24.3.2005   

EN

Official Journal of the European Union

L 78/48

(1)

In a letter registered by the Commission’s Secretariat-General on 11 November 2004, the Republic of Cyprus sought authorisation for a measure in existence prior to accession to the European Union and which derogates from Article 11(A)(1)(a) of Directive 77/388/EEC.

(2)

The measure requiring a derogation is intended to counter tax avoidance through the manipulation of the value of supplies subject to value added tax (VAT).

(3)

The measure should apply only in cases where the administration is able, based on the facts, to conclude that the determination of the taxable amount provided for in Article 11(A)(1)(a) of the said Directive is influenced by family, legal or business ties between the supplier and the recipient. In this matter the administration should not act on mere presumptions, and the parties concerned should be allowed to adduce evidence to the contrary where they dispute the level of the open market value established by the administration.

(4)

The measure is strictly targeted so that it can only be invoked when a series of conditions have been met and an absolute tax loss identified; and is therefore proportionate to the aim pursued.

(5)

Similar derogations have been granted to other Member States to counter tax avoidance and have been found to be effective.

(6)

This derogation will safeguard the amount of VAT due at the final consumption stage and has no negative impact on the Communities’ own resources from VAT,

1.

The consideration paid is less than the open market value of the supply;

2.

The recipient of the supply does not have a right to deduct in full;

3.

The person making the supply and the recipient are connected by family, business or legal ties, as defined in national legislation;

4.

A number of facts make it possible to conclude that these family, business or legal ties have influenced the determination of the taxable amount provided for in Article 11(A)(1)(a) of Directive 77/388/EEC.