Czech EU Presidency To Consider Reduced VAT Rates

by Ulrika Lomas, Tax-News.com, Brussels

16 February 2009

The European Council has revisited the issue of reduced rates of value-added tax, this time in the context of the economic recovery plan approved by the Council in December.

Following the latest Council meeting on February 9 and 10, the Czech presidency of the European Union has indicated that it will reflect on how to take the proposals forward in response to the European Council's request to settle the issue by March.

A further discussion is expected at the Council's meeting on March 10, 2009.

Allowing member states to apply reduced VAT rates in certain sectors is one of the actions identified by the economic recovery plan.

Current EU rules on VAT rates are set by Directive 2006/112/EC. They are the outcome of a variety of initiatives over the years, including the 1992 decision on the harmonisation of VAT rates in the context of the EU single market, the 2000 decision to allow reduced VAT rates temporarily on labour-intensive local services with a view to stimulating employment, and 2004 derogations allowed for newly acceding member states.

In addition, the Commission has promised a proposal in April on the specific application of reduced rates to environmental goods and services, focusing principally on energy efficiency in buildings.

The Commission has also proposed a directive aimed at allowing all member states to apply reduced rates – on a permanent basis – to labour-intensive local services, including restaurant services.

Separately, the Council adopted a decision authorising the Czech Republic and Germany to derogate from the territorial application of VAT as regards the construction and maintenance of border bridges between the two countries. The purpose of this decision is for supplies of goods and services and intra-Community acquisitions of goods intended for the construction and maintenance of the cross-border bridges in question to be subject to the value added tax of the member state that is responsible for their construction or maintenance.

Under EU law, in the absence of this derogation it would be necessary, according to the principle of territoriality, for each supply of goods and services and intra-Community acquisition of goods to ascertain whether the place of taxation was the Czech Republic or Germany.

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