Brussels, 07/03/2016 (Agence Europe) - The European Commission is reported to be looking into two options for reduced VAT rates. In an action plan for a definitive VAT scheme, which is scheduled for publication on 16 March, the Commission is to tackle the issue of reduced rates, two sources told EUROPE on Monday 7 March.
Under current rules, states may not apply a zero rate to a product, unless all the other states give their consent. This is a particularly contentious point for the United Kingdom, where the issue of a zero rate on sanitary products, such as tampons and sanitary towels, is currently being debated.
“The United Kingdom has no latitude unilaterally to extend a zero rate to new products (…); any changes to the EU rules on VAT will require a Commission proposal and the support of the 28 member states. Without that agreement, we are not permitted to reduce the rates below 5%” (the current rate - Ed), said David Gauke, exchequer secretary to the Treasury with responsibility for Finance, in October of last year. The Commission immediately responded by pointing out that it did not make the VAT rules and explaining that it was reflecting on the possibility of giving the member states greater flexibility to lay down reduced VAT rates.
One of the options reported to be under discussion is keeping a minimum standard rate of 15% and extending the list of reduced rates (which would involve putting all temporary proposals on the list). The section option would be to give the member states greater latitude, by giving them back the powers to define reduced rates, under certain conditions, such as compliance with the competition and non-discrimination rules. Under this second scenario, other safeguards would be set in place, such as setting a limited number of products able to benefit from reduced rates and establishing a list of products to which the zero rate may not apply (such as luxury items, for instance).
It is also worth noting that although the Commission has announced that it is withdrawing its VAT proposal this year regarding the treatment of insurance services and financial services, it is reported to be in the process of putting together a new proposal, but this is not expected to be presented any time soon.
The Commission's action plan for a definitive VAT system, on the other hand, is scheduled for 16 March. (Original version in French by Elodie Lamer)