Following their country’s accession to the EU, Croatian taxpayers will enjoy a few derogations and transitional periods from the aquis communautaire. Upon the temporary closure of negotiations with Croatia on taxation, on 30 June (see Europolitics4010), the EU formally approved four requests put forward by Zagreb for transitional periods or derogations in the area of indirect taxation. This decision was the outcome of a difficult compromise achieved between the two sides. In its initial negotiating position on taxation, Zagreb was requesting a greater number of transitional periods and derogations, specifically in the field of VAT and minimum levels of taxation on electricity and gas. However, certain requests had been withdrawn or modified (limited to shorter periods) by Croatia during the negotiations.

The EU is very reluctant to grant derogations or transitional periods to candidate countries during the accession talks. In principle, it only accepts deviations from the acquisif they are limited in time and scope. According to the EU’s rules of procedure, all such deviations have to be accompanied by a plan with clearly defined stages for the application of the acquis.

Citing different - mainly economic - reasons, Croatia has requested derogations and transitional periods in over ten out of the 33 areas subject to negotiation. The EU member states have in turn put forward requests for transitional measures in two areas, namely the free movement of workers and transport policy (3703).

SPECIAL MEASURES

According to the EU’s negotiating position on taxation, obtained by Europolitics, the “supply of building land,” with or without buildings on it, will be exempted from VAT until 31 December 2014. “In consequence, the right of deduction of input tax on goods and services used as inputs in the course of construction of buildings on the building land will remain unchanged during the transitional period and the current system of full right of input tax deduction applied in Croatia for all the supplies related to the construction of buildings on building land is maintained,” says the document.

Zagreb has won a derogation under which it can apply a lower VAT exemption and registration threshold. Upon accession, the VAT exemption and registration threshold in Croatia will be €35,000. “To this effect, Article 287 of Directive 2006/112/EC shall be amended as in point (b) of the annex,” says the same document.

Croatia has been allowed to continue exempting international transport of passengers from VAT, with the right to input tax deduction, as referred to in Point 10 of Annex X, Part B of Directive 2006/112. The EU’s negotiating position noted, however, that “this derogation only applies until it is either abolished in accordance with Article 393 of Directive 2006/112 pursuant to which the Council shall, on the basis of a report from the Commission, review the situation with regard to these derogations or so long as the same exemption is applied by any of the current member states, whichever date comes first”.

According to the EU’s negotiating position, Croatia will have until 31 December 2017 to introduce an overall excise duty on cigarettes of at least 60% of the weighted average retail selling price of cigarettes released for consumption and the minimum requirement of €90 per 1,000 cigarettes. The same document states that Croatia has committed itself to increase gradually the excise duties in order to reach the above requirements and to ensure that, as from 1 January 2014, the excise duty shall not be less than €77 per 1,000 cigarettes irrespective of the weighted average retail selling price.

Background

‘Derogation’ is a provision in EU legislation, which allows for all or part of a legal measure to be applied differently, or not at all, by a member state. ‘Transitional period’ is a measure limited in time, which allows for all or part of a legal measure to be applied differently, or not at all, by a member state.