Brussels, 10/03/2009 (Agence Europe) - On Tuesday 10 March, European finance ministers unanimously reached a political agreement on the proposal for a directive on reduced value added tax (VAT) rates for a number of high labour intensive services (see EUROPE 9856). After a very “lively discussion, I am pleased to be able to announce a political agreement on reduced VAT rates”, the Czech finance minister, Miroslav Kalousek, said. “Even in a complex situation, we are able to be flexible, to adopt common positions and to speak with a single voice in areas as difficult as VAT”, he added. The political agreement concerns the draft agreement put to member states by the Czech EU Presidency to which must be added specific requests from several member states. In a declaration annexed to the draft agreement, six member states (Germany, Bulgaria, Denmark, Estonia, Lithuania and the Czech Republic) state their conviction that the application of reduced VAT rates is not the best way to stimulate economic competitiveness. “These countries are asking that tax exemptions should no longer be extended within the European Union”, Mr Kalousek said. Austria, Hungary and Latvia have submitted their final decision to national parliamentary approval. Saying that discussions had lasted more than 10 years, European Taxation Commissioner László Kovács was pleased that the extension of transitional measures would allow 18 member states to continue to apply reduced rates on some labour-intensive services for an indefinite length of time. “How many firms would have gone bankrupt and how many jobs lost” if member states had been forced to return to normal VAT rates, he wondered.
The political agreement, which still has to be included in the legal texts amending directive 2006/112/EC then be formally adopted at a subsequent Council meeting, authorises reduced VAT rates to be applied to the following services: - bicycle, shoe and leather goods, clothes and household linen repairs; - window cleaning and cleaning private dwellings; - personal care such as home care for children, the elderly, ill or handicapped; - hairdressing; - renovation of private dwellings, but not materials which form a significant part of the value of the service supplied. These services will enjoy transitional measures until the end of 2010. Further services have been added to the list: - catering services; - books in whatever format (print, audio, CDRom).
Specific clauses. The political agreement would not have been possible if the specific requests of some member states had not been met. Portugal has been allowed to apply reduced taxation rates on tolls on crossings of two bridges over the Tage. Cyprus will be able to do likewise for deliveries of bottles of LPG gas. Malta will be able to continue to apply a zero rate to the supply of foodstuffs and pharmaceutical goods after 2010. The exemption allowing the United Kingdom to apply a reverse charge mechanism to goods such as electronic chips and telephones will be extended for two more years. The UK, however, was not allowed to apply reduced rates to the renovation of places of worship, nor Belgium to renovation of schools.
Environmental taxation. Ministers took note of the reports ordered by the Commission on the appropriateness of applying a reduced tax rate to environmentally friendly goods and services (the Commission is doubtful of the usefulness of this measure in taking forward environmental policy: Ed.) and considered that this instrument was only useful up to a certain point. “Many member states believe that this is the end of the story and don't want any further discussion on reduced VAT rates,” Kovács said. He confirmed that, in April, the Commission would propose a review of European rules on energy taxation with the aim of bringing a factor relating to CO2 emission into taxation. With regard to reduced rates of VAT for environmental goods and services, “the time has not yet come for such a proposal,” he said. (M.B./jl/rt)