Opinion of the Economic and Social Committee on the 'Proposal for a Council directive amending, with regard to the level of the standard rate, Directive 77/388/EEC on the common system of value added tax` (1999/C 101/18)

On 22 December 1998 the Council decided to consult the Economic and Social Committee, under Article 99 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Economic and Social Committee decided to appoint Mr Walker as rapporteur-general to draw up its opinion.

At its 360th plenary session (meeting of 28 January 1999), the Economic and Social Committee adopted the following opinion by 83 votes to three, with two abstentions.

1. Introduction

1.1. The purpose of this proposal is to enable the Council to take a decision concerning the level of the minimum standard rate as required by Community legislation in the field of VAT.

1.1.1. This decision is necessary in order to consolidate the functioning of the Internal Market from a tax standpoint, both under the transitional arrangements currently in force and with a view to the definitive measures for the common system of VAT.

1.2. In the context of its work programme for the introduction of a new common system of VAT for the single market, and in its report on rates, the Commission has emphasised the importance of approximating VAT rates within a harmonised structure in order to enable a common system of VAT to be introduced.

1.2.1. The degree of harmonisation required must be assessed, both at present and in the future, in the light of what is deemed necessary to avoid distortions of competition which would be detrimental to the Community as a whole.

1.2.2. One of the main characteristics of VAT is that it should be neutral with regard to the conditions of competition. Preserving the possibility of applying excessively divergent rates in different Member States might jeopardise this neutrality and influence the location of businesses; it would, therefore, be inconsistent with the principles of the single market.

1.2.3. Consequently, this proposal is aimed at paving the way for the harmonisation of rates that is necessary in the context of the existing VAT system and, at the same time, preparing the next steps towards a gradual approximation of rates in order to permit the introduction of the common VAT system. It covers only the level of the standard rate.

1.3. At present, the transitional arrangements contained in European Union VAT legislation provide for harmonisation of the number and level of VAT rates. That constitutes the degree of harmonisation which the Member States have already recognised as being essential to the functioning of the transitional arrangements.

1.3.1. Under these transitional arrangements, Member States must set the standard rate of VAT at a minimum of 15 %.

1.4. Article 12 (3) (a) of the Sixth VAT Directive lays down that, on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, the Council will decide unanimously on the level of the standard rate to be applied after 31 December 1998.

1.5. This proposal follows the same line of reasoning as the 1995 Commission proposal on the same subject (). The situation has not changed fundamentally since then.

1.6. In current practice, the level of the standard rate varies between 15 % and 25 %.

1.7. The Commission feels that the introduction of the single currency could accentuate existing problems with regard to structural imbalances and distortion of competition. Prices charged in different Member States in Euroland will be more transparent and it will be easier to gauge the level of the VAT rates applied. The resulting situation will make it more necessary than ever to harmonise rates in the single market.

1.8. A proposal on the level of both the standard rate and reduced rates will, therefore, be required. However, for technical reasons, such a proposal cannot be presented until the end of 1999.

2. The Commission proposals

2.1. The standard rate of Value Added Tax shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and the supply of services. From 1 January 1999 until 31 December 1999, this percentage shall be no lower than 15 % and no higher than 25 %.

2.2. On the basis of a proposal by the Commission and after consultation with the European Parliament, the Council shall decide unanimously on the level of the standard rate to be applied after 31 December 1999.

3. Comments

3.1. The Commission's present proposal is, in effect, a reintroduction of the proposal which it brought forward in 1995.

3.2. In its Opinion on that original proposal () the Economic and Social Committee stated that, 'Without aiming at complete harmonisation of rates ............ it is necessary to bring rates into a narrower band ...` and went on to conclude that 'The ESC approves the Commission proposal to introduce a band with a lower rate of 15 % and an upper rate of 25 % for the standard rate of VAT in Member States ...`. It sees no reason to depart from the position which it adopted in that Opinion.

3.3. The Economic and Social Committee agrees with the Commission that, within the Euro zone, consumers and others not entitled to recover VAT will find it easier to compare VAT-inclusive prices in different Member States and traders entitled to recover VAT will find it easier to compare VAT-exclusive prices.

3.4. As Article 12 (3) (a) of the Sixth VAT Directive lays down that 'on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee` the Council will decide unanimously on the level of the standard rate to be applied after 31 December 1998, the ESC would wish the wording of the second paragraph of Article 1 (a) of the present proposed Directive to be amended to read 'On the basis of a proposal by the Commission and after consultation with the European Parliament and the Economic and Social Committee ...`.

3.4.1. This is in line with the amendment which the Economic and Social Committee requested to the previous proposal in its opinion referred to above and to which the Commission acceded in its Report on Action taken by the Commission on the Opinions adopted by the Economic and Social Committee at its plenary session in April and May 1996.

Brussels, 28 January 1999.

The President of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

() OJ C 204, 15.7.1996.

() COM(95) 731 final.