EN Official Journal of the European Union CE 78/536

(2004/C 78 E/0558)

WRITTEN QUESTION P-3390/03

by Mihail Papayannakis (GUE/NGL) to the Commission

(10 November 2003)

Subject: VAT on tailoring

Ecofin has set the end of 2003 as the expiry date for the lower rate of 8 % VAT applying to the traditional tailoring trade, a sector now in decline. Will the Commission say will happen after that date? Is the Commission in favour of increasing the rate of VAT on tailoring? In any event, what measures will the Commission take to aid and bolster this vulnerable sector?

Answer given by Mr Bolkestein on behalf of the Commission

(11 December 2003)

Council Directive 1999/85/EC of 22 October 1999 (1) enabled Member States to apply, on an experimental basis, a reduced rate of VAT to labour-intensive services. The types of services eligible for the experiment were listed in Annex K. The list included one category that clearly applied to tailoring, though only to small repairs to clothing and household linen (including alterations as well as repairs). The experiment was extended for a year to provide the people offering the services in question with legal security and continuity while the Commission prepared a comprehensive evaluation report on the experiment.

The Commission adopted its report on 2 June 2003 (2). It concluded that ‘taking into account both information supplied by Member States and the inherent limitation of the analytical methods applied, it was not possible to find solid evidence of [VAT] reductions boosting job creation. For the effect on the reduction on black economy [SIC] the same observation can be made.’

For the evaluation, the Commission also used its QUEST macro-economic model to carry out a comparative analysis of the effects of reduced VAT rates and reduced labour charges. The analysis showed that, even if a reduction in VAT is passed on in full in domestic prices, for the same budgetary cost a reduction in labour charges creates 52 % more jobs.

As promised in its Communication on the VAT strategy adopted in 2000 (3), the Commission adopted, on 23 July 2003, a proposal for a Directive to review and rationalise the rules and derogations concerning reduced VAT rates (4). Its main objective was to improve the internal market by simplification and more uniform application of VAT. It was also important to offer all Member States the same opportunities to apply reduced rates to the same things.

In drawing up the proposal, the Commission took account of the results of the experiment but also the VAT treatment of the services in question in the Member States. At present, four Member States (Belgium, Greece, Luxembourg and the Netherlands) apply a reduced rate to these services on an experimental basis and one (Ireland) applies a parking rate under a temporary derogation. Therefore these services were not included during the rationalisation exercise.

The proposal is now being examined by the Council, which will have to decide, unanimously and in the light of Parliament's opinion, on the future scope of reduced VAT rates.

At present, there are no plans to introduce any other Community tax measures for tailoring.

(1) Council Directive 1999/85/EC of 22 October 1999, amending Directive 77/388/EEC as regards the possibility of applying on an experimental basis a reduced VAT rate on labour-intensive services, OJ L 277, 28.10.1999.

(2) COM(2003) 309 final.

(3) COM(2000) 348 final.

(4) COM(2003) 397 final.