© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A5. Derogations permitted in national law
GENERAL
Legal basis
Rules in derogations apply subject to general principles (including abuse of law)
"[27] In my view they were right to reject it. VAT is a largely but not entirely harmonised tax which depends for its application to taxpayers on its implementation in the domestic law of member states but is part of the legal order of the European Union. The domestic VAT regime of member states will include provisions directly transposing the relevant Directives into national law. Depending on the drafting tradition of the relevant member state, the general principles of its tax law and its rules of private (especially contract) law, this may involve adapting or supplementing the language of the Directive to accommodate its requirements to the domestic context. In addition, there may be national provisions dealing with matters which the Directives leave to member states, either expressly or because they relate to matters such as procedure and civil remedies which are left to member states under the general distribution of functions between EU and national institutions. These features of national implementing laws are nonetheless part of a scheme for implementing an EU tax. National VAT regimes fall to be applied not just according to the letter of the national law, but in accordance with a number of general principles of EU law whose origin is the jurisprudence of the Union rather than the constitutive treaties or legislation made under them. These include the principle of respect for fundamental rights, the principle of proportionality, the principle of legal certainty with its concomitant doctrines of legitimate expectation and good faith, and the principle of abuse of law. Their application is not excluded because some particular feature of the national legal regime applying an EU tax has its origin in a domestic legislative choice rather than in a member state's obligation to implement a Directive." (HMRC v. Pendragon Plc [2015] UKSC 37)
- Standstill derogations: zero or reduced rate for social reasons
"Member States which, at 1 January 1991, were granting exemptions with deductibility of the VAT paid at the preceding stage or applying reduced rates lower than the minimum laid down in Article 99 may continue to grant those exemptions or apply those reduced rates.
The exemptions and reduced rates referred to in the first paragraph must be in accordance with Community law and must have been adopted for clearly defined social reasons and for the benefit of the final consumer." (PVD Article 110)
- Standstill derogations: restrictions on the right of deduction
"The Council, acting unanimously on a proposal from the Commission, shall determine the expenditure in respect of which VAT shall not be deductible. VAT shall in no circumstances be deductible in respect of expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.
Pending the entry into force of the provisions referred to in the first paragraph, Member States may retain all the exclusions provided for under their national laws at 1 January 1979 or, in the case of the Member States which acceded to the Community after that date, on the date of their accession." (PVD Article 176)
- Standstill derogations: evasion, avoidance and simplification
"Member States which, at 1 January 1977, applied special measures to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance may retain them provided that they have notified the Commission accordingly before 1 January 1978 and that such simplification measures comply with the criterion laid down in the second subparagraph of Article 395(1)." (PVD Article 394)
- New derogations: evasion, avoidance and simplification
"(1) The Council, acting unanimously on a proposal from the Commission, 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.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
(2) A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
(3) Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.
(4) The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission." (PVD Article 395)
- Standstill derogation based on Art 394 must prevent evasion/avoidance and be proportionate
"[29] It should , however , be noted that the measures notified must be of such a nature as to prevent tax evasion or avoidance and that in principle they may not derogate from the basis for charging vat laid down in article 11 , except within the limits strictly necessary for achieving that aim." (Commission v. Belgium C-324/82)
- Derogation requested on basis of preventing fraud/abuse cannot be justified on grounds of simplification
"[30] As regards the argument put forward by the German Government that the measure in question is legitimate because it is also aimed at simplifying the procedure for charging tax, corresponding to the first alternative provided for in Article 27(1) of the Sixth Directive, it must be noted that authorization for the derogating measure was requested in respect of the second alternative, namely in order to prevent tax evasion or avoidance. The authorization cannot therefore extend beyond that purpose." (Skripalle C-63/96)
- Identify purpose of derogation from request for authorisation
"[27] It must be pointed out that the objectives underlying a request for authorisation to introduce a measure which derogates from the Sixth Directive are important. Only two objectives are specified in Article 27(1) of that directive, namely simplification of the procedure for charging VAT and the prevention of tax evasion or avoidance. The measures relating to simplification are subject to the condition laid down in the second sentence of Article 27(1) of the Sixth Directive.
