Proposal for a Council Implementing Decision authorising Hungary to apply a special measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of value added tax

Background and further information:

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’), the Council may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

In order to fight VAT fraud in the sector of temporary employment agencies, Hungary requested in 2014 a derogation from Article 193 of the VAT Directive to be authorised, to provide that for supplies of staff engaged in activities other than those covered by point (a) of Article 199(1) of the VAT Directive, the person liable for payment of VAT is the taxable person to whom the supplies are made (the reverse charge mechanism). The authorisation was granted by Council Implementing Decision (EU) 2015/2349 which expired on 31 December 2017.

On 26 June 2017 Hungary requested authorisation to continue to apply the special measure. According to information submitted by Hungary, the reverse charge mechanism has proven to be an appropriate and effective tool in combating corrupt practices in the temporary employment agencies sector. Hungary considers that to further reduce the damage done to the sector the protective reverse charge mechanism needs to be maintained.

Hungary also informed the Commission that a new legal institution was to be introduced in Hungary, namely pensioners' cooperatives. Similarly to school cooperatives, employment by pensioners' cooperatives is to be considered analogous to temporary agency work. Hungary therefore requests the reverse charge mechanism to apply also to these cooperatives.

It is proposed to grant the derogation until 31 December 2020. As the measures undertaken and to be introduced by Hungary should be effective in the fight against fraud in the sector concerned, Hungary should not need any longer period to derogate from Article 193 of the VAT Directive with regards to supplies of staff by temporary employment agencies. A renewal of the derogation should therefore not be necessary.

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