Brussels, 13/05/2005 (Agence Europe) - In April, the Luxembourg Presidency made a proposed overall compromise on the sensitive dossier on reduced rates of value-added tax (VAT). Its objective is to find a “point of equilibrium” between the Commission's proposal of July 2003 (see EUROPE 8506), the extra demands voiced by various delegations, the requirements of equivalent treatment for the new Member States and the restrictive positions defended by other Member States. The Luxembourg Presidency indicates in its document that this compromise “only includes optional provisions” in the interests of the Member States which “want to bring in or keep certain reduced rates for reasons related to the economic, social or environment policy”. It feels that “the measures proposed are local by nature and do not give rise to competition distortions in the internal market”. An agreement is necessary by the end of 2005, when the experimental VAT regime on services with highly intensive labour and the lower threshold of 15% of the normal rate of VAT come to an end.
The compromise text of the Luxembourg Presidency focuses on five points. Firstly, it suggests applying reduced rates of VAT over an indefinite period of time to the following services: refurbishing private housing built at least five years ago (excluding materials, which represent a large proportion of the value of the service provided), caring services in the home (home helps, or caring for children, older persons, the sick or people living with a disability), sewer services and waste recycling, equipment and materials designed or adapted for people with a disability (with the exception of means of transport), supplies of electricity, gas via the natural gas distribution system and heat supplied in a network and the supply of plants, floristry products and logs for heating. From a technical and legislative point of view, these services will be integrated in the list of annex H to directive 77/388/EEC on a common VAT system. This annex, which dates back to 1992, already contains a list of services which may benefit from reduced rates.
The creation of a flexibility mechanism is planned for the services of annex K, which has been included in the same directive since 1999. Unlike the services of annex H, those of annex K benefit from reduced rates on a temporary basis, until 31 December 2005. This flexibility mechanism will allow the Member States to table a request at the Council, which they must do before 1 January 2006, to be able to apply a reduced rate to the catering trade- as France would like- until 31 December 2015- and to the remaining services included in annex K of directive 77/388/EEC: small-scale repair services (bicycles, shoes, leather goods, clothing and household linen), window-washing and the cleaning of private houses, hairdressing. The document indicates that this measures “aims to keep the political pressure which may be brought to bear on governments down to just a couple of months”. Refurbishment services for private housing and home care services, which are currently to be found in annex K, will move to annex H.
The proposed compromise authorises the extension of various provisions which some of the “old” Member States currently benefit from. For example, the “zero” or “super-reduced” rates applied by Ireland, Luxembourg and the UK on children's clothes and shoes would be kept in place. The Luxembourg Presidency is also proposing that the new Member States be allowed to extend their current derogations, which were granted during the accession negotiations, and which will expire at some point between early 2005 and 1 January 2010. Poland, for example, applied a VAT rate of 7% to small bicycle and shoe repair workshops, as does the Czech Republic for the home cleaning and care sectors.
Lastly, the Luxembourg Presidency proposes to extend the minimum threshold of 15% of the normal rate of VAT until 31 December 2015. In a proposed directive adopted in April, the Commission proposed to apply this rate until 31 December 2010 (see EUROPE 8935).
In the Council, the Member States appear to be dividing into three distinct groups. The first is made up of the Member States which are in favour of an extended list of services to which they will be able to apply reduced rates. Belgium, France, Italy and Luxembourg are calling for CDs and DVDs, amongst other things, to be included. In a second group, Germany, Denmark, Finland, Sweden and Latvia are opposed to any extension of the list. The third group, which is associated with the first, is made up of new Member States hoping to benefit from specified handling.