VAT implementation: EU Council adopts Regulation to clarify existing rules
The Regulation, which recasts Regulation (EC) No 1777/2005, clarifies certain aspects of the VAT Directive with the objective of ensuring a more uniform application of VAT rules within the EU. It is directly applicable from 1 July 2011 in all EU Member States.
This Regulation includes new measures linked to the VAT Package, giving guidance in particular in determining
- what is the status of the customer,
- whether he acquires services for business use and
- where he is located,
as this will in most cases determine the place of taxation and thus the rate of VAT to be applied. Its basis is in guidelines agreed by the VAT Committeeafter consultations with Member States undertaken by the Commission.
In all, it provides for:
- implementing measures for Directive 2008/8/EC as regards the place of supply of services;
- adaptation of the provisions of Regulation (EC) No 1777/2005 to the VAT Directive after its recast in 2006;
- implementing measures for other elements of the VAT Directive.
VAT: EU Council extends 15% minimum standard rate until 2015
The EU Council on 7 December 2010 adopted a directive extending the minimum standard VAT rate of 15% until the end of 2015.
The minimum standard VAT rate, that was normally due to expire on 31 December 2010, is thus maintained for a further period long enough to cover the ongoing strategy to simplify and modernise current EU legislation on VAT.
The Council adopted the legal texts that result from its political agreement in March 2009 on the use of reduced VAT rates in certain sectors
The Council adopted a directive 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.
Adoption of the directive follows political agreement reached at the Economic and Financial Affairs (ECOFIN) Council's meeting on 10 March 2009.
The optional use of reduced VAT rates in certain sectors is one of the actions identified by the economic recovery plan approved by the European Council in December 2008.
Reduced rates on labour-intensive local services have so far only been allowed on a temporary basis.
Under the directive adopted by the Council, member states that so wish may apply reduced VAT rates, on a permanent basis, to:
- the following labour-intensive local services:
- minor repairs of bicycles, shoes and leather goods, clothing and household linen (including mending and alteration);
- window cleaning and cleaning in private households;
- domestic care services such as home help and care of the young, elderly, sick or disabled;
- the renovation and repair of private dwellings, excluding materials which account for a significant part of the value of the service supplied;
- restaurant and catering services;
- books, on all physical means of support.
In addition, Portugal may apply a reduced VAT rate to tolls on bridges in the Lisbon area, Cyprus is allowed to apply a reduced VAT rate to the supply of liquid petroleum gas in cylinders, and Malta may maintain a zero VAT rate for the supply of foodstuffs and pharmaceuticals.
The Directive enters into force on 1 June 2009.
The Directive is based on Commission proposal COM (2008) 428 of 5 July 2008.
VAT: New rules on the place of supply of services and a new procedure for VAT refunds
Two Directives, one on the place of supply of services, the other on VAT refunds, were adopted by the EU Council of Ministers on 12 February 2008. They will ensure that VAT on services will accrue to the country of consumption, and will establish a new procedure for claiming VAT refunds to ensure quicker processing. For more information see the press release (IP/08/208 ).
- From 1 January 2010, the new rules on the place of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.
However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers. For further information see the Directive
- Also from 1 January 2010, the current procedure for reimbursement of VAT incurred by EU businesses in Member States where they are not established will be replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The current paper-based procedure is slow, cumbersome, and costly. It also lacks in legal certainty. The new procedure will better facilitate businesses and improve the functioning of the internal market. A new feature is that businesses will be paid interest if Member States are late making refunds. For further information see the Directive.
- See also the Regulation on administrative co-operation.