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: 2005-04-14
Institutions: European Commission
Subjects: VAT, delivery, provision of services, single market, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.4.2005 
COM(2005) 136 final 

2005/0051 (CNS) 

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 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

The second subparagraph of Article 12(3)(a) of Directive 77/388/EEC1 stipulates that 
the  Council,  on  a  proposal  from  the  Commission  and  after  having  consulted  the 
European  Parliament  and  the  European  Economic  and  Social  Committee,  must 
decide unanimously on the level of the standard rate of value added tax (VAT). 

This provision is based on Article 93 of the EC Treaty, which requires the Council to 
adopt provisions for the harmonisation of legislation concerning turnover taxes to the 
extent  that  such  harmonisation  is  necessary  to  ensure  the  establishment  and 
functioning  of  the  internal  market.  For  this  purpose  it  has  always  been  considered 
essential to set the standard rate. 

With  a  view  to  the  establishment  of  the  internal  market  in  January 1993,  the 
Commission  presented  proposals  aimed  at  setting  up  a  definitive  system  of  tax 
harmonisation. As regards rates, the Commission initially proposed a harmonised tax 
structure  with  two  rates  of  VAT  and  harmonisation,  within  a  band,  of  the  rates 
applied by the Member States. 

However,  when  it  became  clear  that  it  would  be  impossible  to  adopt  the 
Commission's  proposals  before  1 January 1993,  the  Council  decided  to  adopt  a 
transitional  system.  With  regard  to  rates,  it  adopted  Directive  92/77/EEC2, 
approximating rates. 

That  Directive,  introducing  a  system  of  minimum  rates,  stipulated  that  from 
1 January 1993 to 31 December 1996 the standard rate could not be set at less than 
to 
15%.  This  provision  has  been  extended 
31 December 2005. 

times  and  applies 

three 

To maintain the degree of harmonisation of rates already achieved, the Commission 
has  twice  presented  proposals  providing  for  a  standard  rate  band  with  a  minimum 
rate  of  15%  and  a  maximum  rate  of  25%.3  The  band  was  derived  from  the  rates 
applied in practice in the Member States, where the standard rates had always varied 
between 15% and 25%.  

In  both  cases  the  proposals  to  approximate  rates  were  amended  by  the  Council4 
which kept only the principle of the minimum rate, referring to a 15% minimum rate 
comparable to the system introduced by the 1992 Directive. 

In  2000  the  Commission,  with  a  view  to  improving  the  working  of  the  internal 
market in the short term, adopted a phased strategy5 geared to four main objectives: 
the  simplification  and  modernisation  of  existing  rules,  more  uniform  application  of 

OJ L 145, 13.6.1977, p. 1. Directive last amended by Directive 2004/66/EC (OJ L 168, 1.5.2004, p. 35). 
Directive 92/77/EEC (OJ L 316, 31.10.1992, p. 1). 
COM(95) 731 (OJ C 73, 13.3.1996, p. 22) and COM(1998) 693 (OJ C 409, 30.12.1998 p. 13). 
Council Directive 96/95/EC of 20 December 1996 (OJ L 338, 28.12.1996, p. 89) and Council Directive 
1999/49/EC of 25 May 1999 (OJ L 139, 2.6.1999, p. 27). 
COM(2000)  348  final.  Communication  from  the  Commission  to  the  Council  and  the  European 
Parliament - A strategy to improve the operation of the VAT system within the context of the internal 
market. 

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current arrangements and a new system of administrative cooperation. The priorities 
of the VAT strategy were reviewed and updated in 2003.6 

The strategy was adopted because the Member States’ reservations meant there was 
little prospect in the near future of significant progress towards a common system of 
VAT based on taxation in the Member State of origin. Its main objective was to give 
new momentum in the Council towards concrete and essential improvements to the 
existing  tax  system  in  the  near  future,  without,  however,  calling  into  question  an 
ultimate shift to the principle of taxation in the Member State of origin as a long-term 
Community goal. 

