WRITTEN QUESTION E-1251/02

by Werner Langen (PPE-DE) to the Commission

(6 May 2002)

Subject: VAT rates in the hotel trade

In all the Euro zone countries except Germany, reduced rates of VAT apply to the hotel trade. In Germany, however, the full 16 % is levied.

Can the Commission answer the following:

1. How are hotel turnovers actually taxed in the EU Member States, in terms both of amounts and of preconditions?

2. Might it be possible to introduce a uniform rate of VAT for hotel turnovers in the EU?

3. What are the arguments for and against approximating VAT rates for hotel turnovers in the EU?

Answer given by Mr Bolkestein on behalf of the Commission

(27 June 2002)

Under current Community law on VAT (Article 12(3) of Sixth Council Directive 77/388/EEC of 17 May 1977 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)), the standard minimum rate of 15 % is applicable to the supply of goods and to the supply of services.

However, Member States also have the option of applying either one or two reduced rates. Reduced rates are fixed as a percentage of the taxable amount, which may not be less than 5 %, and apply only to supplies of the categories of goods and services specified in Annex H to the Sixth VAT Directive.

The list includes accommodation provided by hotels and similar establishments including holiday accommodation and the letting of camping sites and caravan parks. The 15 Member States may therefore choose whether or not to apply a reduced rate to such services. The rates currently applied by the Member States are set out in a table which is being sent direct to the Honourable Member and to the General Secretariat of the Parliament.

The drafting of these provisions the option of applying a reduced rate and the list of goods and services to which the reduced rate may apply is the result of negotiations in the Council.

In 2000, the Commission adopted a communication on a new VAT strategy(2) focusing mainly on simplifying and modernising the existing rules, and applying the current provisions more uniformly. Against this background, the Commission intends to review the structure of reduced VAT rates over the course of next year with a view to proposing an enhanced approximation of these rates.

However, it should be noted that as the adoption of new tax provisions is still subject to unanimity in the Council, Commission proposals generally run the risk of being amended.

In order to ensure neutrality in the single market a certain degree of VAT harmonisation is necessary. That some Member States apply reduced rates and others do not leads to distortions of competition in cross-border areas. For 2003 the Commission therefore foresees an overall review of the current reduced VAT rate structure. Ideally, VAT harmonisation should not be a pretext to raise VAT to the highest levels applied in Member States but should aim at a business-friendly low VAT level in all Member States.

The VAT rate does play a role in a country's price level. However, there is no evidence that differences in VAT application determine the choice of destination of holidaymakers. VAT and income differences seem to be able to explain some of the price differences found in the Union, but they are far from being the only cause. Price differences across the Union are large whether measured with or without VAT.

The application of the reduced VAT is also frequently justified by its positive effect on the labour-intensive tourism sector that thus is better enabled to respond to basic needs and to create employment. The Commission, however, thinks that VAT is a broad consumption tax rather than a suitable instrument for social engineering or employment policy.

(1) OJ L 145, 13.6.1977. Directive last amended by Council Directive 2001/115/EC of 20 December 2001, OJ L 15, 17.1.2002.

(2) COM(2000) 348 final.