EN Official Journal of the European Union C 108/78

Opinion of the European Economic and Social Committee on the ‘proposal for a Council Directive amending Directive 77/388/EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services’

(COM(2003) 825 final – 2003/0317 (CNS))

(2004/C 108/15)

On 18 December 2003, the Council of the European Union decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

Given the urgency of the work, the Committee decided at its 405th plenary session (meeting of 28 January) to appoint Mr Malosse as rapporteur-general and adopted the following opinion with 40 votes in favour and four abstentions:

1. The proposal's content and raison d'être

1.1 The Vienna European Council of 11 and 12 December 1998 recommended as part of the ‘Vienna Strategy for Europe’ that Member States which so wished should be allowed on an experimental basis to apply a reduced VAT rate to labour-intensive services so as to test the impact of such reductions on job creation and action to curb the underground economy.

1.2 The Council of Ministers adopted an ad hoc Directive (1999/85/EC) on 22 October 1999 on the basis of this recommendation. Nine Member States – Belgium, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and the United Kingdom – availed themselves of the possibility. In the wake of reports evaluating the impact of the measures, the European Commission presented a proposal for a directive for simplifying and rationalising the reduced VAT rates (1) on 23 July 2003, since the 1999 directive was due to expire on 31 December 2003.

1.3 Because of numerous divergences, the Council of Ministers has not been able to adopt a new directive, this being an area in which a unanimous vote is required.

1.4 Consequently, and given the risk of legal uncertainty in the Member States applying the reduced rates, the Commission, in agreement with the Council, has now proposed extending the 1999 directive until 31 December 2005. This proposal merely amends the period of validity of the 1999 directive without making any other changes. It does not take account of the European Commission's proposals for simplification and rationalisation or the Member States' requests for changes or additions to be made to the sectors benefiting from these measures.

2. The European Economic and Social Committee's opinion

2.1 The EESC endorsed the principle of applying reduced VAT rates to labour-intensive services in its opinion of 26 May 1999 (2). It did so again in an opinion adopted at the plenary session on 30 October 2003 (rapporteur: Mr Bedossa) on the European Commission's amended proposal for rationalising and simplifying the 1999 directive.

2.2 In this opinion the EESC was much more positive than the European Commission in its assessment of these measures' impact in terms of creating jobs and curbing undeclared work.

2.3 The EESC also made a series of suggestions for extending the VAT reductions to other sectors such as restaurant services, for maintaining the reductions for hairdressing and small repair services and for adding, in category 10, historic and religious buildings and buildings of private and professional/industrial cultural and architectural heritage.

2.4 The EESC therefore endorses the principle of continuing to apply the reduced VAT until 31 December 2005 in order to avoid the serious consequences of a legal vacuum or the sudden cessation of measures which have had a demonstrably favourable impact.

2.5 The EESC nonetheless regrets that the Council was unable to agree on the European Commission's proposal for a directive to rationalise and simplify the system. It would point out that the principle of unanimous voting in tax matters has been a definite obstacle here.

2.6 So as to prevent a legal vacuum from arising once again in the near future and given the very positive assessment of the measure's impact, the EESC would urge Member States to reach rapid agreement on the proposal for a directive of 23 July 2003 on the global revision of the reduced VAT rates with a view to their simplification and rationalisation (COM(2003) 397 final – CNS 2003/0169), and calls on the Council to adopt this proposal as soon as possible and in so doing to include in it the activities listed in point 2.3.

2.7 Finally, the EESC would point to the efforts that will have to be made to highlight the importance of the reduced rates for the new Member States that will join the EU on 1 May 2004. Employment and undeclared work are a serious problem in many of these new Member States. The EESC would also ask the European Commission to evaluate the impact of VAT reductions more effectively, in conjunction with the Member States and with economic and social players, who are in the best position to pass judgment.

Brussels, 28 January 2003 The President of the European Economic and Social Committee Roger BRIESCH

(1) COM(2003) 397 final of 23.7.2003

(2) OJ C 20 of 22.7.1999