WRITTEN QUESTION P-3105/00

by Florence Kuntz (UEN) to the Commission

(26 September 2000)

Subject: VAT rates applicable to the catering industry in the European Union

Certain Member States, including Spain and Portugal, were granted derogations to the Treaty at the time of their accession to the European Union, thus making official the practice prevalent in those countries of applying reduced or low VAT rates in the catering sector. These supposedly transitional arrangements but with no exact date for the end of the transitional period were introduced in 1992 and the legislation governing this matter is the 6th VAT directive.

As a result, other Member States which apply a higher rate in the catering industry are seriously harmed by this distortion of competition, in terms both of employment, given that this area of activity employs large numbers of people, and of the industry's turnover.

Could the Commission therefore say:

- what reasons justify the failure to set a precise date for the end of the transitional period from which some Community Member States are benefiting with regard to VAT, and what conditions must be met before a precise date for the end of this period can be proposed to the Ecofin Council?

- what measures can be envisaged with a view to putting as early a stop as possible to the serious violations of the European Union's competition policy taking place in this area of activity?

- why certain provisions of the 6th directive prevent the countries with no derogations to its provisions from lowering the VAT rates applicable to the catering industry?

Answer given by Mr Bolkestein on behalf of the Commission

(30 October 2000)

Under the terms of the Community provisions currently in force in this area (Article 12(3) of the 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 15 % rate applies to the catering industry. Increased rates were dropped following the adoption of Directive 92/77/EEC(2) on the approximation of VAT rates.

However, Article 28(2)of the Directive allows Member States to apply a reduced rate for catering on a temporary basis on certain conditions.

Specifically, Member States who were obliged to increase their standard rate by more than 2 % on 1 January 1991 and those where a reduced rate was already being applied to the catering industry can apply, or continue to apply, a reduced rate.

The application period for the exemptions is linked to the transitional period which came into force on 1 January 1993. It was intended to last until 31 December 1996, though it could be extended automatically until the definitive VAT arrangement came into force. The changeover was particularly difficult to implement and it now seems likely that the transitional arrangement will continue to be applied for several years.

The catering industry could have benefited from the possibility of a reduced rate for other Member States, if the Council had not amended the Commission's proposal when negotiating 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.(3) The Council restricted the scope of the proposal to a list of services which did not include the catering industry.

The Commission's new VAT strategy(4) on the rationalisation of VAT rates will include a review of the temporary exemptions on rates and their period of validity. It will be carried out following an assessment of the experience of labour-intensive services.

(1) OJ L 145, 13/6/1977. Directive last amended by Council Directive 1999/85/EC of 22 October 1999 (OJ L 277, 28.10.1999).

(2) Council Directive 92/77/EEC of 19 October 1992 supplementing the common system of value added tax and amending Directive 77/388/EEC (approximation of VAT rates) (OJ L 316, 31.10.1992).

(3) OJ L 277, 28.10.1999.

(4) COM(2000) 348 final.