended accordingly.