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Document 52024PC0491

Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax

COM/2024/491 final

Brussels, 24.10.2024

COM(2024) 491 final

2024/0273(NLE)

Proposal for a

COUNCIL IMPLEMENTING DECISION

amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax


EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of 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 for derogation 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 26 March 2024, Hungary requested an authorisation to continue to apply a measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of the VAT Directive and to restrict the right of deduction of VAT on the leasing of certain passenger cars not wholly used for business purposes, and to relieve taxable persons from having to treat the private use of such vehicles as a supply of services for consideration. The request was accompanied by a report including a review of the percentage foreseen for the limitation of the right of deduction.

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 29 May 2024 of the request made by Hungary. By letter dated 30 May 2024, the Commission notified Hungary that it had all the information it considered necessary for appraisal of the request.

1.CONTEXT OF THE PROPOSAL

Reasons for and objectives of the proposal

Articles 168 of the VAT Directive provides that a taxable person is entitled to deduct VAT charged on purchases made for the purpose of taxed transactions. Article 168a(1) of the VAT Directive provides that the VAT on expenditure related to immovable property forming part of the business assets of a taxable person and used both for business and non-business purposes shall be deductible only to the proportion of the property’s use for purposes of the taxable person’s business. Pursuant to Article 168a(2) of the VAT Directive Member States may also apply this rule in relation to expenditure related to other goods forming part of the business assets as they specify. Point (a) of paragrph 1 of Article 26 of the same Directive requires the use of goods forming part of the assets of a business for private purposes to be a supply of services for consideration if the VAT on the goods was eligible for deduction. This system allows for the recovery of initially deducted VAT in relation to the private use.

In the case of passenger cars, this system is difficult to apply, in particular because it is difficult to identify the split between private and business use. Where records are kept, they add an additional burden to both the business and the administration in maintaining and checking them.

Pursuant to Article 395 of the VAT Directive, Member States may apply measures derogating from the provisions of the VAT Directive to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance if they have been authorised by the Council.

Hungary is currently authorised on the basis of Council Implementing Decision (EU) 2018/1493 2  to limit to 50% the right to deduct the VAT paid on expenditure eligible for deduction in respect of the leasing of passenger cars which are not wholly used for business purposes and to relieve taxable persons from having to treat the non-business use of such passenger cars as a supply of services for consideration. Passenger cars covered by the special measure are motor vehicles designed for the transportation of a maximum of 9 persons with a gross vehicle weight not exceeding 5 tons. Vehicles designed for transport of goods, vehicles serving special purposes (i.e. crane truck, fire engine, truck-mixer), vehicles designed for the transport of 10 or more than 10 persons, tractors and trailers are excluded from the restriction to the right of deduction of VAT and are treated under the normal rules. Taxable persons who do not wish to apply the 50% deduction limit and who wish to apply the VAT deduction up to the proportion of actual business use are allowed to do so provided they dispose of detailed evidence on the business use of leased passenger cars. The period of validity of this special measure is set to expire on 31 December 2024 following its prolongation, approved by Council Implementing Decision (EU) 2021/1774 3 .

Hungary has requested to prolong the authorisation to limit the initial deduction to a set flat percentage rate and in turn to relieve the business from accounting for tax on the private use. Hungary informed the Commission that the grounds for the prolongation of the measure are largely the same as described in the previous request. Hungary confirms that the special measure has delivered positive results for both companies and tax authorities, and that the rationale for the derogation continues to apply. In accordance with Article 5 of Council Implementing Decision 2018/1493, Hungary has also presented a report on the percentage limit set for the VAT deduction. Hungary considers that the applied 50 percentage limit remains appropriate. According to the data submitted, the estimated extent of private use of leased company cars ranges from around 32% to 53% during the period 2016-2022. Since the estimate is based on indirect evidence and assumptions and could thus be overestimated, Hungary considers that the 50% input VAT deduction limit is the most appropriate. Moreover, experience from inspections by the tax authority has shown, as in 2021, that the vast majority – roughly 90-95% – of taxable persons inspected apply the mandatory 50% deductible proportion. According to Hungary, the reason continues to be that this mandatory deductible proportion clearly relieves taxable persons of the obligation to keep itemised records and that the rate of 50% private use is sufficiently close to the situation in practice.

