It has been promising it for several months and it is now taking action. On Thursday 18 January, the European Commission will propose to give the member states back the freedom to set reduced, super-reduced or zero VAT rates.
At the moment, the VAT directive contains an annex that lists the products and services eligible for reduced rates (between 5% and the standard rate of 15%). On top of this, more than 250 derogations have been awarded to the various member states allowing them to apply rates below 5% or 0% on certain products.
“In a definitive VAT system, all member states would be restricted by the same rules and be granted equal freedom in setting VAT rates”, the Commission explains in its draft directive, of which EUROPE has had sight. The new rules it is proposing would allow member states, “in addition to the two reduced rates of a minimum of 5% (…), to apply another reduced rate between 5 and 0%”. Member states would, furthermore, be able to set zero rates for certain products.
Instead of a positive list of products and services to which a zero rate may be applied, the Commission is proposing a negative list of products and services to which it cannot. This would include products and services such as alcohol, tobacco, car maintenance, gas, petrol, electronic materials, musical instruments, works of art, and so forth.
However, the European countries will have to ensure that the reduced rates benefit the end consumer and that setting them pursues an objective of general interest. Member states must also ensure that the average VAT rate, weighted by importance of sectors, is at all times above 12%.
However, as explained above, giving the member states back this freedom will be linked to the implementation of the definitive VAT regime. The implementation date of this increased flexibility has therefore not been set, but is linked to the date on which the measures included in the definitive regime are introduced.
The negotiations will not be easy, as many member states are reluctant to see a definitive regime brought in. One of the provisions of the text would allow a reverse-charge VAT mechanism if one of the taxpayers involved in a transaction is a “certified taxable person”, or a reliable taxpayer. According to our information, there is by no means unanimity on the provisions related to these certified taxable persons. EUROPE will return to this. (Original version in French by Élodie Lamer)