Brussels, 11/09/2003 (Agence Europe) - France will seek to enlarge the circle of its allies in favour of reducing VAT rates for restaurants and sound recordings during an informal Ecofin Council on Saturday in Stresa on the banks of Lago di Maggiore in Italy. This will be the first ministerial debate in this connection.
In July, the European Commission presented its proposals for simplifying and rationalising the current rules concerning reduced VAT rates. It drew up a list of around twenty sectors which could benefit from the reduction including restaurants and catering, home services and housing renovation. Member States will be free to apply these reductions if they wish, up to at least 5%. The Commission, on the other hand, refused to include CDs and DVDs. It also did away with derogations for suspending VAT on children's clothing and footwear, provisions that the United Kingdom and Ireland hoped to maintain (see EUROPE of 17 July, p.11).
French Prime Minister Jean-Pierre Raffarin, who had conducted an intense campaign to put pressure on in favour of restaurants, said during a press conference early in the month that "we have won the first round with the Commission's proposals, but this is only a first stage. We must obtain Council unanimity". He also acknowledged that "it will not be easy. There will be a certain amount of hostility but we hope to reach an agreement in 2004, if we manage to convince our partners".
In practice, a majority of Member States are hostile to these provisions, which submitted them to pressure from the economic sectors concerned for reducing VAT, in the middle of the budgetary restraint period. Germany, the Netherlands, Austria, Sweden and Denmark are especially hostile.
French Minister for Culture Jean-Jacques Aillagon also pointed out during the summer that France would continue to defend a cut in the VAT rate on CDs. Spain and Belgium in particular are in favour, whereas the Scandinavian countries are opposed to it.
Commissioner Frits Bolkestein was firmly opposed to reductions for CDs, saying that the VAT reduction in no way resolves the main problem facing producers: piracy. He had expressed doubt about the real impact of VAT cuts for consumers, the fall in taxation probably being felt in investment and beneficiary margins.
Council President Giulio Tremonti proposed the matter should be discussed during a breakfast. He stressed in an introductory note that "every effort must be made" to reach an agreement as the current regime expires at the end of the year.