[28] In order to establish whether, in the statement of reasons in Decision 2000/186, the Council went beyond the objectives specified by the Federal Republic of Germany in its request, it is necessary to consider the wording of that request." (Sudholz C-17/01)
- Derogations may give rise to distortions of competition
"[56] In that regard, it must, in particular, be emphasised that the fact that maintenance of the derogating and transitional arrangements in question in certain Member States may, in some circumstances, give rise to distortions of competition in Germany, cannot in any way authorise that Member State to create itself distortions of competition to the detriment of the Member States which have transposed the provisions of the Sixth Directive (see, to that effect, Case C-74/91 Commission v Germany [1992] ECR I-5437, paragraph 25). That would be the case here if Eurodental were permitted to deduct VAT in Luxembourg, since, in such a situation, domestic transactions in that Member State, which do not give rise to the right to deduct input VAT, would be treated less favourably than intra-Community transactions which originated there.
[57] As regards the particular situation relied on by the German Government, it is therefore for the Community legislature to do everything necessary to establish the definitive Community system of exemptions from VAT and thereby to bring about the progressive harmonisation of national VAT laws, which is the only means of abolishing the distortions of competition stemming from the existence of the derogating and transitional arrangements permitted by the Sixth Directive (see, to that effect, Case C-305/97 Royscot and Others [1999] ECR I‑6671, paragraph 31, and Idéal tourisme, paragraph 39)." (Eurodental C-240/05)
Required not to affect tax due at final consumption stage more than negligibly
"[16] Paragraphs 1 to 4 of Article 27 of the Sixth VAT Directive (now paragraphs 1 to 4 of Article 395 of Directive 2006/112) made it possible for Member States to seek authorisation to introduce into their national legal system special measures for derogation designed to simplify the procedure for charging VAT or to prevent certain types of tax evasion or avoidance. Special measures intended to simplify the procedure for charging the tax were required not to affect, except to a negligible extent, the amount of tax due at the final consumption stage." (Commission v. UK C-276/19)
- Negligible effect assessed at a general level
"[68] It must be held in that regard that, as a simplifying measure is involved, the approach to be taken must be general, as in the case of determining whether the first condition has been fulfilled. Given that the measure in question reflects an average, the number of cases in which more tax is paid by a supplier such as Mr Sudholz than would be payable under the common system of deduction provided for under the Sixth Directive is likely to correspond generally to the number of cases where less tax is paid. The same reasoning applies in so far as the flat‑rate deduction scheme may influence the level of prices – and accordingly the basis of assessment for VAT – charged to the final consumers of goods and services supplied by a taxable person, such as Mr Sudholz. The overall effect on VAT payable to the Community in respect of its own resources would thus appear to be negligible.
[69] Moreover, even in individual cases, the effects on VAT due at the final consumption stage will be limited, given that it is possible for the supplier to apportion the VAT to all the goods sold over the years for which he keeps his vehicle." (Sudholz C-17/01)
- Possibility that VAT charged may differ from that chargeable under ordinary system inherent in derogations
"[31] However, even though, in certain circumstances, such as the loss of goods, their sale at a loss or unlawful sale at a price different from the retail price indicated on the tax labels, the manufacturer or importer may, in the context of a scheme such as that at issue in the main proceedings, be obliged to pay an amount of VAT which is higher than that which would have resulted from the application of the ordinary harmonised system for levying VAT, the mere possibility that such events may take place is not sufficient, however, to justify the conclusion that that scheme might affect, to a non-negligible extent, the amount of tax due at the final consumption stage (see, to that effect, Heintz van Landewijck, paragraphs 56 to 58). Indeed, a simplification measure implies, by definition, a more general approach than that of the rule which it replaces and thus will not necessarily reflect the exact situation of each taxable person (Sudholz, paragraph 62)." (Vandoorne C-489/09)
Interpretation and validity
- Interpret authorising decision strictly
"[45] Since Decision 2000/186 authorises a measure which derogates from the general principle that VAT is deductible, a strict approach is required to the question of its compatibility with the conditions laid down under Article 27(1) of the Sixth Directive (see, inter alia, Case C‑63/96 Skripalle [1997] ECR I-2847, paragraph 24)." (Sudholz C-17/01)
"[59] Provisions laying down derogations from the principle of the right to deduct VAT, which ensures the neutrality of that tax, are to be interpreted strictly."(Metropol C-409/99)
