Communication in accordance with Article 395 of Council Directive 2006/112/EC

Background and further information:

Pursuant to Article 395 of Council Directive 2006/112/EC on the common system of value added tax (the VAT Directive), the Council may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance. As this procedure provides for derogations from the general principles of VAT, such derogations should be proportionate and limited in scope.

On 8 August 2017, Latvia requested an authorisation to apply a measure derogating from Article 193 of the VAT Directive. As a general rule, the person liable for the payment of VAT to the tax authorities under Article 193 of the VAT Directive is the taxable person supplying the goods. The purpose of the derogation requested by Latvia is to place that liability on the taxable person to whom the supplies are made (the so-called reverse charge mechanism), in the case of particular products, notably as regards construction goods. The aim of the requested derogation is the fight against fraud.

The Commission has come to the conclusion that a derogation allowing the reverse charge mechanism to be applied in the sector of construction products could have adverse impacts on fraud at the retail level and on other Member States. The requested measure would also not seem to be an optimal measure able to deal with the complex fraud situation in this sector. The Commission therefore objects to the request made by Latvia.

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