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Finland Wary About EU VAT Rate Reforms

by Ulrika Lomas,, Brussels

05 March 2018

The Finnish Government has said that while it supports the general objectives of the European Commission's proposals on EU VAT rates, the plan's details should be subjected to further examination.

According to a statement released by the Finnish Ministry of Finance on March 1, Finland is in favor of bringing the rules on VAT rates up to date. However, it warns that a more flexible position on reduced rates must not impede the functioning of the single market and increase the VAT compliance burden.

Under plans unveiled by the EC in January 2018, member states would be given greater powers to vary VAT rates and to relax VAT rules for small businesses. The proposals are part of a broader overhaul of the EU's VAT system, which aims at the creation of a single VAT area.

Under the current rules, EU member states can apply a reduced rate of as low as five percent to two distinct categories of products in their countries. A number of member states also apply specific derogations for further reduced rates.

The Commission has proposed that, in addition to a standard VAT rate of a minimum 15 percent, member states should be able to put in place:

  • two separate reduced rates of between five percent and the standard rate chosen by the member states;
  • one exemption from VAT (or "zero rate"); and
  • one reduced rate set at between zero percent and the reduced rates.

The current list of goods and services to which reduced rates can be applied would be abolished. It would be replaced by a new list of products to which the standard rate of 15 percent or above would always be applied.

"The danger of the model proposed by the Commission is that it could lead to growing use of reduced rates and a more complex system at EU level," the ministry stated.

Finland is also opposed to the proposed negative list approach whereby items to which reduced rates do not apply are listed, preferring instead the principle of listing those goods and services to which reduced VAT rates apply.

In a communication to the Finnish parliament on the matter, the Government warns that the EU proposal could erode domestic tax revenues, distort the internal market, and increase business costs and legal uncertainty, leading to more litigation on cross-border VAT issues.

TAGS: compliance | Finance | VAT rates | tax | small business | business | European Commission | Finland | services | Europe

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