Proposal for a Council Directive amending Directive 77/388/EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services
Date: 2002-09-25
Institutions: European Commission
Subjects: EU employment policy, VAT, VAT rate, provision of services, tax harmonisation, testing

C 20 E/212

EN

Official Journal of the European Communities

28.1.2003

Proposal for a Council Directive amending Directive 77/388/EEC to extend the facility allowing
Member States to apply reduced rates of VAT to certain labour-intensive services

(2003/C 20 E/19)

COM(2002) 525 final — 2002/0230(CNS)

(Submitted by the Commission on 25 September 2002)

EXPLANATORY MEMORANDUM

On 22 October 1999, as part of its implementation of the recommendations of the European Council of
11 and 12 December 1998, and in particular the ‘Vienna Strategy for Europe’, the Council adopted
Directive 1999/85/EC (1) amending Directive 77/388/EEC (2) (the 6th VAT Directive) as regards the possi-
bility of applying on an experimental basis a reduced VAT rate on labour-intensive services. Its purpose is
to allow Member States that so wish to test the impact, in terms of job creation and a reduction of the
underground economy, of a targeted reduction of VAT on these services.

Member States wishing to introduce the measure had to inform the Commission before 1 November
1999 (3).

Article 28(6) of the 6th VAT Directive authorises the experimental application of a reduced rate of VAT on
labour-intensive services up to 31 December 2002. It requires Member States that have applied such
reduced rates to draw up a detailed report by 1 October 2002 assessing the measures' effectiveness in
terms of job-creation and efficiency.

Based on these reports the Commission is required to submit a global evaluation report to the Council and
the European Parliament by 31 December 2002, accompanied if necessary by a proposal for a final
decision on the VAT rate to be applied to labour-intensive services.

The evaluation must also take account of the Commission Communication on A strategy to improve the
operation of the VAT system within the context of the internal market (4), which advocates revising and
rationalising the rules and derogations to be applied to reduced VAT rates in the medium term, and
considering how reduced rates of VAT can be used to further various Community policies, particularly job
creation.

Since no assessment reports have yet been submitted to the Commission by the Member States, and in
view of the time needed to evaluate such reports thoroughly in accordance with the guidelines of Directive
1999/85/EC, it is essential to alter the period set in Article 28(6) of the 6th VAT Directive.

Under these circumstances the Commission considers that the first subparagraph of Article 28(6) of
Directive 77/388/EEC and the first paragraph of Article 1 of Decision 2000/185/EC should be
amended to extend the period of validity of the authorisation to 31 December 2003 at the latest. This
would allow the nine Member States currently applying a reduced rate of VAT to labour-intensive services
to continue to do so for another year under the same conditions, without changing or extending the scope
of the experiment.

(1) OJ L 277, 28.10.1999, p. 34.
(2) OJ L 145, 13.6.1977, p. 1; Directive last amended by Directive 2002/38/EC (OJ L 128, 15.5.2002, p. 41).
(3) The applications made were the subject of Council Decision 2001/185/EC of 28 February 2000 (OJ L 59, 4.3.2000,

p. 10).

(4) COM(2000) 348 final, 7.6.2000.

28.1.2003

EN

Official Journal of the European Communities

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THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 93 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

(4) Since the Member States have not yet submitted any
assessments to the Commission, it is necessary in view of
the time needed to produce a thorough global evaluation of
such reports to extend the maximum period of application
set for this measure in Directive 77/388/EEC.

(5) Decision 77/388/EEC should therefore be

amended

accordingly,

Having regard to the opinion of the Economic and Social
Committee,

HAS ADOPTED THIS DIRECTIVE:

Article 1

In the first paragraph of Article 28(6) of Directive 77/388/EEC
years between 1 January 2000 and
the words
31 December 2002’ are replaced by the words ‘four years
between 1 January 2000 and 31 December 2003’.

‘three

Article 2

The Member States shall bring into force the laws, regulations
and administrative provisions necessary to comply with this
Directive by 31 December 2002 at
the latest. They shall
forthwith inform the Commission thereof.

When Member States adopt these measures, they shall contain
a reference to this Directive or be accompanied by such
reference on the occasion of
their official publication.
Member States shall determine how such reference is to be
made.

Article 3

This Directive shall enter into force on the twentieth day
following that of its publication in the Official Journal of the
European Communities.

Article 4

This Directive is addressed to the Member States.

Whereas:

(1) Article 28(6) of 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), allows
the reduced rates provided for in the third subparagraph
of Article 12(3)(a) also to be applied to the labour-intensive
services listed in the categories set out in Annex K to that
Directive for a maximum period of
three years from
1 January 2000 to 31 December 2002.

(2) Council Decision 2000/185/EC of 28 February 2000 auth-
orising Member States to apply a reduced rate of VAT to
certain labour-intensive services in accordance with the
procedure provided for
in Article 28(6) of Directive
77/388/EEC (2) authorised certain Member States to apply
a reduced rate of VAT to those labour-intensive services for
which
an application up to
31 December 2002.

they had

submitted

(3) Based on the reports to be drawn up by 1 October 2002
by the Member States that have applied such reduced rates,
the Commission is required to submit a global evaluation
report
to the Council and the European Parliament by
31 December 2002, accompanied if necessary by a
proposal
for a final decision on the VAT rate to be
applied to labour-intensive services.

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

2002/38/EC (OJ L 128, 15.5.2002, p. 41).

(2) OJ L 59, 4.3.2000, p. 10.