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, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures derogating from the provisions of this Directive, in order to simplify the procedure for charging VAT or to prevent certain forms of tax evasion or avoidance.
By letter registered with the Commission on 21 April 2021, Latvia requested an authorisation to continue to apply a measure derogating from the overall principles governing the right of deduction of input VAT in relation to expenditure on certain passenger cars not wholly used for business purposes. Together with the request for extension, Latvia submitted a report including a review of the percentage foreseen for the limitation of the right of deduction. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letters dated 10 June 2021 of the request made by Latvia. The Commission notified Latvia by letter dated 14 June 2021 that it had all the information necessary to consider the request.
Latvia is currently authorised on the basis of Council Implementing Decision (EU) 2015/24292 to limit to 50% the right of deduction of VAT paid on the purchase, leasing, intraCommunity acquisition and importation of specified passenger cars, and expenditure related to the maintenance, repair and fuel for such cars, when those passenger cars are not wholly used for business purposes. The special measure also relieves taxable persons from having to treat the non-business use of such passenger cars as a supply of services. Passenger cars covered by the special measure are those with a maximum authorised weight not exceeding 3 500 kilograms and having not more than eight seats in addition to the driver’s seat. Passenger cars which are used for certain specific activities are excluded from the restriction on the right to deduct and would be treated under the normal rules: cars purchased for resale, hire or lease; cars used for transportation of passengers (such as taxis) or goods; cars used for driving lessons; cars used for guard or emergency services; cars used as car sales demonstration vehicle. The validity of Council Implementing Decision (EU) 2015/2429 was extended by Council Implementing Decision (EU) 2018/19213 until 31 December 2021.
The present request by Latvia to prolong further the special measure is based on the same grounds as those presented in the previous requests. The request is accompanied by a report including a review of the percentage limitation applied on the right of deduction, as required by Article 6(2) of Council Implementing Decision (EU) 2015/2429. Latvia considers that the conditions for the application of the special measure continue to apply and that the applied 50% limit remains appropriate.
Latvia confirms that the special measure allows administrative burden to be eased for taxpayers and for the tax administration and limits the evasion of VAT through incorrect record keeping of journeys made in connection with business activities and incorrectly completed VAT returns. According to the data submitted by Latvia, in 2019 microenterprises and SMEs accounted for almost 99.7% of the economically active enterprises which complicates the task of the tax authorities when verifying the business and private use of passenger cars. As of 1 January 2021 the total number of registered traders in Latvia with one or two passenger cars was 21 739 or 82% of all registered traders who registered passenger cars. Since microenterprises and SMEs make up 99.7% of all operators, Latvia maintains that
most of the passenger cars are used for private purposes. According to the data provided, in 2020 87.6% of all passenger cars belonging to registered traders were used not just for business but also for private purposes.
Given the positive impact of the special measure on the administrative burden of taxpayers and of tax authorities, it is proposed to grant the measure for another limited period, until 31 December 2024. Any extension request should be accompanied by a report which includes a review of the percentage applied and should be sent to the Commission by 31 March 2024.
Source: europa.eu
