Proposal for a Council Directive amending Directive 77/388/EEC as regards the possibility of applying on an experimental basis a reduced VAT rate on labour-intensive services

(1999/C 102/10)

COM(1999) 62 final - 1999/0056(CNS)

(Submitted by the Commission on 15 March 1999)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 99 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Having regard to the opinion of the Economic and Social Committee,

(1) Whereas Article 12(3)(a) of Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment(1), as last amended by Directive 98/80/EC(2), provides that the Member States may apply either one or two reduced rates only to supplies of goods and services of the categories specified in Annex H to Directive 77/388/EEC;

(2) Whereas, however, the problem of unemployment is so serious that those Member States wishing to do so should be allowed to experiment with the operation and impact - in terms of job creation - of a reduction in the VAT rate on labour-intensive services which are not currently listed in Annex H;

(3) Whereas this reduced VAT rate is likely to reduce the incentive for the businesses concerned to join or remain in the black economy;

(4) Whereas, however, the introduction of a targeted reduction in the VAT rate could have a negative impact on the smooth functioning of the internal market and on tax neutrality; whereas provision should therefore be made for an authorisation procedure to be introduced for a full and clearly defined three-year period and for the scope of this measure to be made subject to strict conditions so that it remains verifiable and limited;

(5) Whereas it is necessary to establish a procedure for vetting and monitoring authorisations granted in order to ensure that they remain compatible with the smooth functioning of the single market;

(6) Whereas, since the objective is to eliminate distortions of competition within the Community, the appropriate measures, such as the withdrawal of an authorisation or the reduction of its scope must be taken by the Council, acting by qualified majority, in a manner similar to the procedure laid down in Article 101 of the Treaty;

(7) Whereas, in view of the experimental nature of the measure, a detailed assessment of its impact in terms of job creation and efficiency should be carried out by the Member States which implement it;

(8) Whereas the measure should be strictly limited in time and should end by 31 December 2002 at the latest,

HAS ADOPTED THIS DIRECTIVE:

Article 1

The following paragraph 6 is added to Article 28 of Directive 77/388/EEC:

"6. The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply for all of the period from 1 January 2000 to 31 December 2002 the reduced rates provided for in the third subparagraph of Article 12(3)(a) to labour-intensive services.

The services concerned must satisfy the following requirements:

(a) they must be labour-intensive;

(b) they must be provided direct to final consumers;

(c) they must be mainly local and not likely to create distortions of competition.

The application of a reduced rate must not prejudice the smooth functioning of the internal market.

Any Member State wishing to introduce the measure provided for in the first paragraph shall inform the Commission before 1 September 1999 and shall provide it before that date with any relevant particulars, and in particular the following:

(a) scope of the measure and detailed description of the services concerned;

(b) particulars serving to show that the conditions laid down in the second and third paragraphs have been met;

(c) particulars establishing that the measure is not likely to create distortions of competition;

(d) particulars showing the budgetary cost of the measure envisaged;

(e) particulars establishing a close link between the lower prices resulting from the rate reduction and the foreseeable increase in demand and employment.

If the Commission finds that the arrangements introduced by a Member State can no longer be maintained on the grounds that they are distorting competition, either between similar activities within the Member State concerned or between the same or similar activities in different Member States, it shall propose appropriate measures to the Council. The Council shall act on such proposals by qualified majority.

Those Member States authorised to apply the reduced rate referred to in the first paragraph shall, before 1 October 2002, draw up a detailed report containing an overall assessment of the measure's effectiveness in terms of job creation and efficiency."

Article 2

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 1999 at the latest. They shall forthwith inform the Commission thereof.

When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

Article 3

This Directive shall enter into force on the seventh day following that of its publication in the Official Journal of the European Communities.

Article 4

This Directive is addressed to the Member States.

(1) OJ L 145, 13.6.1977, p. 1.

(2) OJ L 281, 17.10.1998, p. 31.