EU finance ministers did not make any significant breakthrough on Friday 18 June in Luxembourg on the European Commission’s 2018 proposal to give Member States the freedom to set reduced, super-reduced and zero VAT rates (EUROPE 11940/15).
“There is this question which remains on how to find the right compromise of ensuring equal treatment and at the same time avoiding too much proliferation of derogations”, concluded Portuguese Finance Minister João Leão after the meeting.
In order to move the discussions on this thorny issue forward, the Portuguese Presidency proposed to include a ‘standstill clause’ that would allow Member States to continue to apply their current derogations concerning the application of reduced, zero and super-reduced rates - with the exception of those that are harmful to the environment.
However, in order to ensure equal treatment of all EU countries, the derogations allowed under this standstill clause would become available to all EU Member States, provided that they inform the VAT Committee before 1 January 2023 (see EUROPE 12736/17).
Belgium, Estonia, Ireland, Greece, Spain, Croatia, Slovenia, Lithuania, Finland, Slovakia, Poland, the Czech Republic, Bulgaria, Romania and Luxembourg showed their support for the Presidency compromise.
France, Germany and Sweden agreed to maintain the existing derogations, but opposed the Portuguese proposal, which they say would open the door to new derogations. Sweden even called the idea “strange”. Germany said that a “very restrictive list” of derogations should be established, and not one that could lead to “even more derogations than at present”.
The European Commission has also warned that any solution to this issue will have to respect the European Treaties and in particular Article 27 of the TFEU, which recalls the temporary nature of any derogation and, therefore, that an expiry date must be set.
Adapting the list to the ‘Green Deal’ objectives
The Presidency also wanted to seek the views of Member States on its proposal to phase out environmentally harmful goods from the possibility of applying reduced rates, including pesticides, chemical fertilisers, firewood and natural gas, by 1 January 2035, through a ‘sunset clause’.
On this issue, João Leão, felt that there was a “broad consensus” to adapt the positive list of products and services that can be subject to reduced rates to the Green Deal’s objectives and that the EU Council was “not far from striking the right balance”.
At the meeting, several Member States such as France, the Czech Republic, Poland, Croatia, Hungary, Finland and Lithuania gave their full support to this proposal.
Spain, which underlined the importance of the pesticide and fertiliser sectors for its country, also supported the proposal, provided that the date of 2035 was maintained, giving them enough time to adapt. Greece, as well, indicated that it would be prepared to accept this provision, provided that additional measures to support the agricultural sector are obtained.
Other countries have also given the green light, all the while being open to an earlier date. This is the case for Belgium, Italy, Slovenia, Slovakia, Ireland, Estonia, Bulgaria and Luxembourg.
For Sweden and Denmark, 2035 is clearly not ambitious enough, as is the case for the Netherlands, which has explicitly stated its support for a 2030 end date. The European Commission also believes that 2030 would be the most appropriate timeframe to align with the targets to be set in its ‘Fit for 55’ package to be presented on 14 July.
There is still work to be done on this issue, with some Member States wishing to continue discussions on the composition of the list as well as on revenue safeguard.
An overall agreement on the text is expected, at the earliest, under the Slovenian Presidency of the EU Council. (Original version in French by Marion Fontana)