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TMF's 2014 EU VAT Trend Tracker Released

by Ulrika Lomas,, Brussels

18 December 2013

Ahead of the increase to France's headline value-added tax rate to 20 percent from January 1, 2014, the TMF Group has released a new report drawing attention to the trend in the European Union of member states using VAT hikes to fund competitiveness reforms.

The firm pointed out that France's move mirrors a policy decision taken by the United Kingdom in 2011 with its VAT hike to 20 percent. The UK is deploying the additional revenues to boost the nation's competitiveness by lowering corporate tax to 20 percent by 2015. It pointed out that Italy, too, has decided upon a higher VAT rate (of 22 percent, increased in October) to help fund lower business and employment taxes.

The EU trend, the TMF Group believes, can be attributed to the positives of hiking VAT over other forms of taxation: VAT is less susceptible to complex, tax avoidance schemes by multinationals; consumption is less volatile compared to business profits, particularly during periods of recession; and a VAT hike when used to finance lower taxes for businesses can improve a country's competitiveness, particularly as exports do not face VAT.

Richard Asquith, Head of Tax at the TMF Group, commented: "France has hesitated for two years on a VAT rise to help it rebalance its deficit. It is questionable how well the economy can withstand more tax, but – as the rest of Europe has shown – pushing taxes onto shoppers is necessary for countries to remain attractive to international companies and [to remain] competitive on the global stage."

TAGS: VAT rates | tax | business | value added tax (VAT) | tax avoidance | United Kingdom | multinationals | France | Italy | Europe | Tax

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