EU minister fail to agree on reduced VAT rates

15 September 2008

NICE — EU finance ministers failed to agree on a proposal on reduced VAT rates in labour-intensive sectors such as catering or cleaning on Saturday, saying its impact on jobs and on public accounts required further study.

At an informal meeting in the French seaside city of Nice, Germany headed a pack of countries which oppose the European Commission’s plans. Its finance minister, Peer Steinbruck, told reporters that about eight of the EU’s 27 member states had sided with the German position.

But European Commissioner Laszlo Kovacs, the Brussels official in charge of taxation and who tabled the latest proposal in July, said he was still confident that the unanimity needed to approve tax-related measures such as this could still be reached.

"It is evident that there are two schools of thought," Kovacs said, "and it is true that there has been an endless debate that has resulted in a deadlock."

But Saturday’s debate has helped "break this deadlock", and there are enough past examples within the EU to suggest that a unanimous agreement is possible, Kovacs said.

Those who back the commission’s proposal, such as Belgian Finance Minister Didier Reynders, argue that reducing rates of sale taxes in labour-intensive sectors can help create jobs and give the economy a much-needed boost.

"There are sectors, like restaurants, which have a very significant capacity to give more jobs. So why not reduce VAT rates for them?" Reynders said on the sidelines of the talks.

Opponents retort that lowering VAT rates would be ineffective and would merely result in lower tax revenues.

"We are not certain that the benefits of reduced (VAT) rates would be passed on to consumers," said Austrian Finance Minister Wilhelm Molterer.

Steinbruck estimated the proposal will result in Germany losing as much as EUR 12.5 billion in tax revenue. He said a small country like Denmark would stand to lose as much as EUR 1 billion.

French Foreign Minister Christine Lagarde, who chaired the talks in Nice, said ministers had asked Kovacs to come up with a report by October listing the pros and cons of his proposal, including its impact on public accounts.

"We are not trying to bury the matter … we want the debate to continue until it is finished," said Lagarde, whose country has strongly campaigned for the extension of reduced VAT rates within the EU.

Goods and services sold in the EU are normally subject to a rate of at least 15 percent. But member states can apply reduced rates in certain cases and a number of exceptions apply.

In the case of restaurants, for instance, 11 EU countries currently apply a reduced rate, the remaining 16 do not.

While in Nice, ministers also discussed a common response to the current economic slowdown and ways to strengthen the supervision of the financial markets in light of the global credit crunch sparked by the 2007 subprime mortgage crisis in the United States.
 
[dpa / Expatica]