Brussels, 19/02/2004 (Agence Europe) - President Chirac has won Germany's support for cutting VAT rates on restaurant and catering services. "We have concluded our discussion with the Chancellor on the problem of the authorisation given to France on reducing VAT rates on catering and on making this reform in 2006", he said on Thursday after the Berlin Summit. He thanked the Chancellor for his "understanding" (see also p.4).
France hopes to be able to lower VAT rates on catering from 19.6% to 5.5% in 2006, after expiry of the current European system on VAT reduced rate. This promise made by Jacques Chirac during his presidential campaign would cost the French budget around EUR 3 billion. It has become one of the pledges of the campaign for regional elections in France. The other Member States have still to be convinced when they meet at the Ecofin Council taking up the VAT issue again on 9 March. "Germany will support France's position during the next Ecofin Council. We trust that this new stance by Germany will facilitate a consensus in Brussels", Mr Chirac's spokesperson, Catherine Colonna, said.
Hitherto, Denmark, Sweden and Austria, with Germany, were opposed to adopting a new list of goods and services that would benefit from the reduced VAT rate. "Our position before the three-way summit was very clear: we are against extending the list. We must now see what is in the Chirac/Schröder agreement", one Swedish diplomat commented.
The terms of the agreement, also, have still to be determined, a German diplomat explains, stressing that this is "support in principle" between Schröder and Chirac, the details of which have not yet been fixed. One solution would be to reserve exemption for France on the basis of a Commission proposal adopted unanimously by the Council. Such a solution seems hardly likely, since other Member States have similar demands. "The Commission is pleased that an agreement has been concluded with Germany but unfortunately there could be other Member States with things to say on the matter, and other issues remain outstanding", Jonathan Todd, Spokesman for Taxation Commissioner Frits Bolkestein, said on Thursday. Mr Todd mainly recalled that other States ask to benefit from reduced rates: "the Spanish for gas and the Belgians for cafés in addition to restaurants, for example". The British, Irish and Luxembourg nationals also call for a zero VAT rate to be maintained on children's clothing and footwear, while Spain requests the same for disposable nappies, etc.
The German about-turn could open the door to haggling that the Commission was hoping to avoid by proposing a homogenous list last July to do away with the different current exemptions. In a note to be presented to Council experts next week, the Commission recalls that the current list of services benefiting from the reduced rate does not correspond to "any reality, but simply results from the difficult negotiations of 1992 when practices existing in Member States at the time were taken into account".
In this note on application of the principle of subsidiary to reduced VAT rates, the Commission, however, is not opposed, in principle, to Member States enjoying greater autonomy, as long as the internal market continues to function properly. It notes that this principle can above all be applied for services linked to fixed goods such as work at home, or work that cannot be provided at a distance, such as hairdressing or catering. VAT would therefore apply, as the Commission proposed in its communication on services, in the country where the service is provided. Nonetheless, it notes, some Member States could be against extending the scope of reduced rates because they could be further subject to internal pressure for granting reduced rates in areas where they do not wish to do so.
Whatever, the Commission comments, the question must be resolved before end 2005 and there must be equal treatment between Member States. This is because, on one hand, the current system that grants exemptions to some Member States expires in 2006 and, on the other, because the transition period granted to the new Member States in the context of enlargement negotiations expires in 2007. Although the Council showed during these negotiations that it was not willing to grant exemptions to the new Member States, any solution that would maintain inequality between Member States cannot be acceptable under European law, the Commission warns, saying that all solutions must respect equal treatment between former and new Member States.
French Socialist MEP Pervenche Berès protests in a communique against President Chirac who, she says, uses the Franco-German partnership "not as a driving force for Europe (…) but as an instrument to push forward his national interests". She considers the announcement "misleading" as an agreement on VAT requires unanimity.