Opinion of the European Economic and Social Committee on the ‘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’ (COM(2003) 825 final – 2003/0317 (CNS))
Date: 2004-01-28
Institutions: European Economic and Social Committee
Subjects: VAT, VAT rate, employment policy, provision of services, tax relief

C 108/78

EN

Official Journal of the European Union

30.4.2004

Opinion of the European Economic and Social Committee on the ‘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’

(COM(2003) 825 final – 2003/0317 (CNS))

(2004/C 108/15)

On 18 December 2003, the Council of the European Union decided to consult the European Economic
and Social Committee, under Article 262 of the Treaty establishing the European Community, on the
above-mentioned proposal.

Given the urgency of the work, the Committee decided at its 405th plenary session (meeting of 28 January)
to appoint Mr Malosse as rapporteur-general and adopted the following opinion with 40 votes in favour
and four abstentions:

1. The proposal's content and raison d'être

2. The European Economic

and Social Committee's

opinion

1.1
The Vienna European Council of 11 and 12 December
1998 recommended as part of the ‘Vienna Strategy for Europe’
that Member States which so wished should be allowed on an
experimental basis to apply a reduced VAT rate to labour-inten-
sive services so as to test the impact of such reductions on job
creation and action to curb the underground economy.

2.1
The EESC endorsed the principle of applying reduced
VAT rates to labour-intensive services in its opinion of 26 May
1999 (2). It did so again in an opinion adopted at the plenary
session on 30 October 2003 (rapporteur: Mr Bedossa) on the
European Commission's amended proposal
for rationalising
and simplifying the 1999 directive.

The Council of Ministers adopted an ad hoc Directive
1.2
(1999/85/EC) on 22 October 1999 on the basis of this recom-
mendation. Nine Member States – Belgium, Greece, Spain,
France, Italy, Luxembourg, the Netherlands, Portugal and the
United Kingdom – availed themselves of the possibility. In the
wake of reports evaluating the impact of the measures, the
European Commission presented a proposal for a directive for
simplifying and rationalising the reduced VAT rates (1) on
23 July 2003, since the 1999 directive was due to expire on
31 December 2003.

Because of numerous divergences, the Council of Minis-
1.3
ters has not been able to adopt a new directive, this being an
area in which a unanimous vote is required.

1.4
Consequently, and given the risk of legal uncertainty in
the Member States applying the reduced rates, the Commission,
in agreement with the Council, has now proposed extending
the 1999 directive until 31 December 2005. This proposal
merely amends the period of validity of the 1999 directive
without making any other changes. It does not take account of
the European Commission's proposals for simplification and
rationalisation or the Member States' requests for changes or
additions to be made to the sectors benefiting from these
measures.

In this opinion the EESC was much more positive than
2.2
the European Commission in its assessment of these measures'
impact in terms of creating jobs and curbing undeclared work.

The EESC also made a series of

2.3
for
extending the VAT reductions to other sectors such as restau-
rant services, for maintaining the reductions for hairdressing
and small repair services and for adding,
in category 10,
historic and religious buildings and buildings of private and
professional/industrial cultural and architectural heritage.

suggestions

2.4
The EESC therefore endorses the principle of continuing
to apply the reduced VAT until 31 December 2005 in order to
avoid the serious consequences of a legal vacuum or the
sudden cessation of measures which have had a demonstrably
favourable impact.

The EESC nonetheless regrets that

2.5
the Council was
unable to agree on the European Commission's proposal for a
directive to rationalise and simplify the system. It would point
out that the principle of unanimous voting in tax matters has
been a definite obstacle here.

(1) COM(2003) 397 final of 23.7.2003

(2) OJ C 20 of 22.7.1999

30.4.2004

EN

Official Journal of the European Union

C 108/79

2.6
So as to prevent a legal vacuum from arising once again
in the near future and given the very positive assessment of the
measure's impact, the EESC would urge Member States to reach
rapid agreement on the proposal for a directive of 23 July
2003 on the global revision of the reduced VAT rates with a
view to their simplification and rationalisation (COM(2003)
397 final – CNS 2003/0169), and calls on the Council to adopt
this proposal as soon as possible and in so doing to include in
it the activities listed in point 2.3.

2.7
Finally, the EESC would point to the efforts that will
have to be made to highlight the importance of the reduced
rates for the new Member States that will join the EU on 1 May
2004. Employment and undeclared work are a serious problem
in many of these new Member States. The EESC would also ask
the European Commission to evaluate the impact of VAT
reductions more effectively, in conjunction with the Member
States and with economic and social players, who are in the
best position to pass judgment.

Brussels, 28 January 2003

The President

of the European Economic and Social
Committee

Roger BRIESCH