Given the positive impact of the special measure on the administrative burden of taxpayers and of tax authorities alike, it is proposed to authorise the extension of the current special measure. The authorisation should be valid for another limited period, i.e. until 31 December 2027, in order to allow for a review of the necessity and effectiveness of the special measure and whether the 50% restriction is still a correct reflection of the overall apportionment between business and private use. Any extension request should be accompanied by a report which includes a review of the percentage applied and should be sent to the Commission by 31 March 2027.

Consistency with existing policy provisions in the policy area

Similar derogations in relation to the right of deduction have been granted to other Member States (Estonia 4 , Latvia 5 , Croatia 6 , Poland 7 , Italy 8  and Romania 9 ).

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 VAT 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 VAT 10 , 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 the proposal is based, 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 the procedure for collecting the tax and to prevent certain forms of tax evasion or avoidance. In particular, given the potential for businesses to under declare their liability and the burdensome check of mileage data for tax authorities, the 50% restriction would simplify the VAT collection procedure and would prevent tax evasion inter alia through incorrect record keeping.

Choice of the instrument

Proposed instrument: Council Implementing Decision.

Under Article 395 of the VAT Directive, a derogation from the common VAT provisions is only possible upon authorisation of the Council 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. This proposal is based on a request made by Hungary and concerns only this Member State.

Collection and use of expertise

There was no need for external expertise.

Impact assessment

The proposal is designed to simplify the procedure for charging the tax by removing the need for taxable persons to keep records on the private use of leased business cars, and, at the same time, to prevent certain form of VAT evasion through incorrect record keeping. The proposed measure has, therefore, a potential positive impact for both businesses and tax administration. The solution has been identified by Hungary as a suitable measure and is comparable to other past and present derogations.

4.BUDGETARY IMPLICATIONS

The proposal will not adversely affect the Union's own resources from VAT.

5.OTHER ELEMENTS

The proposal is limited in time and includes a sunset clause set at 31 December 2027.

In case Hungary would consider another extension of the special measure beyond 2027, a report including a review of the percentage limit should be submitted to the Commission together with the extension request no later than 31 March 2027.

2024/0273 (NLE)

Proposal for a

COUNCIL IMPLEMENTING DECISION

amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax 11 , and in particular Article 395(1), first subparagraph, thereof,

Having regard to the proposal from the European Commission,

Whereas:

(1)Articles 168 and 168a of Directive 2006/112/EC establish taxable persons’ right to deduct value added tax (VAT) charged on supplies of goods and services received by them for the purposes of their taxed transactions. Article 26(1), point (a), of that Directive contains a requirement to account for VAT when a business asset is put to use for private purposes of taxable persons or their staff or, more generally, for purposes other than those of their business.

(2)Council Implementing Decision (EU) 2018/1493 12 , as amended by Council Implementing Decision (EU) 2021/1774 13 , authorises Hungary to apply until 31 December 2024, a special measure consisting, on the one hand, in limiting to 50% the right to deduct VAT on expenditure related to passenger cars not wholly used for business purposes, by way of derogation from Articles 168 and 168a of Directive 2006/112/EC, and, on the other hand, in not treating as supplies of services for consideration the use for non-business purposes of a passenger car included in the assets of a taxable person's business, where that car has been subject to a limitation authorised under Article 1 of Implementing Decision (EU) 2018/1493, by way of derogation from Article 26(1), point (a), of that Directive (‘the special measure’). 

(3)By letter registered by the Commission on 26 March 2024, Hungary requested an authorisation, in accordance with Article 395(2), first subparagraph, of Directive 2006/112/EC, to continue to apply the special measure (‘the extension request’).

(4)Pursuant to Article 395(2), second subparagraph, of Directive 2006/112/EC, the Commission transmitted the extension request to the other Member States by letters dated 29 May 2024. By letter dated 30 May 2024, the Commission notified Hungary that it had all the information necessary to consider the extension request.

(5)In accordance with Article 5, second paragraph, of Implementing Decision (EU) 2018/1493, Hungary submitted, together with the extension request, a report including the review of the percentage set for the limitation of the right to deduct VAT referred to in Article 1 of that Implementing Decision. Based on currently available information, namely tax audit experience and statistical data relating to private use of passengers cars, Hungary confirms that the limit of 50% is still justifiable and remains appropriate.

(6)Given the positive impact of the special measure on the administrative burden of taxpayers and tax authorities alike by simplifying VAT collection and preventing tax evasion through incorrect record keeping, the Commission therefore considers it appropriate to authorise Hungary to continue to apply the special measure.

