VAT Reforms for EU

To avoid a downward spiral of VAT, the EU executive proposes that EU countries can apply a reduced rate on a limited number of goods. For the rest a weighted average rate of at least 12% will be imposed.

The European Union is preparing to give its Member States more room for maneuver to reduce the VAT rate on certain goods, can we read in a bill on the reform of the centralized mechanism for setting the rate of VAT.

The European Commission's proposal will even allow states to simply abolish VAT (value-added tax) on a wide range of goods, responding to a demand by some of its members who criticized the fact that this possibility is not available to them. not granted.

A weighted average rate of at least 12%

The VAT reduction or exemption may apply to all types of goods, except for those explicitly excluded, such as oil and gas, arms, alcohol, tobacco and services. financial.

Member States will nevertheless have to maintain a 'weighted average rate' of at least 12% and can only apply a reduced rate to a 'limited' number of goods.

The twenty-eight must for the moment choose between two VAT rates: 5% or 15% minimum. Countries which applied lower rates before this rule came into force in the 1990s, however, were able to keep them.

As part of its reform project, the European Commission is proposing a new rate choice, "between five and zero per cent" , which opens the door to the VAT exemption for certain goods.

The reform paradoxically responds to a request from the United Kingdom, which was indignant before the referendum on Brexit in June 2016, not to be able to lower the VAT rate on feminine hygiene products to below 5%.

Not before 2022

This possibility will now be given to the states, but since the new rules will probably not come into force before 2022, they will no longer concern the United Kingdom, whose exit from the EU should then have been recorded.

The "weighted average rate" aims to prevent a downward spiral of VAT to attract foreign consumers, creating competition between Member States, or to seduce voters at the expense of balanced public finances.

The European Commission also insists that reduced rates should apply only to goods sold directly to consumers, and not to intermediate goods sold between companies prior to the assembly of the final good.

The project of the European Commission will be presented Thursday. It can still be amended in the meantime and must be endorsed by the Heads of State and Government of the Twenty-eight and the Strasbourg Parliament before becoming law.

AHW