Brussels, 06/12/2007 (Agence Europe) - The debate at the ECOFIN Council on Tuesday 4 December did not enable member states to give clear guidelines to the European Commission over how to continue its work on simplifying the EU reduced rate VAT system (value added tax, see EUROPE 9554). Resulting necessarily in a compromise, the conclusions document adopted by the Council gives no indication to the Commission, recognised a Commission expert, adding that the EU finance ministers had left the ball in the Commission's court, leaving it to come forward with a proposal. The expert distinguished between two main groups at the Council, each with between seven and ten member states. The first group does not want any major extension of the reduced VAT system but will agree to consider which rates might be acceptable for certain services in the light of overarching discussions about the effectiveness of reduced rate VAT in terms of stimulating growth and employment; while the second group wants to be able to levy reduced rate VAT as long as the measures, applied mainly to locally supplied services, do not create an uneven playing field.
On Tuesday evening, EU Taxation Commissioner László Kovács said that the Commission would be unveiling draft legislation in 2008 in order to deal with the most controversial and urgent questions. He said the issues requiring an urgent response were highly labour intensive services and renovation and refurbishment services. Why? The situation facing highly labour intensive services has long been known about due to the external research commissioned in June 2007 by the European Commission (see EUROPE 9123), explained the expert, adding that the situation concerning reduced rate VAT for catering was very uneven across the EU and unacceptable in the long-term because half of EU member states at the moment apply cut rate VAT but the other half cannot. On the other hand, the Council conclusions document makes no mention of the option of applying cut rate VAT to energy-saving products. The expert said that the idea had been put forward by two heads of state (French prime minister Nicolas Sarkozy and British prime minister Gordon Brown, see EUROPE N.532), and it will therefore not be possible to avoid the issue.
On Tuesday, the finance ministers managed to strike unanimous agreement on the extension of reduced rate VAT that five member states had negotiated for a transition period when they joined the EU in 2004 (see EUROPE 9542). This extension will enable Cyprus, Malta, Poland, the Czech Republic and Slovenian to avoid having to raise VAT on 1 January 2008. The European Parliament will be adopting a consultation opinion document in plenary over this issue next week. (M.B.)