EUROPEAN COMMISSION
Brussels, 23.11.2021
COM(2021) 710 final
2021/0368(NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure derogating from Article 287 of Directive 2006/112/EC
EXPLANATORY MEMORANDUM
Pursuant to Article 395(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of valued 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 VAT or to prevent certain forms of tax evasion or avoidance.
By letter registered with the Commission on 19 April 2021, Hungary requested an authorisation to continue to apply, until 31 December 2024, a measure derogating from Article 287 of the VAT Directive, allowing Hungary to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 48 000.
In accordance with Article 395(2), second subparagraph, of the VAT Directive, the Commission informed the other Member States by letter dated 28 June 2021 of the request made by Hungary. The Commission notified Hungary by letter dated 29 June 2021 that it had all the information necessary to consider the request.
1.CONTEXT OF THE PROPOSAL
•Reasons for and objectives of the proposal
Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to apply special schemes for small enterprises, including the possibility of exempting taxable persons below a certain annual turnover. This exemption implies that a taxable person does not have to charge VAT on his supplies and, consequently, he or she cannot deduct the VAT on his inputs.
Under Article 287 of the VAT Directive, particular Member States which acceded after 1 January 1978 may exempt taxable persons whose annual turnover is no higher than the equivalent in national currency of the amounts at the conversion rate on the day of their accession as specified in that provision.
Under point 12 of Article 287 of the VAT Directive, Hungary may exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the day of its accession.
By virtue of Council Implementing Decision (EU) 2018/1490 2 Hungary was authorised, until 31 December 2021, to apply a higher threshold and thus to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 48 000 at the conversion rate on the day of its accession.
An authorisation to continue to use the exemption beyond 2021 for taxable persons whose annual turnover is no higher than the equivalent in HUF of EUR 48 000 would be a significant simplification for persons operating relatively small businesses. Taxable persons covered by this exemption do not have to deduct and pay VAT, be registered for VAT or keep a full detailed record of transactions subject to VAT. Thanks to these simplifications, small business owners can devote more time and resources to developing their business. The derogating measure remains optional for taxable persons. Therefore, small businesses whose turnover does not exceed the threshold will still have the possibility to exercise their right to apply the normal VAT arrangements.
Moreover, the cost of collecting VAT from taxable persons operating businesses with relatively low turnover, resulting from providing taxpayer services to these taxable persons and auditing their tax returns, is disproportionately high in comparison to the amount of tax collected. Accordingly, by applying a VAT exemption to small business owners, the revenue administration may direct more resources towards preventing and combating tax fraud, evasion and avoidance, and towards improving the quality of taxpayer services and the effectiveness of collecting VAT from large-scale business operators.
The measure does not significantly affect the total amount of revenue from VAT or the overall amount of tax revenue collected at the stage of final consumption.
The derogating measure, simplifying the obligations of small operators, is in line with the objectives set out by the European Union for small businesses.
It is therefore appropriate to authorise Hungary to apply the derogating measure until 31 December 2024.
•Consistency with existing policy provisions in the policy area
The derogating measure is in line with the objectives of Directive (EU) 2020/285 amending Articles 281 to 294 of the VAT Directive on a special scheme for small enterprises 3 , which resulted from the VAT action plan 4 , and aims to create a modern, simplified scheme for those businesses. In particular, it seeks to reduce VAT compliance costs and distortions of competition both domestically and at EU level, reduce the negative impact of the threshold effect, and facilitate business compliance as well as monitoring by tax administrations.
Moreover, the threshold of EUR 48 000 is consistent with Directive (EU) 2020/285, insofar as it allows Member States to set the annual turnover threshold required for an exemption from VAT at a level no higher than EUR 85 000 (or the equivalent in national currency).
Similar derogations, exempting from VAT taxable persons whose annual turnover is below a certain threshold, as provided for in Articles 285 and 287 of the VAT Directive, have been granted to other Member States. The Netherlands 5 has been granted a threshold of EUR 25 000; Italy 6 a threshold of EUR 30 000; Belgium 7 a threshold of EUR 25 000, Luxembourg 8 a threshold of EUR 35 000; Poland 9 , Latvia 10 and Estonia 11 have been granted a threshold of EUR 40 000; Lithuania 12 a threshold of EUR 55 000; Croatia 13 a threshold of EUR 45 000; Malta 14 a threshold of EUR 30 000; Slovenia 15 a threshold of EUR 50 000; and Romania 16 a threshold of EUR 88 500.
Derogations from the VAT Directive should always be limited in time so that their effects can be assessed. In addition, the inclusion of an expiry date of the special measure until 31 December 2024, as requested by Hungary, is aligned with the requirements of Directive (EU) 2020/285. That directive provides for 1 January 2025 as the date on which Member States will have to apply the national provisions, which they are required to adopt, to comply with it.
The proposed measure is therefore consistent with the provisions of the VAT Directive.
•Consistency with other Union policies
The Commission has been consistently stressing the need for simpler rules for small enterprises. In this respect, the Commission adopted in March 2020 an SME Strategy for a sustainable and digital Europe 17 , where it committed to continue to work to reduce the burden on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars of that strategy. This special measure is in line with such objectives, as far as fiscal rules are concerned. It is also consistent with the 2020 Action Plan on fair and simple taxation supporting the recovery strategy 18 , which acknowledges that tax compliance costs remain high in the EU, and that compliance costs are typically substantially higher for small than for large companies.
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 the tax collection for small taxable persons and for the tax administration.