- National derogating measures interpreted strictly
"[42] With regard to the other arguments put forward by the Commission, it should be noted, first, that it follows from the Court’s settled case-law that the national derogations referred to in Article 27(1) to (5) of the Sixth VAT Directive (now Articles 394 and 395 of Directive 2006/112), which were allowed ‘in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance’, must be interpreted strictly and may not derogate from the basis for charging VAT usually applicable except within the limits strictly necessary for achieving that aim (see, inter alia, judgments of 29 April 2004, Sudholz, C‑17/01, EU:C:2004:242, paragraphs 45 and 46; of 14 July 2005, British American Tobacco and Newman Shipping, C‑435/03, EU:C:2005:464, paragraph 44; of 27 January 2011, Vandoorne, C‑489/09, EU:C:2011:33, paragraph 27; and of 14 December 2017, Avon Cosmetics, C‑305/16, EU:C:2017:970, paragraph 36)." (Commission v. UK C-276/19)
"[27] It must be recalled in this regard that the national derogating measures referred to in Article 27(1) and (5) of the Sixth Directive, which are allowed ‘in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance’, must be interpreted strictly and may not derogate from the basis for charging VAT laid down in Article 11 of that directive, except within the limits strictly necessary for achieving that aim (see Case 324/82 Commission v Belgium [1984] ECR 1861, paragraph 29, and Case C-63/96 Skripalle [1997] ECR I-2847, paragraph 24)..." (Vandoorne C-489/09)
"[53] As the Court has already held, the national derogating measures referred to in Article 27(5) of the Sixth Directive, which are allowed ‘in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance’, must be interpreted strictly (see, to that effect, Case 324/82 Commission v Belgium [1984] ECR 1861, paragraph 29). They may not derogate from the basis for charging VAT laid down in Article 11 of the Sixth Directive except within the limits strictly necessary for achieving that aim (Case C-63/96 Skripalle [1997] ECR I-2847, paragraph 24). They must also be necessary and appropriate to the realisation of the specific objective which they pursue and have the least possible effect on the objectives and principles of the Sixth Directive (Joined Cases C-177/99 and C-181/99 Ampafrance and Sanofi [2000] ECR I-7013, paragraph 60)." (Heintz C-494/04)
"[24] As the Court has already held, national derogating measures designed to prevent the evasion or avoidance of tax must be strictly interpreted and may not derogate from the basis for charging VAT laid down in Article 11 of the Sixth Directive, except within the limits strictly necessary for achieving that aim (Case 324/82 Commission v Belgium [1984] ECR 1861, paragraph 29). The question to be examined is whether those conditions are satisfied in this case." (Skripalle C-63/96)
- Proportionate and as little effect as possible on objectives of Directive
"[27] ... Those measures must also be necessary and appropriate for realising the specific objective which they pursue and have as little effect as possible on the objectives and principles of the Sixth Directive (Joined Cases C‑177/99 and C‑181/99 Ampafrance and Sanofi [2000] ECR I‑7013, paragraph 60, and Case C‑17/01 Sudholz [2004] ECR I‑4243, paragraph 46)." (Vandoorne C-489/09)
"[46] In order to do so, it is necessary to determine whether the flat-rate limit on permitted deductions, set at 50% of the amount paid by way of input VAT, could be considered necessary and appropriate for the attainment of the objectives which Decision 2000/186 pursues and as least likely to affect the objectives and principles of the Sixth Directive (see Joined Cases C-177/99 and C‑181/99 Ampafrance and Sanofi [2000] ECR I‑7013, paragraph 43)." (Sudholz C-17/01)
"[60] Second, it should be observed that in order for a Community measure concerning the VAT system to be compatible with the principle of proportionality, the provisions which it embodies must be necessary for the attainment of the specific objective which it pursues and have the least possible effect on the objectives and principles of the Sixth Directive." (Ampafrance SA C-177/99)
- Authorisation decision "not covered" by Directive in circumstances where effect is disproportionate
"[31] Consequently, the reply must be that an authorization by the Council to introduce a special measure for derogation from the Sixth Directive whereby, in order to prevent tax avoidance, in the case of supplies for consideration made between associated persons the cost to the taxable person within the meaning of Article 11(A)(1)(c) of the Sixth Directive is to be used as the minimum basis of assessment is not covered by Article 27 of the directive where the agreed consideration represents the market rate but is less than the minimum basis of assessment." (Skripalle C-63/96)
NEW DEROGATIONS
- Cannot rely on derogation where consultation requirement not complied with
"[60] As regards the first part of the second question, Article 17(7) of the Sixth Directive lays down one of the procedures in the directive for authorising derogations, giving Member States the right to exclude goods from the system of deductions [s]ubject to the consultation provided for in Article 29.
