Decision 2007/441 - 2007/441/EC: Council Decision of 18 June 2007 authorising Italy to derogate from Articles 26(1)(a) and 168 of the VAT Directive - Main contents

EN

Official Journal of the European Union

L 165/33

In a letter dated 9 October 2006 and registered by the Secretariat-General of the Commission on 11 October 2006, Italy sought authorisation to introduce measures derogating from the provisions of Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (2), which govern a taxable person's right to deduct VAT paid on purchases and those which require tax to be accounted for on business assets used for private purposes.

Directive 77/388/EEC has been replaced with Directive 2006/112/EC.

In accordance with Article 395(2) of Directive 2006/112/EC, the Commission transmitted, by a letter dated 28 February 2007, to the other Member States the request made by Italy. By a letter dated 21 November 2006, the Commission notified Italy that it had all the information that it considered necessary for appraisal of the request.

Article 168 of Directive 2006/112/EC establishes a taxable person's right to deduct VAT charged on supplies of goods and services received by him for use in his taxable transactions. Article 26(1)(a) of the same Directive contains a requirement to account for VAT when a business asset is put to private use.

The private use of vehicles is difficult to identify accurately and even where it is possible, the mechanism for doing so is often burdensome. Under the requested measures, the amount of VAT on expenditure eligible for deduction in respect of vehicles which are not used entirely for business purposes should, with some exceptions, be set at a flat percentage rate. Based on currently available information, the Italian authorities believe that a rate of 40 % is justifiable. At the same time, to avoid double taxation, the requirement of accounting for VAT on the private use of a vehicle should be suspended where it has been subject to this restriction. These measures can be justified by the need to simplify the procedure for charging VAT and to prevent evasion through incorrect record keeping.

These derogating measures should be limited in time to allow for an evaluation of their effectiveness and of the appropriate percentage, since the proposed percentage is based on initial findings on business use.

On 4 November 2004 the Commission presented a proposal for a Council Directive amending Directive 77/388/EEC, now 2006/112/EC, as regards the right to deduct VAT (3). The derogating measures should end at the entry into force of the proposed Directive if earlier than the date specified in this Decision,

the vehicle forms part of the taxable person's stock-in-trade in the exercise of his activity,

the vehicle is used as a taxi,

the vehicle is used for instruction by a driving school,

the vehicle is used for hire or leasing,

the vehicle is used by sales representatives.