Work in the EU Council on the European Commission’s 2018 proposal to give Member States the freedom to set reduced, super-reduced and zero VAT rates (see EUROPE 11940/15) is progressing, although a number of issues remain open.
According to a compromise text from the Portuguese Presidency of the EU Council, dated 13 April and seen by EUROPE, the text proposes to maintain a positive list of products and services eligible for reduced rates, whereas the Commission had proposed a negative list of products that would not be eligible, which included alcohol, tobacco and oil.
In particular, the text adapts the list to the objectives of the European Green Deal and proposes to gradually exclude environmentally harmful goods from the application of reduced rates, including pesticides and chemical fertilisers, from a date yet to be set. There is also a sunset clause for wood fuel and natural gas.
It also allows reduced rates to be applied to the supply and installation of solar panels and wind turbines, but only for private homes and public buildings, in order to respect the principle that reduced rates should benefit the end consumer and be in the public interest.
However, the text shows that Member States have not been able to agree on including the supply of new zero-emission vehicles on the list.
The positive list includes other additions, such as streaming services and certain telecommunication services, following the judgment of the Court of Justice of the EU in case C-568/17.
According to our information, discussions on the positive list are still ongoing. As regards zero and super-reduced rates, the Presidency also proposes restricting them to a limited set of categories for the positive list.
Maintaining existing exemptions
Another open question concerns the exemptions enjoyed by certain Member States who do not wish to abandon them. In past discussions, the inclusion in the positive list of all supplies of goods and services to which the current exemptions apply had been excluded.
The Presidency has therefore proposed a ‘standstill clause’ that would allow these Member States to keep their exemptions, but according to our information there is still no agreement on this point.
The text also allows certain Member States (in this case Austria, Greece and Portugal) to apply lower rates in some of their territories provided that the standard rate is not lower than 15%.
The fate of the Commission’s proposal that Member States should ensure that the weighted average VAT rate is not lower than 12%, in order to guarantee an appropriate level of revenue, was also left open. According to our information, the Presidency is still reflecting on the need for this ‘revenue safeguard’ and on the features it might have.
Exceptional situations
The draft text also adds an “exceptional situations” category, which aims to draw lessons from the Covid-19 pandemic. In particular, it recognises that the pandemic has shown that the VAT Directive does not provide any instrument for granting preferential treatment to goods and services which Member States may consider essential to deal with exceptional circumstances such as natural disasters, humanitarian crises and pandemics.
The Commission has taken steps to temporarily exempt from VAT the importation of goods needed to combat the Covid-19 pandemic (see EUROPE 12702/4), but there is currently no provision for the same exemption to apply to the intra-Community supply of such goods.
The text therefore proposes two mechanisms: one for the application of an exemption, the other for the application of a reduced rate or a rate lower than 5%. A Member State wishing to make use of these mechanisms must in any case inform the ‘VAT’ committee. For reduced rates, this exceptional measure should also only be applicable for a maximum of 2 years.
Interviewed by EUROPE on Tuesday 27 April about the direction of the discussions in the EU Council, Gerhard Huemer, Director for Economic and Fiscal Policy at SMEunited, which represents SMEs at European level, said that being able to react quickly in the event of a crisis would indeed be a “positive development”.
He also welcomed the new provisions to align the VAT Directive with Green Deal objectives. (Original version in French by Marion Fontana with Pascal Hansens)