[61] That consultation enables the Commission and the other Member States to control the use by a Member State of the possibility of derogating from the general system of deducting VAT, by checking in particular whether the national measure in question satisfies the condition of adoption for cyclical economic reasons.
...
[65] In the main proceedings, it is common ground that the Austrian authorities did not consult the VAT Committee before adopting the 1996 regulations, contrary to the requirement in the first sentence of Article 17(7) of the directive. The Austrian Government may not therefore rely on those regulations to the detriment of taxable persons (see, by analogy, concerning Article 27(1) and (5) of the Sixth Directive, Lennartz, paragraph 34)." (Metropol C-409/99)
FRAUD DEROGATIONS
- Imposing VAT at a single stage and the same time excise duty charged permissible
"[46] Consequently, the answer to the question referred to the Court is that Articles 11.C(1) and 27(1) and (5) of the Sixth Directive must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which, by providing, for the purposes of simplifying the procedure for charging VAT and of combating tax evasion or avoidance in regard to manufactured tobacco, for the levying of that tax by means of tax labels, in a single charge and at source, from the manufacturer or importer of those products, excludes intermediate suppliers operating at a subsequent stage in the supply chain from the right to obtain reimbursement of VAT in the event of non-payment by the purchaser of the price for those products." (Vandoorne C-489/09)
"[58] The nature of the arguments that the scheme for collecting tax by means of tax stamps may lead to a variation in the tax due at the final consumption stage is not such as to support the conclusion that that scheme might affect, to a non-negligible extent, the amount of tax due at the final consumption stage. Such a scheme does not therefore disregard the criteria set out in Article 27(1) of the Sixth Directive." (Heintz C-494/04)
No reimbursement of VAT to intermediate supplier in the event of non-payment by its customer
"[41] Under those circumstances, it must be stated that reimbursement to such an intermediate supplier of an amount of VAT in the event that the purchaser has not paid the price for supplies of manufactured tobacco would affect, to a non-negligible extent, the amount of tax due at the stage of final consumption, contrary to the requirements of Article 27(1) of the Sixth Directive, and would therefore affect the tax revenue collected by the Member State at that stage. That would a fortiori be the case if the application for reimbursement of VAT were to relate to the entire amount paid by the manufacturer or importer of the manufactured tobacco on the ground that the tax paid in advance by them applies in full to the price invoiced by each intermediate supplier to its customer." (Vandoorne C-489/09)
- Disproportionate to irrebuttably disallow all expenditure on hospitality even in cases where expenditure is strictly for business purposes
"[61] A measure which consists in excluding as a matter of principle all expenditure in respect of accommodation, hospitality, food and entertainment from the right to deduct VAT, which is a fundamental principle of the VAT system established by the Sixth Directive, although appropriate means less detrimental to that principle than the exclusion of the right of deduction in the case of certain expenditure can be contemplated or already exist in the national legal order, does not appear to be necessary in order to combat tax evasion and avoidance.
[62] Although it is not for the Court to comment on the appropriateness of other means of combating tax evasion and avoidance which might be contemplated, including limiting authorised deductions to a fixed amount or introducing a control modelled on that employed in connection with income tax or corporation tax, it must be pointed out that, as Community law now stands, national legislation which excludes from the right to deduct VAT expenditure in respect of accommodation, hospitality, food and entertainment without making any provision for the taxable person to demonstrate the absence of tax evasion or avoidance in order to take advantage of the right of deduction is not a means proportionate to the objective of combating tax evasion and avoidance and has a disproportionate effect on the objectives and principles of the Sixth Directive." (Ampafrance SA C-177/99)
- Disproportionate to require taxable amount to be based on costs incurred due to connected parties even where consideration is market value
"[25] It is not disputed that, as between family members or associated persons, there may be a certain risk of tax evasion or avoidance justifying measures of the type which Article 27 of the Sixth Directive permits.
