The VAT Directive 2006/112/EC of 28 November 2006 (Official Journal L 347, 11.12.2006, p.1) provides in its Articles 93 to 130 and Annex III a legal framework for the application of VAT rates in Member States. Member States have made and continue to make wide use of the possibilities offered within this framework; as a result, the situation is in practice disparate and complex.
The basic rules are simple:
- Supplies of goods and services subject to VAT are normally subject to a standard rate of at least 15%;
- Member States may apply one or two reduced rates of not less than 5% to goods and services enumerated in a restricted list;
These simple rules are however complicated by a multitude of derogations granted to certain Member States, in some instances a majority of Member States. These derogations were granted during the negotiations preceding the adoption of the VAT rates Directive of 1992 and in the Acts of Accession to the European Union. Overall, such derogations prevent a coherent system of VAT rates in the EU from being applied.
In January 2006, the Council of the European Union gave a mandate to the Commission to present to the European Parliament and to the Council, by the end of June 2007, an overall assessment report on the impact of reduced rates applying to locally supplied services, including restaurant services, notably in terms of job creation, economic growth and the proper functioning of the internal market. The report was to be based on a study carried out by an independent economic think-tank (see Contract Award notices, Specifications and annex to the invitation to tender) .
The study (and its appendices) was finalised in May 2007. It mainly examined the impact of reduced VAT rates and of derogations, not only for locally supplied services, but also more globally. The effects on income distribution, the informal economy and compliance costs for businesses were also taken into consideration.
- A Communication from the Commission to the Council and the European Parliament on VAT rates other than standard VAT rates: COM(2007) 380
- A proposal for a Council Directive amending Directive 2006/112/EC with regard to certain temporary provisions concerning rates of value added tax: COM(2007) 381
- A Commission staff working document - Main conclusions of the study on reduced VAT rates applied to goods and services in the Member States of the European Union: SEC(2007) 910
Following its policy line in the field of reduced rates of VAT established in its Communication of July 2007 (COM (2007) 380 final), the Commission adopted a proposal for a Council Directive amending Directive 2006/112/EC as regards reduced rates of VAT : COM(2008)428. See also the press release (IP/08/1109 ) and MEMO/08/481 , as well as Commissioner Kovács's speech and the citizen summary .
This proposal concentrates on allowing reduced rates for sectors for which an element of urgency is present (temporary provisions with deadline on 31/12/2010; inequality of treatment of Member States) and/or for which sufficient elements are already available, notably on the basis of the Copenhagen Economics study.
In this context, Annex III to the VAT Directive - which contains the list of goods and services eligible for reduced rates - would in future also include the following issues:
- the whole housing sector as well as some services relating to places of worship, cultural heritage and historical monuments. These changes will make it possible for Member States, for example, to apply reduced VAT rates to renovation and repair work aiming at increased energy-saving and efficiency.
- restaurant and catering services.
- locally supplied services including the labour intensive services for which the reduced rates experiment expires on 31/12/2010 and similar locally supplied services such as gardening; minor repair of movable tangible property; personal care, etc.
In addition, the proposal would include some technical drafting adaptations, mainly to allow reduced rates for:
- children's nappies;
- audio books, CD's, CD-ROMs or other physical support that predominantly reproduce the same information content as printed books;
- few other technical adaptations already proposed in 2003, which are still valid, as equipment, aids and other appliances for disabled or services linked with waste treatment, etc.
On 5 May 2009, the Council adopted Directive 2009/47/EC allowing - on a permanent basis - the optional use of reduced rates of value-added tax (VAT) for certain labour-intensive local services, including restaurant services, for which there is no risk of unfair competition between service providers in different member states.
For further information concerning reduced VAT rates see also the pages " Legislation recently adopted"
Other documents on VAT rates
|VAT rates applicable||
VAT rates applicable in the EU Member States. Further details on reduced VAT rates applicable to certain labour-intensive services can be found here.
|VAT on Labour Intensive Services||
A reduced VAT rate can be applied to certain specified labour-intensive services, but only for an experimental period so as to test its impact, in terms of job creation and in combating the 'black' economy.