6 Value Added Tax: derogations
| (25106)
15394/03
COM(03) 724
| Draft Council Decision to amend Council Decisions 92/456/EEC, 95/252/EC and 97/375/EC authorising the United Kingdom to apply measures derogating from Articles 28e(1), 6 and 17 of the Sixth VAT Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes.
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| Legal base | Article 93 EC; consultation; unanimity
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| Document originated | 26 November 2003
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| Deposited in Parliament | 1 December 2003
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| Department | Customs and Excise
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| Basis of consideration | EM of 5 December 2003
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| Previous Committee Report | None
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| To be discussed in Council | 22 December 2003
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
6.1 Member States may request the Commission to propose special
measures, to be adopted by Council Decision, authorising or renewing
derogations from the Sixth VAT Directive, in order to simplify
the procedure for charging the tax or to prevent certain types
of tax evasion or avoidance.
The document
6.2 This draft Decision would renew three derogations allowed
to the UK, which are due to expire on 31 December 2003. The first
derogation allows a special optional scheme in which tax is accounted
for on the basis of the cash paid and received; the scheme is
a simplification for small and medium-sized enterprises and has
a turnover limit of £600,000. The Government has requested
extension of the derogation for a further three years and an increase
in the turnover limit, to take account of inflation, to £660,000.
6.3 The second derogation (the 'value for VAT' derogation)
allows the Government to require use of an open market value in
certain circumstances in measures combating tax avoidance in relation
to intra-Community acquisitions between related parties. The Government
has requested extension of the derogation for a further three
years.
6.4 The third derogation (the '50% block' derogation)
allows the Government to impose a 50% limit on deduction of input
tax for hired or leased business cars where the car is used for
private purposes and not to treat as a supply of services for
consideration the private use of a business car by a taxable person.
The derogation removes the need for the hirer or lessee to keep
records of private mileage travelled in business cars and to account
for tax on the actual mileage of each car and is therefore a simplification.
The Government has requested extension of the derogation for a
further three years.
6.5 The draft Decision would allow renewal of the
first two derogations as requested. But the Commission proposes
that renewal of the third should be for one year only. This is
because a preliminary ruling requested on a German case, on which
the European Court of Justice is yet to pronounce, may render
such a derogation unlawful for the future. In the light of this
a similar derogation for Germany has been for one year only and
the Commission suggest equal treatment for the UK's derogation.
The Government's view
6.6 There is a fairly steady flow of draft Decisions
to allow or renew derogations related to other Member States.
The Government consistently supports such proposals given the
flexibility they provide for Member States to meet their own particular
circumstances and the Government's own need for derogations for
the UK. On this occasion the Paymaster General (Dawn Primarolo)
tells us:
"These are longstanding derogations for which
the UK has sought renewal. The cash accounting scheme affords
benefits to small businesses through its simplification of the
VAT rules, the 'value for VAT' derogation blocks a tax avoidance
loophole, and the '50% block' affords benefit to business by eliminating
the need to keep records of private mileage."
Conclusion
6.7 We draw this document to the attention of
the House because of the renewal of the '50% block' derogation
for only one year and of the suggestion that further renewal may
not be possible. We clear the document.
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