Opinion of the Economic and Social Committee on the "Proposal for a Council Directive amending Directive 77/388/EEC on the common system of value added tax, with regard to the length of time during which the minimum standard rate is to be applied"
Date: 2000-11-29
Institutions: European Economic and Social Committee
Subjects: VAT, VAT rate, competition law, tax harmonisation

20.4.2001

EN

Official Journal of the European Communities

C 116/67

5.8.
The Commission’s proposals fit well with the principles
of VAT; if VAT is to remain the standard European tax on
consumption, applicable to all forms of commerce, something
along the lines proposed should be introduced. Unfortunately,

there must be doubts about the enforceability of the Com-
mission’s proposals and their acceptability to the Member
States in their present form.

Brussels, 29 November 2000.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive
amending Directive 77/388/EEC on the common system of value added tax, with regard to the
length of time during which the minimum standard rate is to be applied’

(2001/C 116/15)

On 19 October 2000 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 7 November
2000. The rapporteur was Mr Kenneth Walker.

At its 377th plenary session on 29 and 30 November 2000 (meeting of 29 November) the Economic
and Social Committee adopted the following opinion by 110 votes to one, with 10 abstentions.

1.

Introduction

1.1.
The second sub-paragraph of Article 12(3)(a) of Direc-
tive 77/388/EEC (1) stipulates that, on a proposal from the
Commission, and after having consulted the European Parlia-
ment and the Economic and Social Committee, the Council
shall decide unanimously on the standard rate of VAT to be
applied.

1.2.
The Directive, introducing a system of minimum rates,
stipulated, inter alia, that from 1 January 1993 the standard
rate could not be set at less than 15 %. Member States were,
however, given the option of applying one or two reduced
rates, equal to or greater than 5 %, to a limited list of categories
of goods and services. Some transitional derogations were also
provided for, to take special situations into account. The
Directive set an expiry date of 31 December 2000.

1.2.1.
At the same time, however, the Council legally and
politically re-affirmed its April 1967 commitment to the
achievement of a definitive VAT system, based on taxation of
goods and services in the Member State of origin, and set itself
a new target date of 31 December 1996 to achieve this goal.

1.3.
The programme adopted by the Commission in July
1996 envisaged a gradual transition to the definitive system.
The first stage was to be the modernisation and more uniform
application by the Member States of the existing system,
together with amendments designed to lead to the definitive
system, but it very soon became clear, as in 1987, that the
necessary degree of harmonisation could not be achieved
because of differing domestic arrangements in the Member
States.

1.4.
Consequently, to maintain the degree of harmonisation
of the rates already achieved, on the one hand, and, on the
other, to open the way to the definitive system of VAT based
on taxation in the country of origin, the Commission presented
a new proposal for a Directive (2) on 20 December 1995, as
provided for in the 1992 Directive. That proposal provided
for a standard rate band with a minimum level of 15 % and a
ceiling of 25 %. Given the supposedly transitional nature of
the prevailing taxation system, the arrangements were to apply
for only two years, from 1 January 1997 to 31 December
1998.

(1) OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive

2000/17/EC (OJ L 84, 5.4.2000, pp. 24-25).

(2) COM(95) 731 final (OJ C 73, 13.3.1996, p. 22).

C 116/68

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Official Journal of the European Communities

20.4.2001

1.4.1.
The proposed band was derived from the rates then
in force in the Member States, which varied between 15 % and
25 %. Most Member States fall well within this band; even
now, only one Member State (Luxembourg) applies the lowest
permissible rate of 15 % and only two (Denmark and Sweden)
apply the maximum rate of 25 %.

rate. This provision will be subject to revision, given that
the Council, acting on a proposal to be submitted by the
Commission not later than 31 December 2005, must decide
what the standard rate is to be after that date.

2.2.2.
Directive.

Articles 2 to 4 provide for the entry into force of the

The Commission presented an identical proposal
1.4.1.1.
to the Council for the period 1 January 1999 to 31 December
1999.

3. Comments

1.4.2.
which kept only the principle of the minimum rate.

Both of these proposals were rejected by the Council,

1.5.
The Commission has re-appraised the programme
which it proposed in December 1996 and has proposed
a phased strategy based on the four major objectives of
simplification and modernisation of the rules, more uniform
application of the existing legislation and closer administrative
cooperation.

1.5.1.
During this period, it is deemed necessary to prevent
growing divergence in the standard rates of VAT applied by
the Member States from leading to structural balances in the
EU and distortions of competition in certain sectors of activity.

1.5.2.
In these circumstances it is thought appropriate to
maintain temporarily the principle of a minimum standard
rate of 15 % and to propose that the legislation in force be
extended.

2.

The Commission’s proposals

2.1.
Since the application of this rate under Article 12(3)(a)
of Directive 77/388/EEC expires on 31 December 2000, the
object of this proposal is to enable the Council to extend the
period of application of the minimum standard rate.

2.2.
The amended first paragraph of Article 1 proposes that
the minimum standard rate of Value Added Tax in the Member
States, set at 15 %, be extended from 1 January 2001 to
31 December 2005.

2.2.1.
The second paragraph sets 31 December 2005 as the
expiry date for the minimum level proposed for the standard

Brussels, 29 November 2000.

The Economic and Social Committee has already given
3.1.
its approval (1) to the two Commission proposals for the
introduction of a standard rate band of 15 %-25 %. It now
signifies its agreement with the Commission’s current proposal
to extend the validity of the existing minimum rate level of
15 % for a further five years to 31 December 2005.

3.1.1.
The Committee agrees with the Commission that
this measure is necessary to prevent growing divergence of
VAT rates from creating structural imbalances in the EU and
leading to distortions of competition. In the absence, which it
regrets, of the necessary political consensus to introduce a
standard rate band, it agrees that a further extension of the
existing minimum rate legislation is the only practical measure
to prevent this from occurring.

3.1.2.
The Committee has repeatedly pointed to the fact
that differences between the Member States in the rates,
regulations, procedures and interpretation of the rules of VAT
are resulting in the fragmentation of the Single Market and
constitute a deterrent to intra-Community trade, especially for
small businesses. It, therefore, requests the Commission to
maintain pressure on the Member States to reduce these
differences.

3.1.3.
The Committee hopes that the Commission’s present
proposal will be adopted by the Council; if even this minimal
level of harmonisation cannot be maintained, there is little
hope for producing a system which will meet the needs of a
true Single Market.

(1) Opinion of 25 April 1996 on the Proposal for a Council Directive
amending Directive 77/388/EEC on the common system of value
added tax (level of the standard rate), OJ C 204, 15.7.1996, p. 94
and Opinion of 28 January 1999 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,
OJ C 101, 12.4.1999, p. 87.

The President

of the Economic and Social Committee

Göke FRERICHS