[26] However, there is no such risk where the objective facts show that the taxable person has acted properly. In retaining as the taxable amount the costs incurred where there is a relationship between associated persons, including cases where it is clear that the agreed income, which corresponds to normal market rent, is lower than those costs, the German rules are not confined to introducing the derogations strictly necessary to deal with the risk of tax evasion or avoidance. They are not, therefore, covered by Article 27 of the Sixth Directive." (Skripalle C-63/96)
- No reason why there could not be an exception for cases where no abuse/fraud
"[27] That finding is not affected by the fact that a legal rule must be formulated to a certain degree in abstract terms, which necessarily implies that the result will not always be appropriate in a specific case.
[28] First, as pointed out by the national court and confirmed by the parties at the hearing, cases in which the notional taxable amount is higher than normal market income, albeit rare, are not exceptional, in particular as far as rents are concerned. For political reasons rents are often set at a level aimed at facilitating access to housing, whereas costs in the building sector are extremely high.
[29] Secondly, there is nothing to prevent a provision formulated in fairly general or abstract terms from excluding cases in which the agreed rent is lower than the amount normally necessary to amortize building costs but is in accordance with normal market rent." (Skripalle C-63/96)
- Basing taxable amount on catalogue price in every case not justified
"[31] However , by applying to all new cars the catalogue prices notified to the belgian authorities , the belgian legislation entails such a complete and general amendment of the basis of assessment that it is impossible to accept that it contains only the derogations needed to avoid the risk of tax evasion or avoidance . In particular , it has not been proved that , in order to attain the aim in view , it is necessary that the taxable amount should be fixed on the basis of the belgian catalogue price or that the taking into account of any form of price discount or rebate should be excluded in such a comprehensive manner .
[32] It follows that the measures at issue are disproportionate to the aim in view in so far as they depart in a general and systematic way from the rules laid down in article 11 by covering sales and imports of all new cars , either leaving the factory or already used for a period of less than six months." (Commission v. Belgium C-324/82)
SIMPLIFICATION DEROGATIONS
- 50% limit on right to deduct input relating to vehicles justified as a simplification measure
"[55] These factors disclose a serious risk of tax evasion or avoidance. In those circumstances, the imposition of a flat-rate limit on the right to deduct would appear to be a measure to prevent that risk, while at the same time making verification more straightforward and simplifying the system for charging VAT.
...
[61] The fact that, as a result, those persons who intend to use their vehicle as to more than 50% for business purposes cannot deduct a corresponding proportion of the VAT charged on the purchase of their vehicle must accordingly be held to be inherent in the measure for simplification of the procedures for charging VAT.
[62] Indeed, it must be accepted that a simplification measure implies, by definition, a more general approach than that of the rule which it replaces and thus will not necessarily reflect the exact situation of each taxable person.
[63] To allow, as the Commission suggests, each taxable person who can show that more than 50% of the use of his vehicle is for business purposes to deduct a corresponding proportion of the VAT charged on the purchase of his vehicle would nullify the desired result of simplification. Such an approach would have the effect of recreating, for all persons claiming to use their vehicle in that way, the difficulties referred to above, that is to say the complexity of correctly assessing the proportion of the private or business use of vehicles, the difficulty of verifying the accuracy of returns and, accordingly, the risk of tax evasion and avoidance." (Sudholz C-17/01)
STANDSTILL DEROGATIONS
- Failure to notify does not affect validity
"[50] Late notification of the derogating measure cannot entail the same consequences as a failure to notify. Article 27(5) of the Sixth Directive does not in fact impose any sanction in respect of the failure to comply with the time-limit for notification. Furthermore, the purpose of that notification is not to obtain the Commission’s authorisation, but simply to enable it to become acquainted with the measure concerned and to evaluate it. In those circumstances, failure to comply with the time-limit for notification cannot be regarded as a material procedural defect capable of rendering inapplicable a derogating measure which was notified late." (Heintz C-494/04)
- National legislation refers to rule existing and actually applied
