Date: 2018-12-17Category: Not ApplicableState: Union GovernmentCountry: Europe
Council Implementing Decision (EU) 2018/1994 of 11 December 2018 authorising Croatia to introduce a special measure derogating from point (a) of Article 26(1) and Article 168 of Directive 2006/112/EC on the common system of value added tax
Executive Summary:
Council Implementing Decision (EU) 2018/1994 authorises Croatia to introduce a special measure derogating from Articles 26(a) and 168 of Directive 2006/112/EC regarding VAT deductions for passenger cars not wholly used for business purposes. This allows Croatia to limit VAT deductions to 50% for related expenditures. The decision is effective from January 1, 2019, to December 31, 2021, with a possible extension request due by March 31, 2021.
Key Points / Main Content:
VAT Deduction Limitation:
Croatia is authorised to limit VAT deduction to 50% on expenses related to passenger cars not fully used for business purposes.
This derogates from Article 168 of Directive 2006/112/EC.
Non-Business Use:
Croatia will not treat the non-business use of passenger cars as a supply of services if the VAT deduction has been limited under this decision.
This derogates from Article 26(a) of Directive 2006/112/EC.
Scope of Expenditure:
The 50% VAT deduction limit applies to the purchase and leasing of passenger cars and related goods and services.
Vehicle Definition:
Passenger cars are defined as motor vehicles intended for transporting people, with a maximum of eight seats in addition to the driver's seat.
Exclusions:
The decision does not apply to:
Vehicles used for driver training, vehicle testing, repair services, passenger and goods transport, transport of the deceased, or rental.
Vehicles purchased for resale.
Effective Dates:
The decision is effective upon notification.
It applies from January 1, 2019, to December 31, 2021.
Extension Request:
If Croatia seeks an extension, it must submit a request to the Commission by March 31, 2021.
The request must include a report reviewing the applied percentage.
Impact Analysis:
Republic of Croatia:
Impact: Authorised to limit VAT deductions on passenger cars to 50%, simplifying tax procedures and countering VAT evasion.
Action Required: Implement the special measure in national legislation from January 1, 2019, to December 31, 2021. Submit a request for extension by March 31, 2021, if needed, with a report reviewing the applied percentage.
Taxable Persons in Croatia:
Impact: VAT deduction on passenger car expenses is limited to 50% for cars not wholly used for business purposes. This may reduce administrative burdens.
Action Required: Adjust VAT deduction practices for passenger car expenses to align with the 50% limit, unless the vehicle is excluded as mentioned above.
European Commission:
Impact: Receives and assesses any extension request from Croatia regarding the special VAT measure.
Action Required: Review any extension request submitted by Croatia by March 31, 2021, including the provided report.
Council of the European Union:
Impact: Responsible for the decision to authorise Croatia to introduce the special measure.
Action Required: No further action required unless Croatia requests an extension of the measure.
Key Entities Referenced
Croatia: Member State of the European Union requesting a special measure for VAT deduction on passenger cars.
European Union: Political and economic union of member states located primarily in Europe.
Council Directive 2006/112/EC: Directive on the common system of value added tax (VAT).
European Commission: The executive branch of the European Union responsible for proposing legislation, implementing decisions, and managing the EU's day-to-day business.
Article 168 of Directive 2006/112/EC: Establishes a taxable person's right to deduct value added tax (VAT) charged on supplies of goods and services.
Article 261 of Directive 2006/112/EC: Contains a requirement to account for VAT when a business asset is used for private purposes.
Value Added Tax (VAT): A consumption tax assessed on the value added to goods and services.
Brussels: The city where the Council Implementing Decision was done.
17.12.2018 EN Official Journal of the European Union L 320/35
COUNCIL IMPLEMENTING DECISION (EU) 2018/1994
of 11 December 2018
authorising Croatia to introduce a special measure derogating from point (a) of Article 26(1) and
Article 168 of Directive 2006/112/EC on the common system of value added tax
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (1),
and in particular Article 395(1) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1) Article 168 of Directive 2006/112/EC establishes a taxable person's right to deduct value added tax (VAT)
charged on supplies of goods and services received by that person for the use of that person's taxed
transactions. Point (a) of Article 26(1) of that Directive contains a requirement to account for VAT when
a business asset is put to use for private purposes of the taxable person or his staff or, more generally, for
purposes other than those of his business.