During this period, however, it was important to prevent growing divergence in the 
standard  rates  of  VAT  applied  by  the  Member  States  from  leading  to  structural 
imbalances  in  the  EU  and  distortions  of  competition  in  certain  sectors  of  activity. 
The  Commission  therefore  adopted  a  proposal  extending  the  application  of  a  15% 
minimum standard rate to 31 December 2005 without proposing a band. The Council 
adopted this proposal without amendment on 19 January 2001. 

The  accession  of  the  ten  new  Member  States  on  1 May 2004  did  not  alter  the 
situation regarding the standard rate. That rate continues to range from 15% to 25% 
in  the  25 Member  States.  Two  Member  States  (Cyprus  and  Luxembourg)  apply  a 
15% rate and three a 25% rate (Denmark, Hungary and Sweden). 

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

Since  the  application  of  this  rate  under  Article  12(3)(a)  of  Directive  77/388/EEC, 
expires on 31 December 2005, the object of this proposal is to enable the Council to 
extend the period of application of the minimum standard rate. The minimum level 
for the standard rate is therefore set at 15% for the five years from 1 January 2006 to 
31 December 2010. 

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COM(2003)  614  final.  Communication  from  the  Commission.  Review  and  update  of  VAT  strategy 
priorities. 

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Notes on the Articles 

Article 1 

The first paragraph proposes that the current minimum standard rate of VAT  in  the  various 
Member States, set at 15%, be extended from 1 January 2006 to 31 December 2010. 

Paragraph 2 sets 31 December 2010 as the expiry date for the minimum level proposed for the 
standard 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 2010,  must decide 
what the standard rate is to be after that date. 

Articles 2 to 4 

These Articles provide for the entry into force of the Directive. 

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2005/0051 (CNS) 

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 

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,7 

Having regard to the opinion of the European Parliament,8 

Having regard to the opinion of the European Economic and Social Committee,9 

Whereas: 

(1) 

The  second  subparagraph  of  Article  12(3)(a)  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,10 lays down that the Council shall decide on the level of the standard rate 
to be applied after 31 December 2005. 

(2)  While  the  standard  rate  of  value  added  tax  (VAT)  currently  in  force  in  the  various 
Member States, combined with the mechanism of the transitional system, has ensured 
that this system has functioned to an acceptable degree, it is nonetheless important to 
prevent  a  growing  divergence  in  the  standard  rates  of  VAT  applied  by  the  Member 
States  from  leading  to  structural  imbalances  in  the  Community  and  distortions  of 
competition in some sectors of activity. 

(3) 

It is therefore appropriate to maintain the current minimum standard rate at 15% for a 
further  period  long  enough  to  cover  the  ongoing  implementation  of  the  strategy  to 
simplify  and  modernise  current  Community  legislation  on  VAT,  as  set  out  in  the 
Commission communications of 7 June 200011 and 20 October 2003.12 

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OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ  L  145,  13.6.1977,  p.  1.  Directive  as  last  amended  by  Council  Directive  2004/66/EC  (OJ  L  168, 
1.5.2004, p. 35). 
COM(2000) 348 final. 
COM(2003) 614 final. 

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(4) 

Directive 77/388/EEC should be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Article 1 

The first and second subparagraphs of Article 12(3)(a) of Directive 77/388/EEC are replaced 
by the following: 

"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 goods and 
for  the  supply  of  services.  From  1 January 2006  until  31 December 2010,  the 
standard rate may not be less than 15%. 

The Council shall decide, in accordance with Article 93 of the Treaty, on the level of 
the standard rate to be applied after 31 December 2010.” 

Article 2 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  no  later  than  1 January 2006. 
They shall forthwith inform the Commission thereof. 

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

2. 

Member States shall communicate to the Commission the provisions of national law 
which they adopt in the field covered by this Directive. 

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

Article 3 

Article 4 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the Council 
The President 

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