(7)It is appropriate to limit the extension of the special measure in time to allow for an evaluation of its effectiveness and of the appropriate percentage. Hungary should therefore be authorised to continue to apply the special measure until 31 December 2027.

(8)The special measure is proportionate to the objectives pursued, namely, to simplify the procedure for collecting VAT and to prevent certain forms of tax evasion or avoidance, since it is limited in time and scope. In addition, the special measure does not give rise to the risk that fraud would shift to other sectors or to other Member States.

(9)In the event that Hungary considers that an extension of the special measure beyond 2027 is necessary, it should submit to the Commission a report which includes a review of the percentage limit applied, together with the request for an extension, by 31 March 2027.

(10)The special measure will only have a negligible effect on the overall amount of tax revenue collected at the stage of final consumption and will have no adverse impact on the Union’s own resources accruing from VAT.

(11)Implementing Decision (EU) 2018/1493 should therefore be amended accordingly,

HAS ADOPTED THIS DECISION:

Article 1

Article 5 of Implementing Decision (EU) 2018/1493 is replaced by the following:

'Article 5

This Decision shall expire on 31 December 2027.

Any request for the extension of the authorisation provided for in this Decision shall be submitted to the Commission by 31 March 2027 and shall be accompanied by a report which includes a review of the percentage set out in Article 1.'.

Article 2

This Decision is addressed to Hungary.

Done at Brussels,

   For the Council

   The President

(1)    OJ 347, 11.12.2006, p.1. 
(2)    Council Implementing Decision (EU) 2018/1493 of 2 October 2018 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax, OJ L 252/46, 8.10.2018, p. 44.
(3)    Council Implementing Decision (EU) 2021/1774 of 5 October 2021 amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax, OJ L 360, 11.10.2021, p. 108.
(4)    Council Implementing Decision (EU) 2021/1998 of 15 November 2021 authorising Estonia to apply a measure derogating from Article 26(1), point (a), and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax, OJ L 408, 17.11.2021, p. 3–5.
(5)    Council Implementing Decision (EU) 2021/1968 of 9 November 2021 amending Implementing Decision (EU) 2015/2429 authorising Latvia to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax, OJ L 401, 12.11.2021, p. 1–2.
(6)    Council Implementing Decision (EU) 2021/1997 of 15 November 2021 amending Implementing Decision (EU) 2018/1994 authorising Croatia to introduce a special measure derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax, OJ L 408, 17.11.2021, p. 1–2.
(7)    Council Implementing Decision (EU) 2022/2385 of 6 December 2022 amending Implementing Decision 2013/805/EU authorising the Republic of Poland to introduce measures derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax, OJ L 315, 7.12.2022, p. 87–88.
(8)    Council Implementing Decision (EU) 2022/2411 of 6 December 2022 amending Decision 2007/441/EC authorising the Italian Republic to apply measures derogating from Articles 26(1)(a) and 168 of Directive 2006/112/EC on the common system of value added tax, OJ L 317, 9.12.2022, p. 120–121.
(9)    Council Implementing Decision (EU) 2024/1641 of 24 May 2024 authorising Romania to apply special measures derogating from Article 26(1), point (a), and Article 168 of Directive 2006/112/EC on the common system of value added tax, OJ L, 2024/1641, 6.6.2024.
(10)    COM (2004) 728 final - Proposal for a Council Directive amending Directive 77/388/EEC with a view to simplifying value added tax obligations (OJ C 24, 29.1.2005, p.10) withdrawn on 21 May 2014 (OJ C 153 21. 05. 2014, p. 3)
(11)    OJ L 347, 11.12.2006, p. 1, ELI:  http://data.europa.eu/eli/dir/2006/112/oj .
(12)

   Council Implementing Decision (EU) 2018/1493 of 2 October 2018 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax (OJ L 252, 8.10.2018, p. 44, ELI:  http://data.europa.eu/eli/dec_impl/2018/1493/oj ).

(13)    Council Implementing Decision (EU) 2021/1774 of 5 October 2021 amending Implementing Decision (EU) 2018/1493 authorising Hungary to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of Directive 2006/112/EC on the common system of value added tax (OJ L 360, 11.10.2021, p. 108, ELI:  http://data.europa.eu/eli/dec_impl/2021/1774/oj ).
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