Brussels, 7 July 2008
László Kovács, Commissioner for Taxation and Customs Union said: "I propose generalising the optional application of reduced rates in sectors where there is sufficient evidence that no real distortions to the Internal Market will occur. I want to provide certainty about the application of reduced rates beyond 2010 for labour intensive sectors and provide all Member States with the same options. There is no reason why restaurant services, for example, should be allowed to benefit from a reduced rate in one half of the European Union but not in the other half."
In the absence of clear orientation from the Council to the Commission's Communication of last July regarding the full revision of the system of reduced rates, the proposal only seeks to deal with issues which require urgent action while, at the same time, seeking to provide the same possibilities to all Member States.
The scope of the proposal is therefore limited and most of the services in question are already eligible for a reduced rate but only in a limited number of Member States and only for a limited period running until 2010.
The proposal does not include a general review of the numerous derogations granted to various Member States, nor is it widening the scope of reduced rates for environmental or energy saving purposes. On this last point, the Commission is currently carrying out a number of studies concerning the possible use of reduced rates for energy saving materials or energy efficient goods and services in accordance with the request formulated by the European Council in March 2008. The Commission will present the results of its analysis, accompanied by relevant proposals in the autumn.
The housing sector will no longer be limited to services linked to a social policy, as it is currently, but will be broadened to include the supply and construction of all housing, as well as all services related to the housing sector (including renovation, maintenance, cleaning, ...).
Supply of restaurants and catering services, excluding alcoholic beverages, are also included.
It is proposed that labour-intensive services , should be permanently included in the list of services eligible for reduced rates. Moreover, the category is broadened to other locally supplied services of a similar nature. That is:
In addition a number of small clarifications are proposed. The category of pharmaceutical products is widened to cover all absorbent hygiene products, notably including children's nappies. Concerning medical equipment for the disabled the Commission proposes widening this category to cover all specially designed or adapted material or equipment for the exclusive personal use of the disabled (including specially adapted cars, Braille keyboards ...).
Printed books, under current legislation, may be subject to reduced rates. The Commission proposes widening the definition of books to include audio-books. These are defined as 'CDs, CD-ROMs or any physical support that predominantly reproduce the same information content as printed books' and which do not include other material such as games.
The basic rules for VAT rates are simple: goods and services subject to VAT are normally subject to a rate of at least 15%. The Member States may apply reduced rates of not less than 5% to goods and services set out in a restricted list. However, these simple rules are complicated by a multitude of derogations granted to certain Member States – and not to others – during the negotiations preceding the introduction of the VAT rates Directive (1992) or in Acts of Accession. For example 11 Member States currently apply a reduced rate to restaurant services while the 16 remaining Member States cannot. A similar situation of derogations exists for labour intensive services.
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