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Brussels, 25th September 2002

VAT: Commission proposes one-year extension of reduced rates on labour-intensive services

The European Commission has proposed to allow Member States to apply for an additional year (i.e. until 31 December 2003) a reduced rate of Value Added Tax (VAT) to specified labour-intensive services such as renovation of private dwellings, hairdressing, window-cleaning and small repairs. Directive 1999/85/EC allowed those Member States that so chose (9 in total) to apply a reduction of VAT on these services for an experimental period from 1 January 2000 to 31 December 2002, in order to test the impact of such a reduction in terms of job creation and of combating the black economy. The Commission is proposing the extension so as to allow the present arrangements to continue until the Commission makes an overall assessment and proposals regarding all reduced VAT rates, including the treatment of labour-intensive services, in 2003.

"The extension of the measure will ensure certainty and continuity for the sectors involved while the Commission prepares its general review of reduced VAT rates" commented Taxation Commissioner Frits Bolkestein.

The proposal

The Commission is proposing a simple one-year extension of the experimental reduced rates for labour-intensive services provided for in Directive 1999/85/EC and specified for each of the nine Member States that chose to introduce it in Council Decision 2000/185/EC (see IP/99/1002). The Commission intends to submit a proposal for a final decision on the VAT rate to be applied to labour-intensive services as part of the more general proposals concerning reduced rates of VAT that it intends to present in 2003. In the meantime, the Commission has proposed to extend the application of the 1999 Directive for another year to ensure continuity and certainty for the sectors that currently benefit from the reduced rate.

The Directive concerning VAT on labour-intensive services

Directive 1999/85/EC allowed the application of a reduced VAT rate to certain specified labour-intensive services, but for an experimental period of three years only so as to test its impact, in terms of job creation and of combating the black economy.

The list of categories to which Member States were authorised to apply the reduced rates were:

  • The repairing of:

    • bicycles

    • shoes and leather goods

    • clothing and household linen (including mending and alteration)

  • Renovation and repairing of private dwellings, excluding materials which form a significant part of the value of the supply

  • Window cleaning and cleaning in private households

  • Domestic care services (e.g. home help and care of the young, elderly, sick or disabled)

  • Hairdressing.

Nine Member States (Belgium, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and the United Kingdom) requested authorisation to carry out this experiment and submitted applications concerning the sectors from the above list to which they wanted to apply the reduced VAT rate. These applications were the subject of a Council Decision 2000/185/EC of 28th February 2000.

General review of reduced rates planned for 2003

The Commission intends in 2003 to present proposals to overhaul the structure of the reduced rates of VAT so as to improve the functioning of the Internal Market, while having regard to the use of reduced VAT rates in Community policies such as protecting the environment and promoting employment. Under the 6th Directive on the common system of value-added tax, Member States are normally required to apply to the supply of both goods and services a single standard rate of VAT of a minimum of 15%. However, Member States are allowed to apply one or two reduced rates which may not be lower than 5% to supplies of categories of goods and services specified in Annex H to the 6th VAT Directive (77/388/EEC). This list of goods and services, mainly of a social or cultural nature, was last revised in 1992. Many additional reductions and special provisions also apply to individual Member States. The optional nature of the arrangements for reduced rates and the discretion left to Member States can lead to situations that threaten the principle of neutrality, situations which traders perceive as a source of distortions of competition.

For a Commission report of October 2001 on the present system of reduced VAT rates (COM (2001) 599) see: text of the Commission proposal for a Council Directive to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services is available on the Europa internet site:

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