•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 Hungary and concerns only this particular Member State.
•Impact assessment
The proposal for a Council Implementing Decision authorises Hungary to continue to exempt from VAT taxable persons whose annual turnover does not exceed the equivalent in HUF of EUR 48 000. Persons whose taxable turnover does not exceed the threshold will not have to register to be identified for VAT purposes, and thus the administrative burden on them will reduce as a result of the measure, since they will not need to keep VAT records or submit a VAT return. Subsequently, the measure will have a potential positive impact on the tax administration, as it will reduce its administrative burden.
According to the Hungarian authorities, the grounds for having introduced the higher threshold remain unchanged. By 31 December 2020, 766 118 taxable persons, whose threshold did not exceed the equivalent in HUF of EUR 48 000, were exempt from VAT, 14 % more than before the higher threshold was introduced in 2019. As Hungary emphasised, tribute should be paid to the fact that the revenue of taxable persons qualifying for a personal exemption increases as the economy improves, which should be taken into account when setting the threshold. However, after 2019, merely one third of taxable persons, previously liable for VAT and whose annual turnover was no higher than the equivalent in HUF of 48 000 EUR, opted to be exempt from VAT.
As regards the budgetary effect, according to information provided by Hungary, in 2019, the increase in the threshold under Council Implementing Decision (EU) 2018/1490 from the equivalent in HUF of EUR 35 000 to the equivalent in HUF of EUR 48 000 from 1 January 2019 led to budgetary losses of HUF 7.3 billion (approximately 0,1 to 0,2 % of VAT revenue in accrual terms).
The derogating measure will be optional for taxable persons. Taxable persons will be able to opt for the regular VAT arrangements in accordance with Article 290 of Directive 2006/112/EC.
•Fundamental rights
The proposal does not have any consequences for the protection of fundamental rights.
4.BUDGETARY IMPLICATIONS
Following entering into force of Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from value added tax 19 , there will be no compensation calculation carried out by Hungary as of VAT own resource statement for the financial year 2021 onwards.
2021/0368 (NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
amending Implementing Decision (EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure derogating from Article 287 of Directive 2006/112/EC
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 20 , and in particular Article 395(1) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1)Pursuant to Article 287, point (12), of Directive 2006/112/EC, Hungary may exempt from value added tax (VAT) taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the day of its accession.
(2)By Council Implementing Decision (EU) 2018/1490 21 , Hungary was authorised to introduce a special measure derogating from Article 287 of Directive 2006/112/EC to exempt from VAT taxable persons whose annual turnover is no higher than the equivalent in national currency of EUR 48 000 at the conversion rate on the day of its accession to the Union, either until 31 December 2021 or until the entry into force of a directive amending the provisions of Articles 281 to 294 of Directive 2006/112/EC, whichever date is earlier (‘the special measure’).
(3)By letter of 19 April 2021, Hungary submitted a request to the Commission for an authorisation to continue to apply the special measure until 31 December 2024, the date by which Member States are to transpose Council Directive (EU) 2020/285 22 , which lays down simpler VAT rules for small enterprises. That Directive also allows Member States to exempt taxable persons whose Member State annual turnover does not exceed a threshold of EUR 85 000 or the equivalent in national currency.
(4)Pursuant to the second subparagraph of Article 395(2) of Directive 2006/112/EC, the Commission transmitted the request made by Hungary to the other Member States by letter dated 28 June 2021. By letter dated 29 June 2021, the Commission notified Hungary that it had all the information necessary for the appraisal of the request.
(5)The special measure is in line with Directive (EU) 2020/285, which seeks to reduce VAT compliance costs for small enterprises, distortions of competition at both national and Union level, and the negative impact of transition from exemption to taxation (the threshold effect). It also seeks to facilitate compliance by small enterprises as well as monitoring by tax authorities. The threshold of EUR 48 000 is consistent with Article 284 of Directive 2006/112/EC.
(6)The special measure will remain optional for taxable persons. Taxable persons may still opt for the normal VAT arrangements pursuant to Article 290 of Directive 2006/112/EC.
(7)According to information provided by Hungary, the special measure will only have a negligible effect on the overall amount of the tax revenue Hungary collects at the stage of final consumption.
(8)Following the entry into force of Council Regulation (EU, Euratom) 2021/769 23 , there will be no compensation calculation carried out by Hungary with regard to the VAT own resource statement for the financial year 2021 onwards.
(9)Given the positive impact of the special measure in reducing the administrative burden and compliance costs for small enterprises and for the tax authorities, and the lack of any major impact on the total VAT revenue generated, Hungary should be authorised to apply the special measure for a further period.
(10)The authorisation to apply the special measure should be limited in time. The time limit should be sufficient to allow the effectiveness and appropriateness of the threshold to be evaluated. Moreover, pursuant to Article 3(1) of Directive (EU) 2020/285, Member States are to adopt and publish, by 31 December 2024, the laws, regulations and administrative provisions necessary to comply with Article 1 of that Directive, and apply those provisions from 1 January 2025. It is therefore appropriate to authorise Hungary to apply the special measure until 31 December 2024.
(11)Implementing Decision (EU) 2018/1490 should therefore be amended accordingly,
HAS ADOPTED THIS DECISION:
Article 1
Article 2 of Implementing Decision (EU) 2018/1490 is replaced by the following:
‘Article 2
This Decision shall apply from 1 January 2019 until 31 December 2024.’
Article 2
This Decision is addressed to Hungary.
Done at Brussels,
For the Council
The President