Arsene Taxand - VAT & indirect taxes

Recasting of the 6th Directive: direct and collateral effects

On November 28, 2006, at the Eurofin Council meeting, the Council of the European Union adopted Directive 2006/112/EC (published in the Official Journal of the European Union L/2006/347/1).

The purpose of this directive is to recodify the sixth VAT Directive 77/388/EEC of May 17, 1977, without however affecting the substance of the provisions, in order to make it clear and comprehensible, so that it reflects the legislation currently in force, and in particular the numerous derogations obtained by Member States since 1978.

The final product is not very satisfactory, consisting of 118 pages, and a mixture of small and larger measures taken since 1978, as well as 67 preambles which are more of a declaration of intent than a definition of European Union tax policy.

A few observations on the changes made with regard to substance and form:

1 – Direct effects

The direct effects are very limited in practice:

- Changes in form: the new Directive recodifies the whole text of the Sixth Directive; a correlation table between the old and new numbering of the Articles is attached as an annex to the Directive (Annex XII); this will mean that European companies who previously referred to Articles from the Sixth Directive in their invoices will have to update their invoicing modules;

- A few changes in substance, with effect, in particular, as from January 1, 2008: Article 2, paragraph 3 (products subject to excise duty), Article 44 (supply of services by intermediaries), Article 59, paragraph 1 (telecommunications services), article 389 (exemption of international transport services for Slovenia), Annex III, point 18 (street cleaning).


2 – Collateral effects

The collateral effects are however greater:

- The recast directive repeals the First Directive 67/227/EEC of April 11, 1977 on the harmonization of legislation of Member States concerning turnover taxes. Although essentially all the provisions of the First Directive are incorporated into the recast Directive, the preambles to the First Directive and the reference to the prohibition on cumulative cascade taxes have been eliminated. Accordingly, the possibility of arguing that a tax (for example the Organic tax in France) is incompatible with Community law due to the fact that it is allegedly a cumulative cascade tax is eliminated with regard to taxes payable from January 1, 2007 onwards.


- Furthermore, the possibility offered by Article 1 of Directive 2006/69 of July 24, 2006, of applying a "normal" value that is different from the transactional value within the scope of measures to combat tax evasion or avoidance (an amendment to Article 11 of the Sixth Directive), is also recodified in Article 80 of the recast directive. The recast Directive therefore repeals Article 1 of Directive 2006/69 but without prejudice to the time limits for transposition that were provided for in respect of the application of this provision, that is the requirement to transpose the provisions by January 1, 2008 at the latest (see Article 411 and Annex XI part B of the recast Directive). Is this link-up between indirect taxes and direct taxes the best way to combat presumed VAT evasion? Nothing is less sure and it will be necessary to wait to see how these new provisions are used at the time of tax audits in order to draw an initial conclusion.


- Finally, with regard to substance, it is noteworthy that the recast Directive refers, in its preambles, to compliance by the Council with the principle of subsidiarity provided for by Article 5 of the Treaty of the European Union, in order to justify the action by the European Community; it bases itself on the premise that the ob jectives that it defines cannot be sufficiently achieved by Member States. The objective of the principle of subsidiarity is implicitly to reduce the scope of action of the Community, all actions having to be carried out as close as possible to citizens, in other words by the Member States. Stating in a Preamble that the Council's action respects the principle of subsidiarity is more a formal declaration than a detailed analysis of the provisions of this Directive. It is therefore likely that the definition of the effective scope of application of the principle of subsidiarity will be a hotly debated topic between Member States and the Council over the next few years.



refonte_directive_tva_decembre2006_1.pdf (519.82 Ko)