Czechs And Cypriots Back Down Over VAT Veto

by Ulrika Lomas, for LawAndTax-News.com, Brussels

31 January 2006

The Austrian EU Presidency's hopes of a deal on the extension of lower VAT rates on labour-intensive services have been boosted by the climbdown at the weekend of the Czech Republic and Cyprus.

Cyprus, the Czech Republic and Poland had angered their fellow EU member states by refusing to accept a compromise on extending reduced VAT rates.

Reduced rates of value-added tax levied on 'labour intensive' services such as hairdressing, repair work and house renovations expired on December 31, and the European Commission has threatened to take legal action against countries still imposing the lower rate, if agreement is not reached.

However, under a deal agreed by the majority of EU members last week, the reduced rates would be extended until 2010, albeit on the same services as before, much to France's disappointment.

French President, Jacques Chirac had pledged, pre-election, that he would reduce VAT levels on restaurant dining, but a group of countries, led by Germany, opposed the granting of reduced VAT rates in other areas.

The Czech Republic backed down on the issue on Saturday, having secured a small victory regarding VAT rates on the building of apartments, and the Cypriot government reluctantly climbed down on Sunday, allegedly in the interests of European unity.

Poland did not respond by the Sunday cut-off, citing "internal problems", and the Austrian EU presidency revealed on Monday that in light of the Katowice tragedy on Saturday, Austrian Minister of Finance, Karl-Heinz Grasser had informed the finance ministers of the other EU Member States that the deadline had been deferred.

Mr Grasser announced that:

"We deeply regret the tragedy and human suffering which has taken place in Katowice. In view of this, it was very important for me to grant Poland’s request allowing it a little more time in which to make its decision."

"I am confident that Poland, like Cyprus and the Czech Republic, will change its negative stance towards the Austrian Presidency’s proposal in this important area and thereby give a positive signal with respect to public confidence in the European Union's ability to take decisions and demonstrate solidarity."

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