Brussels, 18/01/2006 (Agence Europe) - The Austrian Presidency of the Council of the EU will unveil a draft compromise deal on cut-rate VAT on Thursday or Friday to get the ball rolling and get the EU out of the legal vacuum surrounding the levying of cut-rate value added tax (VAT). European sources suggest it may come up with the idea of extending the present cut-rate VAT system, or even extending it.
EU Taxation and Customs Union Commissioner Laszlo Kovacs wrote to the European Union's economics and finance ministers on 17 January on the subject of the upcoming ECOFIN Council meeting (24 January). He said the meeting would be the last chance for the Council to agree on a common position, urging ministers to do all they can to reach a reasonable compromise agreement over an issue that has been debated for far too long. He said that failing a compromise agreement at the ECOFIN Council this month, the Commission would be forced to honour its responsibilities as Keeper of the Treaties because the credibility of the European institutions was at stake. Kovacs said the European Commission would have to take measures to ensure EU legalisation is applied across all EU Member States in the form currently in force if ministers failed to reach agreement.
Without actually saying it, Kovacs hinted that he would ask his department to take immediate infringement proceedings against Member States continuing to violate EU VAT rules. At the end of December last year, experimental measures were introduced to allow those old 15 EU Member States that so desired to continue to levy cut-rate VAT on various labour intensive services like repairs, renovation of private housing, window-cleaning, homecare, hairdressing and the like which would otherwise have become illegal at the end of December. Cut-rate VAT is still being levied in nine Member States despite this legal vacuum with the Commission agreeing to turn a blind eye and not take legal proceedings.
Laszlo Kovacs explained in his letter to the ministers that the European Commission had made huge efforts to try and find a solution and despite the fact that the various mooted compromises to date have been rather far removed from the European Commission's initial proposal, it had always backed the Council on this matter. Commission sources suggest that a compromise deal is politically possible on Tuesday.
Laszlo Kovacs will not be coming forward with any new suggestions before the ECOFIN Council but has not ruled out intervening in the ECOFIN debate to back various aspects of the Austrian Presidency's compromise with the aim of helping ministers reach agreement.
On Thursday, the question of cut-rate VAT will be on the agenda when the French and German finance ministers meet at a Franco-German Economic Council. France wants the reduced rate VAT system to continue and wants meals in restaurants to be included on the list of areas where cut-rate VAT applies. Germany is very reluctant about extending the experimental options that legally came to an end on 31 December 2005, worried about calls for reduced rate VAT to be levied at home. Germany is in fact planning to increase its standard rate of VAT from 16% to 19% next year in order to fill its budget deficit. Denmark, Finland, Sweden and Latvia take a similar line to Germany.
UEAPME (an employers' organisation representing craft, trades and SMEs in Europe) urges ministers to 'end their procrastination and agree to continue the scheme for reduced rate VAT rates in labour-intensive sectors when they meet on 24 January.' 'Combatting VAT fraud is one of the priorities of the Austrian Presidency and forging an agreement on the crucial issue of reduced rates will be a real yardstick of its ability to deliver on this priority,' said Hans-Werner Muller, UEAPME Secretary General.
European Parliament Plenary Session