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

Background and further information:

Pursuant to Article 395 of the VAT Directive, the Council 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. In the case of Romania, the 0% VAT rate is requested for purposes of fighting tax evasion and decreasing the shadow economy. Furthermore the measure is supposed to have additional economic and social benefits.

When the Commission receives requests in accordance with Article 395, 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 and/or the tax administration or whether it prevents certain types of tax evasion or avoidance. In this context, the Commission has always taken a limited, cautious approach to ensure that derogations do not undermine the operation of the general VAT system, are limited in scope, necessary and proportionate.

In this respect the Commission would like to reiterate that a derogation based on Article 395 of the VAT Directive can only be granted in order to prevent certain types of tax evasion or avoidance. Tax fraud in the area of VAT deprives public budgets of revenues which could have been collected from VAT. The fight against tax fraud aims to stop these losses to the public budgets and regain the lost revenues. However, by introducing the 0% VAT rate this aim is not fulfilled. With the planned measure no revenues stemming from VAT would be collected on the supplies subject to 0% VAT rate as Romania simply renounces such revenues.

Consequently, according to the Commission, the introduction of 0% VAT rate cannot be regarded as a measure to prevent tax evasion or avoidance as required by Article 395 of the VAT Directive. As the conditions of Article 395 are not fulfilled, the derogating measure requested by Romania cannot be justified based on this Article.

On 26 April 2017, Romania requested authorisation, based on Article 395 of the VAT Directive, to apply 0% rate of VAT to a number of supplies of goods and services for the purpose of combating tax evasion.

The Commission has objected to this request, on the basis that the introduction of 0% VAT rate cannot be regarded as a measure to prevent tax evasion or avoidance as required by Article 395 of the VAT Directive.