April/May edition

EU business news

VAT rates can be lowered, based on local rules

In November the European Parliament’s Economics Committee said all EU countries should be able to use lower rates, if they wish, for locally supplied services and for basic goods and services where there is a clear social, economic or environmental benefit from doing so but, supported the extension of some temporary measures allowing specific Member States to impose lower than standard rates of the Value Added Tax (VAT) on certain goods and services.

For years, the EU has been trying to introduce a common system of VAT based on taxation in the country of origin, but the European Commission now accepts there is no prospect of the European Council soon reaching unanimity on this.

Instead, there have been transitional arrangements such as the system as was in place in 1993, with goods and locally supplied services taxed in the country of the consumer that now look likely to remain in force for some time.

Some Member States have derogations allowing them to charge lower rates of VAT on certain goods and services which apply indefinitely, while others - countries which joined the EU in 2004 - have time limited derogations which are about to expire.

Some Member States have also been allowed to apply lower rates on certain labour intensive services. This experiment runs to 2010, when the current minimum standard rate of 15 percent ends.

Subject to a new assessment by the Council of the application of lower rates of VAT, due in 2010, the Commission is proposing to extend most of the existing derogations due to expire this year until 2010.

The Economic and Monetary Affairs Committee has unanimously approved the plan of MEP Ieke van den Burg of The Netherlands. But, the European Council has the final decision.

Also, the MEPS supported the rapporteur’s proposal to use this consultation procedure to send a message to Council and Commission on the wider issues including that on VAT rates, the EU should not go further than what is needed to ensure the internal market functions properly.