Home News EU cooks up restaurant sales tax deal

EU cooks up restaurant sales tax deal

Published on 11/03/2009

Brussels — EU finance ministers clinched a long-sought deal Tuesday allowing cut-rate sales taxes on certain services, as Germany yielded to French pressure to allow less tax to be charged in restaurants.

The Czech EU presidency brokered a compromise agreement that in particular will allow member states to charge value added tax rates of as little as 5.5 percent in restaurants, Czech Finance Minister Miroslav Kalousek said.

Normally, EU countries cannot apply a VAT rate on retail services and goods of less than 15 percent, in order to avoid big price discrepancies across the EU single market.

However, a deal only became possible on condition that demands from France and Britain for reduced VAT rates for environmentally friendly products be dropped.

"We face a (economic) crisis of course so we’re looking for instruments to foster employment," Czech Finance Minister Miroslav Kalousek said, adding that "a certain government put a lot of pressure on us to speed up the compromise."

France has staked considerable political capital on securing a deal as reduced VAT rates in restaurants was one of former president Jacques Chirac’s election promises — which was taken up by his successor Nicolas Sarkozy.

Exemptions are only allowed with unanimous backing from all 27 member states, which makes it extremely difficult to obtain reduced rates, especially as Germany has long been opposed as a matter of principle.

"In my opinion, this agreement is proof that in a difficult situation we manage to adopt a common standpoint in a flexible manner," Kalousek said, adding that Europe was able to speak with one voice "even if strong national interests are at stake."

The issue of reduced VAT for specific labour-intensive industries has been one of the longest-running unsettled dossiers in Brussels, with demands for a lower rate for restaurants on the table for at least the last 10 years.

France, which has long lobbied its EU partners for an exemption in restaurants, has led efforts to extend a list of special labour-intensive services that can apply rates as low as 5.5 percent in order to boost jobs.

"Germany was along with other countries very reserved," German Finance Minister Peer Steinbrueck said after the meeting, stressing that a compromise was reached on condition it would not lead to further demands for low VAT rates.

The deal also allows all member states, rather than just a handful currently, to apply reduced rates from an existing list of exemptions, which was due to expire next year but was extended indefinitely.

The list includes home renovations, domestic window and home cleaning services, hairdressing, minor leather and shoe repairs, bicycle repairs and domestic care services for children, the elderly, the sick and disabled.

Reduced rates on books in both paper and CD-ROM form are also allowed.

However, EU Taxation Commissioner Laszlo Kovacs said that some countries had ruled out further extensions, barring the way for the French-British push for reduced rates on green products that the European Commission had aimed to pursue.

"We have to think it over whether, having in mind the general spirit, the general mood (among ministers), there is any sense to present a proposal" in favour of reduced rates for green products, he said.