Opinion of the Economic and Social Committee on the "Proposal for a Council Directive amending Directive 77/388/EEC on the common system of value added tax, with regard to the length of time during which the minimum standard rate is to be applied"

(2001/C 116/15)

On 19 October 2000 the Council decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 November 2000. The rapporteur was Mr Kenneth Walker.

At its 377th plenary session on 29 and 30 November 2000 (meeting of 29 November) the Economic and Social Committee adopted the following opinion by 110 votes to one, with 10 abstentions.

1. Introduction

1.1. The second sub-paragraph of Article 12(3)(a) of Directive 77/388/EEC(1) stipulates that, on a proposal from the Commission, and after having consulted the European Parliament and the Economic and Social Committee, the Council shall decide unanimously on the standard rate of VAT to be applied.

1.2. The Directive, introducing a system of minimum rates, stipulated, inter alia, that from 1 January 1993 the standard rate could not be set at less than 15 %. Member States were, however, given the option of applying one or two reduced rates, equal to or greater than 5 %, to a limited list of categories of goods and services. Some transitional derogations were also provided for, to take special situations into account. The Directive set an expiry date of 31 December 2000.

1.2.1. At the same time, however, the Council legally and politically re-affirmed its April 1967 commitment to the achievement of a definitive VAT system, based on taxation of goods and services in the Member State of origin, and set itself a new target date of 31 December 1996 to achieve this goal.

1.3. The programme adopted by the Commission in July 1996 envisaged a gradual transition to the definitive system. The first stage was to be the modernisation and more uniform application by the Member States of the existing system, together with amendments designed to lead to the definitive system, but it very soon became clear, as in 1987, that the necessary degree of harmonisation could not be achieved because of differing domestic arrangements in the Member States.

1.4. Consequently, to maintain the degree of harmonisation of the rates already achieved, on the one hand, and, on the other, to open the way to the definitive system of VAT based on taxation in the country of origin, the Commission presented a new proposal for a Directive(2) on 20 December 1995, as provided for in the 1992 Directive. That proposal provided for a standard rate band with a minimum level of 15 % and a ceiling of 25 %. Given the supposedly transitional nature of the prevailing taxation system, the arrangements were to apply for only two years, from 1 January 1997 to 31 December 1998.

1.4.1. The proposed band was derived from the rates then in force in the Member States, which varied between 15 % and 25 %. Most Member States fall well within this band; even now, only one Member State (Luxembourg) applies the lowest permissible rate of 15 % and only two (Denmark and Sweden) apply the maximum rate of 25 %.

1.4.1.1. The Commission presented an identical proposal to the Council for the period 1 January 1999 to 31 December 1999.

1.4.2. Both of these proposals were rejected by the Council, which kept only the principle of the minimum rate.

1.5. The Commission has re-appraised the programme which it proposed in December 1996 and has proposed a phased strategy based on the four major objectives of simplification and modernisation of the rules, more uniform application of the existing legislation and closer administrative cooperation.

1.5.1. During this period, it is deemed necessary to prevent growing divergence in the standard rates of VAT applied by the Member States from leading to structural balances in the EU and distortions of competition in certain sectors of activity.

1.5.2. In these circumstances it is thought appropriate to maintain temporarily the principle of a minimum standard rate of 15 % and to propose that the legislation in force be extended.

2. The Commission's proposals

2.1. Since the application of this rate under Article 12(3)(a) of Directive 77/388/EEC expires on 31 December 2000, the object of this proposal is to enable the Council to extend the period of application of the minimum standard rate.

2.2. The amended first paragraph of Article 1 proposes that the minimum standard rate of Value Added Tax in the Member States, set at 15 %, be extended from 1 January 2001 to 31 December 2005.

2.2.1. The second paragraph sets 31 December 2005 as the expiry date for the minimum level proposed for the standard rate. This provision will be subject to revision, given that the Council, acting on a proposal to be submitted by the Commission not later than 31 December 2005, must decide what the standard rate is to be after that date.

2.2.2. Articles 2 to 4 provide for the entry into force of the Directive.

3. Comments

3.1. The Economic and Social Committee has already given its approval(3) to the two Commission proposals for the introduction of a standard rate band of 15 %-25 %. It now signifies its agreement with the Commission's current proposal to extend the validity of the existing minimum rate level of 15 % for a further five years to 31 December 2005.

3.1.1. The Committee agrees with the Commission that this measure is necessary to prevent growing divergence of VAT rates from creating structural imbalances in the EU and leading to distortions of competition. In the absence, which it regrets, of the necessary political consensus to introduce a standard rate band, it agrees that a further extension of the existing minimum rate legislation is the only practical measure to prevent this from occurring.

3.1.2. The Committee has repeatedly pointed to the fact that differences between the Member States in the rates, regulations, procedures and interpretation of the rules of VAT are resulting in the fragmentation of the Single Market and constitute a deterrent to intra-Community trade, especially for small businesses. It, therefore, requests the Commission to maintain pressure on the Member States to reduce these differences.

3.1.3. The Committee hopes that the Commission's present proposal will be adopted by the Council; if even this minimal level of harmonisation cannot be maintained, there is little hope for producing a system which will meet the needs of a true Single Market.

Brussels, 29 November 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive 2000/17/EC (OJ L 84, 5.4.2000, pp. 24-25).

(2) COM(95) 731 final (OJ C 73, 13.3.1996, p. 22).

(3) Opinion of 25 April 1996 on the Proposal for a Council Directive amending Directive 77/388/EEC on the common system of value added tax (level of the standard rate), OJ C 204, 15.7.1996, p. 94 and Opinion of 28 January 1999 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, OJ C 101, 12.4.1999, p. 87.