"[38] It follows that, taking account of the objective of that provision, the concept of ‘national legislation’ within the meaning of the second subparagraph of Article 17(6) of the Sixth Directive refers to the rules on deducting VAT existing and actually applied when that directive entered into force." (Magoora C-414/07)
- Includes administrative measures and practices of the public authorities
"[49] In view of that objective, it follows that the term national laws within the meaning of the second subparagraph of Article 17(6) of the Sixth Directive does not refer only to legislative acts in the strict sense, but also to administrative measures and practices of the public authorities of the Member State concerned." (Metropol C-409/99)
- Not permitted to exclude deduction of input tax that was previously permitted in accordance with ministerial circular
"[51] The answer to Question 1 must therefore be that the second subparagraph of Article 17(6) of the Sixth Directive precludes a Member State from excluding, after the entry into force of the Sixth Directive, expenditure relating to certain motor vehicles from the right to deduct VAT where, at the date of entry into force of that directive, that expenditure gave rise to the right to deduct VAT in accordance with a consistent practice of the public authorities of that State on the basis of a ministerial circular." (Metropol C-409/99)
- New national law which is in substance identical permitted
"[45] Fourth, in the judgment of 13 February 1985, Direct Cosmetics (5/84, EU:C:1985:71, paragraphs 25 to 29), the Court held that a measure notified by a Member State before 1 January 1978 is deemed to have become ineffective from the moment at which the measure in question was replaced by a new national provision, ‘unless it is shown that the new provision may be regarded as being substantially the same as the previous provision’. After finding that the amendment at issue in that case was a ‘substantial change compared with the measure notified in 1977 because it omits the very element which linked that measure to the Sixth [VAT] Directive’, the Court noted that ‘only a notification effected in conformity with paragraph (2) of Article 27 [of that directive (now Article 395(2) of Directive 2006/112)] would have enabled the Commission and, where appropriate, the Council to verify whether the new measure was still consistent with the aim laid down in paragraph (1) of that Article’ despite the removal of the element concerned. Therefore, the Court held that where national provisions that have been notified in accordance with Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) are the subject of such a substantial amendment, that amendment constitutes a new ‘special measure’ and the Commission must be notified of it." (Commission v. UK C-276/19)
"[87] Consequently, it must be held that a provision which is, in substance, identical to the previous legislation, or limited to reducing or eliminating an obstacle to the exercise of Community rights and freedoms in the earlier legislation, will be covered by the derogation provided for in Article 17(6) of the Sixth Directive. By contrast, legislation based on an approach which differs from that of the previous law and establishes new procedures cannot be treated as legislation existing at the date fixed in the Community measure in question (see, to that effect, Case C-155/01 Cookies World [2003] ECR I‑8785, paragraph 63, and, by analogy, Holböck, paragraph 41)." (Puffer C-460/07)
- New national law reducing the derogation permitted
"[85] In that context, the Court has held that any national measure adopted after a date thus fixed is not, by that fact alone, automatically excluded from the derogation laid down in the Community measure in question (Holböck, paragraph 41). Where, after the entry into force of the Sixth Directive, the legislation of a Member State is amended so as to reduce the scope of existing exemptions and thereby brings itself into line with the objective of the Sixth Directive, that legislation must be considered to be covered by the derogation in the second subparagraph of Article 17(6) of the Sixth Directive and is not in breach of Article 17(2) of that directive (see Commission v France, paragraph 22, and Metropol and Stadler, paragraph 45)." (Puffer C-460/07)
"[36] Where, after the entry into force of the Sixth Directive, the legislation of a Member State is amended so as to reduce the scope of existing exemptions and thereby brings itself into line with the objective of the Sixth Directive, that legislation must be considered to be covered by the derogation in the second subparagraph of Article 17(6) of the Sixth Directive and is not in breach of Article 17(2) (see Case C‑345/99 Commission v France , paragraph 22; Metropol and Stadler , paragraph 45; and Danfoss and AstraZeneca , paragraph 32)." (Magoora C-414/07)
For instance going from full input block to partial input block
"[23] In the present case, the national legislative amendment replaces a total exclusion of private cars from the right to deduct VAT with authorisation for partial deduction, that is to say in respect of vehicles and machines used exclusively for driving instruction.
