On January 18th of 2018, the European Commission made a proposal to introduce more flexibility for Member States to change the VAT rates they apply to different products.
The EU's common rules on VAT rates do not treat Member States equally.
More than 250 exemptions allow several Member States much more flexibility in setting VAT rates than others. While these derogations are due to expire once the reformed VAT system comes into place, the rates proposal will ensure that all Member States have the same flexibility and a uniform structure in which to set their own VAT rates.
These legislative proposals will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption.
The proposed measures follow up on the 'cornerstones' for a new definitive single EU VAT area proposed in October 2017, and the VAT Action Plan towards a single EU VAT area presented in April 2016.
The common Value Added Tax (VAT) system plays an important role in Europe’s Single Market. VAT is a major and growing source of revenue in the EU, raising over €1 trillion in 2015, which corresponds to 7% of EU GDP. One of the EU’s own resources is also based on VAT.
The current VAT system dates from 1993 and was intended to be a transitional system. The abolition of fiscal frontiers between Member States and the taxation of goods in the country of origin required common rules for VAT rates to avoid distortion in cross-border shopping and trade.