Decision (EU) 2018/1921 authorising Latvia to introduce a special measure derogating from Articles 26(1)(a), 168 and 168a of Directive 2006/112/EC on the common system of value added tax

Summary:

On 31 October 2018 the European Commission presented a proposal for a Council Implementing Decision amending Decision (EU) 2015/2429 authorising Latvia to introduce a special measure derogating from point (a) of Article 26(1) and Articles 168 and 168a of the VAT Directive. The Council of the European Union adopted the Decision on 4 December.

Further information:

Article 168 of the VAT Directive provides that a taxable person is entitled to deduct VAT charged on purchases made for the purpose of taxed transactions. Article 26(1)(a) requires the use of goods forming part of the assets of a business for private purposes to be a supply of services for consideration if the VAT on the goods was eligible for deduction. This system allows for the recovery of initially deducted VAT in relation to the private use.

In the case of passenger cars, this system is difficult to apply, in particular because it is difficult to identify the split between private and business use. Where records are kept, they add an additional burden to both the business and the administration in maintaining and checking them.

In 2013 Latvia was granted authorisation to restrict the right of deduction to 80% in relation to certain passenger cars. Latvia considered that this percentage did not correspond to actual circumstances and in 2015 authorisation was granted to restrict the right of deduction to 50%. This derogation expired on 31 December 2018 and Latvia requested to prolong it for another limited period of time.

Given the positive impact of the special measure on the administrative burden of tax payers and of tax authorities, the Commission proposed to grant the derogating measure for another limited period, until 31 December 2021.

• Primary Source

Official

EUR-Lex: COM(2018)721: Proposal for a Council Implementing Decision authorising Latvia to introduce a special measure derogating from Articles 26(1)(a), 168 and 168a of Directive 2006/112/EC https://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2018:721:FIN

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