Opinion of the Economic and Social Committee 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'
Date: 1999-01-28
Institutions: European Economic and Social Committee
Subjects: ESC opinion, VAT, VAT rate

12.4.1999

EN

Official Journal of the European Communities

C 101/87

Opinion of the Economic and Social Committee 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’

(1999/C 101/18)

On 22 December 1998 the Council decided to consult the Economic and Social Committee,
under Article 99 of the Treaty establishing the European Community, on the above-mentioned
proposal.

The Economic and Social Committee decided to appoint Mr Walker as rapporteur-general to
draw up its opinion.

At its 360th plenary session (meeting of 28 January 1999), the Economic and Social Committee
adopted the following opinion by 83 votes to three, with two abstentions.

1.

Introduction

1.1.
The purpose of this proposal is to enable the
Council to take a decision concerning the level of the
minimum standard rate as required by Community
legislation in the field of VAT.

1.1.1.
This decision is necessary in order to consoli-
date the functioning of the Internal Market from a tax
standpoint, both under the transitional arrangements
currently in force and with a view to the definitive
measures for the common system of VAT.

1.2.
In the context of its work programme for the
introduction of a new common system of VAT for the
single market, and in its report on rates, the Commission
has emphasised the importance of approximating VAT
rates within a harmonised structure in order to enable a
common system of VAT to be introduced.

1.2.1.
The degree of harmonisation required must be
assessed, both at present and in the future, in the light
of what is deemed necessary to avoid distortions
of competition which would be detrimental to the
Community as a whole.

1.2.2. One of the main characteristics of VAT is that
it should be neutral with regard to the conditions
of competition. Preserving the possibility of applying
excessively divergent rates in different Member States
jeopardise this neutrality and influence the
might
location of businesses; it would, therefore, be inconsist-
ent with the principles of the single market.

Consequently, this proposal is aimed at paving
1.2.3.
the way for the harmonisation of rates that is necessary
in the context of the existing VAT system and, at the
same time, preparing the next steps towards a gradual
approximation of rates in order to permit the introduc-
tion of the common VAT system. It covers only the level
of the standard rate.

1.3.
At present, the transitional arrangements con-
tained in European Union VAT legislation provide for
harmonisation of the number and level of VAT rates.

That constitutes the degree of harmonisation which the
Member States have already recognised as being essential
to the functioning of the transitional arrangements.

Under these transitional arrangements, Mem-
1.3.1.
ber States must set the standard rate of VAT at a
minimum of 15 %.

Article 12 (3) (a) of the Sixth VAT Directive lays
1.4.
down that, on a proposal from the Commission and
after consulting the European Parliament and the Econ-
omic and Social Committee, the Council will decide
unanimously on the level of the standard rate to be
applied after 31 December 1998.

1.5.
This proposal follows the same line of reasoning
as the 1995 Commission proposal on the same subject (1).
The situation has not changed fundamentally since then.

In current practice, the level of the standard rate

1.6.
varies between 15 % and 25 %.

1.7.
The Commission feels that the introduction of
the single currency could accentuate existing problems
with regard to structural imbalances and distortion of
competition. Prices charged in different Member States
in Euroland will be more transparent and it will be
easier to gauge the level of the VAT rates applied. The
resulting situation will make it more necessary than ever
to harmonise rates in the single market.

1.8.
A proposal on the level of both the standard rate
and reduced rates will, therefore, be required. However,
for technical reasons, such a proposal cannot be present-
ed until the end of 1999.

2. The Commission proposals

2.1.
The standard rate of Value Added Tax shall be
fixed by each Member State as a percentage of the
taxable amount and shall be the same for the supply of

(1) COM(95) 731 final.

C 101/88

EN

Official Journal of the European Communities

12.4.1999

goods and the supply of services. From 1 January 1999
until 31 December 1999, this percentage shall be no
lower than 15 % and no higher than 25 %.

2.2. On the basis of a proposal by the Commission
and after consultation with the European Parliament,
the Council shall decide unanimously on the level of the
standard rate to be applied after 31 December 1999.

3. Comments

3.1.
The Commission’s present proposal is, in effect,
a reintroduction of the proposal which it brought
forward in 1995.

In its Opinion on that original proposal (1) the
3.2.
Economic and Social Committee stated that, ‘Without
aiming at complete harmonisation of rates ............ it is
necessary to bring rates into a narrower band ...’ and
went on to conclude that ‘The ESC approves the
Commission proposal to introduce a band with a lower
rate of 15 % and an upper rate of 25 % for the standard
rate of VAT in Member States ...’. It sees no reason to
depart from the position which it adopted in that
Opinion.

(1) OJ C 204, 15.7.1996.

Brussels, 28 January 1999.

3.3.
The Economic and Social Committee agrees with
the Commission that, within the Euro zone, consumers
and others not entitled to recover VAT will find it easier
to compare VAT-inclusive prices in different Member
States and traders entitled to recover VAT will find it
easier to compare VAT-exclusive prices.

3.4.
As Article 12 (3) (a) of the Sixth VAT Directive
lays down that ‘on a proposal from the Commission
and after consulting the European Parliament and the
Economic and Social Committee’ the Council will decide
unanimously on the level of the standard rate to be
applied after 31 December 1998, the ESC would wish
the wording of the second paragraph of Article 1 (a) of
the present proposed Directive to be amended to read
‘On the basis of a proposal by the Commission and after
consultation with the European Parliament and the
Economic and Social Committee ...’.

This is in line with the amendment which
3.4.1.
the Economic and Social Committee requested to the
previous proposal in its opinion referred to above and
to which the Commission acceded in its Report on
Action taken by the Commission on the Opinions
adopted by the Economic and Social Committee at its
plenary session in April and May 1996.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI