Cut-rate VAT decision to be made at January ECOFIN Council because of resistance from Germany

Brussels, 18/12/2005 (Agence Europe) - At the end of the European Council, the British Presidency finally decided to postpone to the January 24 2006 ECOFIN Council the decision on cut-rate VAT (valued added tax) mainly because of resistance from Germany. French President Jacques Chirac said the problem hadn't been settled but he was determined to get agreement at the meeting of EU economics and finance ministers on January 24 under the Austrian Presidency. Germany expressed great reservations about the latest proposal from the British Presidency whereby the current cut-rate VAT system would be extended until 2010, including cut-rate VAT on restaurants (dear to the French), extending the scheme to all Member States. What worries Germany is the idea of 5.5% VAT on cafes and restaurants because it fears restaurant owners will call for the same reduction in Germany. Chirac said he understood Angela Merkel's reasoning but was continuing to call for cut-rate VAT on restaurants. He said the spat on VAT would not damage Franco-German relations overall. In the meantime, awaiting the January ECOFIN Council, the current cut-rate VAT for labour intensive services and building work (due to expire on 31 December) will be allowed to continue into the new year. The Commission has agreed in effect that the scheme can be extended and has hinted that it will not be launching any infringement proceedings against countries continuing to apply cut-rate VAT after 1 January 2006, despite the legal vacuum this might create.