[24] It follows that the amendment so made to the French legislation has the effect of reducing the scope of existing exemptions and bringing that legislation into line with the general regime of deduction set out in art 17(2) of the Sixth Directive." (Commission v. France C-345/99)
- Amendment to reduce scope permitted
"[41] It must be held that the repeal of national provisions, on the date of entry into force of the Sixth Directive in the national legal system concerned, and their replacement on the same date by other national provisions does not in itself give rise to the presumption that the Member State concerned has stopped applying exclusions on the right to deduct input tax. Neither does such a legislative amendment automatically lead to the conclusion that there is an infringement of the second subparagraph of Article 17(6) of that directive, provided, however, that it has not led to an extension, from the said date, of the previous national exclusions." (Magoora C-414/07)
- New national law expanding the derogation not permitted
"[86] On the other hand, national legislation does not constitute a derogation permitted by the second subparagraph of Article 17(6) of the Sixth Directive, and infringes Article 17(2) of the directive, if its effect is to increase, after the entry into force of the Sixth Directive, the extent of existing exclusions, thus diverging from the objective of that directive (Case C-40/00 Commission v France [2001] ECR I-4539, paragraph 17, and Metropol and Stadler, paragraph 46)." (Puffer C-460/07)
"[37] It must be recalled, according to the settled case-law of the Court, that national legislation does not constitute a derogation permitted by the second subparagraph of Article 17(6) of the Sixth Directive if its effect is to increase, after the entry into force of that directive, the extent of existing exclusions, thus diverging from the objective of that directive (see Case C‑40/00 Commission v France [2001] ECR I-4539, paragraph 17; Case C‑155/01 Cookies World [2003] ECR I-8785, paragraph 66; and Danfoss and AstraZeneca , paragraph 33).
...
[43] However, it should be noted, as set out in the reference for a preliminary ruling, that the amendment of the Law on VAT introduced by the Law of 21 April 2005, which entered into force on 22 August 2005, extends the scope of those restrictions as compared with the situation existing when the Sixth Directive entered into force in the Republic of Poland, which, having regard to the case-law set out in paragraph 36 of this judgment, is contrary to the second subparagraph of Article 17(6) of that directive." (Magoora C-414/07)
- Not sufficient that amendments pursue the same purpose as the original measure
"[53] Furthermore, it cannot be sufficient, as the United Kingdom claims, that the national provisions which thus amended the measure notified under Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) might pursue the same purpose as that measure, since only a notification given in accordance with Article 27(2) of the Sixth VAT Directive (now Article 395(2) of Directive 2006/112) is capable of enabling the Commission and the Council to verify whether the special measure as amended still achieves the aim laid down in Article 27(1) of the Sixth VAT Directive (now Article 395(1) of Directive 2006/112) and meets the other criteria necessary for the derogation provided for in that provision to apply (see, to that effect, judgment of 13 February 1985, Direct Cosmetics, 5/84, EU:C:1985:71, paragraph 28).
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[55] It follows that the contested amendments consist of substantial amendments and, therefore, constitute new ‘special measures for derogation’ within the meaning of Article 27(1) to (4) of the Sixth Tax Directive (now Article 395(1) to (4) of Directive 2006/112), which means that the Commission should have been given notification of those amendments for authorisation by the Council in accordance with Article 27(2) of the Sixth Directive (now Article 395(2) of Directive 2006/112)." (Commission v. UK C-276/19)
- Use of a different mechanism to achieve, in essence, the same result not permitted
"[93] Therefore, it must be held that, even if it cannot be ruled out that they achieve results which, in essence, are identical, the approach of the old and new legislation differs and that they have laid down different procedures, meaning that the new legislation cannot be treated as if it was legislation existing when the Sixth Directive entered into force." (Puffer C-460/07)
- Irrelevant whether national legislature thought it was correctly implementing EU law
"[94] In that regard, it is irrelevant, as stated by the Advocate General in point 77 of her Opinion, whether the national legislature amended the previous national legislation on the basis of a correct or incorrect interpretation of Community law." (Puffer C-460/07)
- Supplies that were excluded from derogation at relevant date cannot be included even if that means splitting the VAT rate applicable to single supply
"[24] The fact that the supply of the caravan and of its contents may be characterised as a single supply does not affect that conclusion. The case-law on the taxation of single supplies, relied on by Talacre and referred to in paragraph 15 of this judgment, does not relate to the exemptions with refund of the tax paid with which Article 28 of the Sixth Directive is concerned. While it follows, admittedly, from that case-law that a single supply is, as a rule, subject to a single rate of VAT, the case-law does not preclude some elements of that supply from being taxed separately where only such taxation complies with the conditions imposed by Article 28(2)(a) of the Sixth Directive on the application of exemptions with refund of the tax paid." (Talacre Beach Caravans C-251/05)
