Sales Tax Agreement Concluded In Europe

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

03 February 2006

The Austrian European Union presidency has expressed relief at Poland's decision on Wednesday to sign up to the agreement on the extension of reduced VAT rates for 'labour intensive' services.

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 services such as hairdressing, repair work and house renovations expired on December 31, and the European Commission had threatened to take legal action against countries still imposing the lower rate, if agreement was not reached.

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 'in the interests of European unity'.

The Polish authorities announced on Monday their decision to maintain their opposition to the compromise agreement, explaining that:

"It is crucial for Poland that our citizens are treated with the same respect as citizens of other member states, mainly in terms of meeting their needs for living."

However, the Polish authorities backed down once assured by Taxation Commissioner, Lazlo Kovacs that their concerns regarding lower VAT rates for new housing could be dealt with under European legislation on social housing, and that the country would not be treated unequally from its 'older' EU counterparts.

Commenting on the decision on Wednesday, Austrian Finance Minister, Karl-Heinz Grasser announced that:

"It's a victory for Europe."

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