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

Author (Corporate)
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Series Details (2018) 666, 8.11.2018
Publication Date 08/11/2018
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On 8 November 2018 the European Commission presented a communication regarding a request from Romania to apply a special measure in accordance with Article 395 of the VAT Directive.

Further information:

In November 2017, Romania requested to introduce a special measure derogating from Title XI of the VAT Directive for the implementation of the VAT split payment mechanism for certain categories of persons. A number of exchanges took place between the Commission and Romania whereby the Commission asked for further clarifications and pointed Romania to a number of elements that the Commission considered disproportionate and difficult to justify.

At the same time the Commission invited Romania to modify its request for derogation taking into account the concerns raised. Romania, however, indicated it could not agree with the arguments and concerns presented by the Commission and refused to adapt its derogation request. Romania started applying the split payment mechanism on 1 January 2018 without awaiting the Commission's reply to its request.

The Commission considers that the Romanian split payment mechanism is not proportionate to the objectives pursued, namely those of ensuring the correct collection of VAT and preventing tax evasion. In addition, Romania did not react positively to the Commission's requests to modify the split payment mechanism. Therefore the Commission objects to the request made by Romania.


When the Commission receives requests in accordance with Article 395 of the VAT Directive, these are examined to ensure that the basic conditions for their granting are fulfilled i.e. whether the proposed specific measure simplifies procedures for taxable persons or the tax administration or whether the proposal prevents certain types of tax evasion or avoidance. In this context, the Commission has always taken a restrictive, cautious approach to ensure that derogations do not undermine the operation of the general VAT system, are limited in scope, necessary and proportionate.

The split payment mechanism is not a common system of payment of VAT but rather a novelty. There is a growing interest in the mechanism among Member States who regard it as a tool to help them in the fight against VAT fraud. Different designs of such split payment model are possible and every model needs to be assessed separately in order for the Commission to conclude that it can be justified based on Article 395 of the VAT Directive.

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