(1)

Pursuant to Article 27(1) of Directive 77/388/EEC, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce or extend special measures for derogation from that Directive, in order to simplify the procedure of charging the tax or to prevent certain types of tax evasion or avoidance.

(2)

By Decisions 95/252/EC (2) and 98/198/EC (3), the Council authorised the United Kingdom to apply a measure derogating from Articles 6 and 17 of Directive 77/388/EEC.

(3)

By letter registered with the Commission's Secretariat-General on 14 June 2004, and subsequently circulated to all Member States on 7 July 2004, the United Kingdom Government has requested an extension of the abovementioned derogation.

(4)

The extant derogation allows the United Kingdom to restrict to 50 % the right of the hirer or lessee to deduct input tax on charges for the hire or lease of a business passenger car where the car is also used for private purposes. It also allows the United Kingdom not to treat as supplies of services for consideration the private use of a car hired or leased by a taxable person for business purposes. The derogation removes the need for the hirer/lessee to keep records of private mileage travelled in business cars and to account for tax on the actual private mileage of each car. It is therefore a simplification measure but also limits the scope for abuse through incorrect record keeping.

(5)

The legal and factual circumstances which justified granting authorisation to apply the original derogation have not changed and are therefore still relevant.

(6)

In the light of Commission proposals to amend Directive 77/388/EEC with regard to restrictions on the right to deduct VAT, it is appropriate to extend the period of the authorisation until such relevant amendments come into force. However, this authorisation will expire on 31 December 2007 at the latest if no such amendments have entered into force by that date, enabling an assessment to be made at that time of the necessity for a derogation in the light of further discussions of the proposals held in the Council.

(7)

An extension will have no impact on the European Communities' own resources accruing from value added tax,