Explanatory Memorandum to COM(2020)256 - Amendment of Implementing Decision (EU) 2018/485 authorising Denmark to derogate from Article 75 of the VAT Directive - Main contents
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| dossier | COM(2020)256 - Amendment of Implementing Decision (EU) 2018/485 authorising Denmark to derogate from Article 75 of the VAT Directive. |
|---|---|
| source | COM(2020)256  |
| date | 22-06-2020 |
Pursuant to Article 395 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 1 (‘the VAT Directive’), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures derogating from the provisions of that Directive, in order to simplify the procedure for collecting value added tax (VAT) or to prevent certain forms of tax evasion or avoidance.
By letter registered with the Commission on 21 February 2020, Denmark requested the authorisation to continue to apply a flat-rate scheme for the private use of light goods vehicles with a maximum authorised total weight of three tonnes, which have been registered solely for business use, extending the application of the special measure granted by Council Implementing Decision (EU) 2018/485 2 which derogates from Article 75 of the VAT Directive.
In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 2 April 2020 of the request made by Denmark. By letter dated 3 April 2020, the Commission notified Denmark that it had all the information necessary to consider the request.
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
In order to simplify VAT collection and combat tax evasion, Denmark requested in 2011 a derogation which would allow the introduction of a flat-rate scheme for the private use of light goods vehicles with a maximum authorised total weight of three tonnes which have been registered solely for business use. The derogation request was approved by Council Implementing Decision 2012/447/EU of 24 July 2012 3 . Denmark requested twice the prolongation of the measure which were approved by Council Implementing Decision 2015/992/EU of 19 June 2015 4 and by Council Implementing Decision (EU) 2018/485. The latter Council Implementing Decision is set to expire on 31 December 2020.
Without such derogating measure the Danish legislation implies that any private use of such a vehicle registered solely for business purposes would have as a consequence that the taxable person loses in full the right of deduction of the VAT on the purchase cost of the vehicle. Denmark makes use of a standstill provision under Article 176 of the VAT Directive regarding the deduction of VAT on the purchase and running costs of light goods vehicles with a maximum authorised weight of up to three tonnes. If a business registers such a light goods vehicle as being solely for business purposes, it will be authorised to deduct in full the VAT on the purchase of the vehicle as well as the running costs. However, a business which registers a light goods vehicle as being both for business and personal use is not authorised to deduct the VAT on the purchase cost, but can deduct in full the VAT on the running costs of the vehicle.
The Danish system as described above can be complicated and costly to administer, both for the taxable person and for the tax administration. Denmark has therefore requested to apply a simplified procedure as previously granted by Council Implementing Decision 2012/447/EU and subsequently by Council Implementing Decision 2015/992/EU and Council Implementing Decision (EU) 2018/485.
According to Article 75 of the VAT Directive, where goods forming part of the assets of a business are used for private purposes, the taxable amount to determine the VAT due shall be the full cost to the taxable person of providing the services. The flat-rate system used in Denmark could be used by a taxable person for up to twenty days per calendar year. Pursuant to this system, the taxable person pays a charge per day for the private use of the vehicle. The flat-rate amount to be paid per day for the use of the vehicle for private purposes is DKK 40, and covers only VAT. This amount has been determined by the Danish Government on the basis of an analysis of national statistics. A similar payment, under separate national legislation, would be required to cover income tax on the disposal of a company car, and a surcharge to the circulation tax. Should the taxable person use the vehicle for private purposes for more than twenty days during a calendar year, the standstill rules would apply, and the taxable person would lose in full the right of deduction of the purchase costs of the vehicle.
The Danish authorities have developed an electronic system whereby taxable persons can pay the daily flat-rate either online or via a mobile app. At the time of payment, the taxable person receives a ‘day voucher’ by way of documentary evidence that the VAT has been paid. The authorities consider the system to simplify the accounting obligations for the taxable persons as well as the tax authorities' duty to collect and charge the tax.
The simplified procedure is optional. The taxable person would therefore still be able to register their light goods vehicle for both business and private use if that suits their circumstances.
As requested by Article 3 of Council Implementing Decision (EU) 2018/485, Denmark submitted, together with the prolongation request, a report on the review of the measure. According to the Danish authorities, the simplified procedure has worked very well the last years and they find good reasons to continue with such a procedure.
It is therefore appropriate to authorise Denmark to continue to apply the derogating measure until 31 December 2023.
• Consistency with existing policy provisions in the policy area
Article 176 of the VAT Directive 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 in relation to passenger cars.
Notwithstanding previous initiatives to establish rules on which categories of expenditure may be subject to a restriction on the right to deduct 5 , such derogation is appropriate in the awaiting of a harmonisation of these rules at EU level.
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 proposal falls under the exclusive competence of the European Union. Hence, 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. to simplify VAT obligations and VAT collection, as well as combatting tax evasion.
• 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 Denmark and concerns only this particular Member State.
• Collection and use of expertise
There was no need for external expertise.
• Impact assessment
The proposal is designed to counter VAT evasion and to simplify the procedure for charging tax and has, therefore, a potential positive impact for both businesses and administrations. The solution has been identified by Denmark as a suitable measure. Denmark submitted the report on the review of the measure according to which the simplified procedure has worked very well the last years and there are good reasons to continue with such a procedure.
According to the data submitted by Denmark, in 2017, 2018 and 2019 respectively, 22 383, 25 755 and 28 854 day vouchers were sold at DKK 225, of which VAT made up DKK 40 per day voucher sold. This means that the measure has been taken up to the extent expected when it was introduced.
• Fundamental rights
The proposal does not have any consequences for the protection of fundamental rights.
4. BUDGETARY IMPLICATIONS
The measure will have no adverse impact on the Union's own resources accruing from VAT.
5. OTHER ELEMENTS
The proposal includes a sunset clause; an automatic time limit which is set at 31 December 2023.
In case Denmark would consider an extension of the derogating measure beyond 2023, a report including a review of the measure should be submitted to the Commission together with the extension request and this no later than 31 March 2023.