SOCIAL REASON DEROGATIONS
- Established for clearly defined social reasons for benefit of final consumer
"[18] It is apparent, secondly, from the wording of Article 28(2)(a) of the Sixth Directive that the application of exemptions with refund of the tax paid is subject to a number of conditions. Those exemptions must have been in force on 1 January 1991. In addition, they must be in accordance with Community law and satisfy the conditions stated in the last indent of Article 17 of the Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes – Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967, p. 16), now repealed, which provided that exemptions with refund of the tax paid could only be established for clearly defined social reasons and for the benefit of the final consumer." (Talacre Beach Caravans C-251/05)
RESTRICTIONS ON INPUT DEDUCTION
- Objective: allow Member State to maintain restrictions actually applied
"[35] The second subparagraph of Article 17(6) of the Sixth Directive contains a ‘standstill’ clause which provides for the retention of national exclusions from the right to deduct VAT which were applicable before the Sixth Directive entered into force ( Ampafrance and Sanofi , paragraph 5). The objective of that provision is to allow the Member States, pending the establishment by the Council of the Community system of exclusions from the right to deduct VAT, to maintain any rules of national law excluding the right to deduct which were actually applied by their public authorities at the date of entry into force of the Sixth Directive ( Metropol and Stadler , paragraph 48, and Danfoss and AstraZeneca , paragraphs 30 and 31)." (Magoora C-414/07)
- Failure of council to bring forward harmonised regime not affecting right to derogate
"[32] The answer to the fourth question must therefore be that, on a proper construction of Article 17(6) of the Sixth Directive, Member States may retain the exclusions from the right to deduct VAT referred to in its second subparagraph, even though the Council did not decide, before the expiry of the period laid down in the first subparagraph, which expenditure should not be eligible for deduction of VAT." (Royscot Industrial Leasing Ltd C-305/97)
- Not limited to the types of supply referred to in Article 176
"[23] It follows from its wording, which is clear and unambiguous, that Article 11(4) authorised Member States to exclude from the right of deduction even expenditure which is strictly business-related. It cannot be inferred from the second part of Article 11(4) of the Second Directive, which provides that the exclusions may relate in particular to certain goods and services capable of being used exclusively or partially for private needs, that Member States could exclude only expenditure in respect of such goods and services. On the contrary, by using the term `in particular', the legislature expressed its clear intention not to limit the authorised exclusions to expenditure for goods and services capable of being used for private purposes." (Royscot Industrial Leasing Ltd C-305/97)
- But must apply to specific types of supply rather than any supply used for private purposes
"[32] While Article 11(1) of the Second Directive introduced the right of deduction, Article 11(4) provided that the Member States could exclude from the deduction system ‘certain goods and services … in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff’.
[33] The latter provision did not therefore confer on Member States an unfettered discretion to exclude all and any goods and services from the system of the right of deduction and thereby negate the system established by Article 11(1) of the Second Directive (see Royscot, paragraph 24).
[34] Therefore, although Article 11(4) of the Second Directive authorised Member States to exclude from the deduction system certain goods, such as motor vehicles, that provision did not make it possible for them to exclude from such a system all goods in so far as they are used for the private purposes of the taxable person.
[35] It follows that Article 17(6) of the Sixth Directive, read in conjunction with Article 11(4) of the Second Directive, does not authorise Member States to retain a general exclusion from the deduction system of all goods of the taxable person in so far as they are used for his private purposes." (Charles C-434/03)
- Restriction can apply even to goods that are essential tools of the business or which could not be used privately
"[25] However, in excluding from the right of deduction certain goods such as motor cars, the United Kingdom has not impaired the general system of the right of deduction, but has made use of an authorisation deriving from Article 11(4) of the Second Directive. This is a fortiori the case inasmuch as cars are goods which, by their nature, are capable of being used exclusively or partially for the private needs of the taxable person or of his staff.
[26] The answer to the first and second questions must therefore be that Article 11(4) of the Second Directive authorised Member States to introduce or retain, and Article 17(6) of the Sixth Directive authorises them to retain, general exclusions from the right to deduct the VAT payable on the purchase of motor cars used by a taxable person for the purposes of his taxable transactions, even though
- those cars were essential tools in the business of the taxable person concerned, or
- those cars could not, in a specific case, be used for private purposes by the taxable person concerned." (Royscot Industrial Leasing Ltd C-305/97)