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EC Takes UK To Court Over Reduced VAT Rate

by Ulrika Lomas, Tax-News.com, Brussels

21 February 2013


The European Commission has announced that it has referred the UK to the European Union (EU) Court of Justice for its reduced value-added tax (VAT) rate on the supply and installation of energy-saving materials.

According to the Commission, the UK's measure goes beyond what is allowed under the VAT Directive. The EU's rules specify that individual Member States can apply reduced VAT rates to the supply of goods and services used in the housing sector, provided that this is part of a social policy.

However, the VAT Directive does not make any provision for the introduction of a reduced VAT rate on "energy-saving materials" specifically. The universal application of a reduced rate for energy-saving materials is therefore not allowed.

The Commission also notes that the UK's reduced rate is linked to the UK's "Green Deal", which is designed to improve the energy efficiency of buildings. Nonetheless, the Commission stresses that while it supports the Deal's objectives, it does not believe that breaking EU VAT rules will help the UK in achieving these objectives.

The European Commission sent a reasoned opinion to the UK on the matter in June, 2012. It did not deem the reply received in August to be satisfactory, hence its decision to refer the case to the Court of Justice. This referral is the last step in the Commission's infringement procedure.

 

TAGS: tax | European Commission | energy | law | services | Europe

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