(2) By letter registered with the Commission on 22 December 2016, Croatia requested authorisation to apply
a special measure derogating from the provisions of Directive 2006/112/EC governing the right to deduct input
tax in relation to the purchase and leasing of aircrafts, vessels and personal cars, including the purchase of
accessories for such goods as well as services supplied in relation thereto. After a number of discussions with the
Commission, Croatia submitted a modified request limited to passenger cars, which was registered with the
Commission on 17 September 2018.
(3) The Commission transmitted the request of Croatia to other Member States by letter dated 21 September 2018.
By letter dated 24 September 2018, the Commission notified Croatia that it had all the information it considered
necessary for the appraisal of the request.
(4) Taxable persons in Croatia cannot deduct VAT related to passenger cars used partially for business
purposes. Croatia intends to modify its legislation and allow the deduction of input VAT relating to passenger
cars.
(5) Croatia claims that it is often difficult to accurately determine the extent to which cars are used for private or
professional purposes and that, even where it is possible, this is often burdensome. Croatia therefore considers
that it would be appropriate to apply the fixed percentage for the VAT deduction. Based on estimations, Croatia
submits that the 50 % limit is appropriate.
(6) According to Croatia, the application of the fixed percentage limit for the VAT deduction will not result in an
additional administrative burden or additional costs for businesses or tax authorities, while the VAT deduction
will be possible. The introduction of the VAT deduction will reduce the interest of taxpayers to procure goods
and services related to passenger cars from persons performing a non-registered activity.
(7) Croatia therefore requested authorisation, based on Article 395 of Directive 2006/112/EC, to apply a special
measure derogating from point (a) of Article 26(1) and Article 168 of that Directive in order to limit the right of
deduction on passenger cars to a set percentage (‘the special measure’).
(8) The restriction on the right of deduction should apply to VAT paid on the purchase and lease of personal cars,
including the purchase of all goods and services supplied in relation thereto. Passenger cars covered are
considered to be motor vehicles intended for the transport of persons with a maximum of eight seats in addition
to the driver's seat.
(1) OJ L 347, 11.12.2006, p. 1.L 320/36 EN Official Journal of the European Union 17.12.2018
(9) The special measure is designed to simplify the procedure for charging tax and to counter VAT evasion while
allowing the deduction of VAT on passengers cars used partially for business purposes. Given the potential
positive impact for both businesses and administrations, it is appropriate to grant the special measure.
(10) The special measure should apply from 1 January 2019 and should be limited in time to 31 December 2021, so
that it can be assessed whether the 50 % restriction is a correct reflection of the overall apportionment between
business and private use.
(11) In the event that Croatia considers that an extension of the special measure beyond 2021 is necessary, it should,
by 31 March 2021, submit to the Commission a request for an extension accompanied by a report that includes
a review of the percentage applied.
(12) The special measure will have only a negligible effect on the overall amount of tax revenue collected at the stage
of final consumption and will have no adverse impact on the Union's own resources accruing from VAT,
HAS ADOPTED THIS DECISION:
Article 1
By way of derogation from Article 168 of Directive 2006/112/EC, Croatia is authorised to limit to 50 % the right to
deduct the value added tax (VAT) on expenditure related to passenger cars not wholly used for business purposes.
Article 2
By way of derogation from point (a) of Article 26(1) of Directive 2006/112/EC, Croatia shall not treat as supplies of
services for consideration the use for non-business purposes of a passenger car included in the assets of a taxable
person's business where that car has been subject to a limitation authorised under Article 1 of this Decision.
Article 3
The expenditure referred to in Article 1 shall cover the purchase and leasing of passenger cars including the purchase of
all goods and services supplied in relation thereto.
Article 4
This Decision shall only apply to motor vehicles intended for the transport of persons with a maximum of eight seats in
addition to the driver's seat.
Article 5
Articles 1 and 2 shall not apply to:
(a) vehicles used for the training of drivers, vehicle testing, repair services, an economic activity involving the transport
of passengers and goods, the transport of the deceased or rent;
(b) vehicles purchased for the purpose of resale.
Article 6
This Decision shall take effect on the date of its notification.
It shall apply from 1 January 2019 until 31 December 2021.
Any request for the extension of the authorisation provided for in this Decision shall be submitted to the Commission
by 31 March 2021 and shall be accompanied by a report that includes a review of the percentage set out in Article 1.17.12.2018 EN Official Journal of the European Union L 320/37
Article 7
This Decision is addressed to the Republic of Croatia.
Done at Brussels, 11 December 2018.
For the Council
The President
G. BLÜMEL