Proposal for a Council Decision authorising certain 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
Date: 2006-07-24
Institutions: European Commission
Subjects: EU Member State, VAT, VAT rate, provision of services, tax relief

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.7.2006 
COM(2006) 410 final 

Proposal for a 

COUNCIL DECISION 

authorising certain 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 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1.  CONTEXT OF THE PROPOSAL 

110 

•  Grounds for and objectives of the proposal 

The  purpose  of  this  proposal  for  a  Decision  is  to  implement  the  provisions  of 
Directive 2006/18/EC of 14 February 2006 (OJ L 51, 22.2.2006, p. 12), which extends 
the experiment of reduced rates for labour-intensive services until 31 December 2010 
and allows all Member States to take part in the experiment under the same conditions. 

120 

•  General context 

1. 
On  14 February  2006,  the  Council  adopted  Directive 2006/18/EC  amending 
Directive 77/388/EEC with regard to reduced rates of value added tax, and in particular 
Article 28(6)  thereof.  Paragraph  6  was  added  by  Council  Directive 1999/85/EC  of 
22 October 1999 (OJ L 277, 28.10.1999, p.34) and applied initially until 31 December 
2002.  The  provisions  were  then  extended  by  Directive 2002/92/EC  of  3 December 
2002 
(OJ  L  331,  7.12.2002,  p.27)  until  31 December  2003  and  by 
Directive 2004/15/EC  of  10 February  2004  (OJ  L  52,  21.2.2004,  p.61)  until 
31 December 2005. To achieve a better understanding of the impact of reduced rates, 
the  Council  asked  the  Commission  to  prepare  an  assessment  report  on  the  impact  of 
reduced  rates  applied  to  locally  supplied  services,  notably  in  terms  of  job  creation, 
economic growth and the proper functioning of the internal market. 

2. 
Pending  the  outcome  of  that  assessment,  Directive 2006/18/EC  extends  the 
experiment  of  reduced  rates  for  labour-intensive  services  until  31 December  2010.  It 
also allows all Member States to take part in the experiment under the same conditions. 

3. 
Decision 2000/185/EC  of  28 February  2000  (OJ  L  59,  4.3.2000,  p.  10) 
authorised certain Member States to apply reduced rates for labour-intensive services 
specified  in  the  Decision  until  31 December  2002.  Decision 2000/185/EC  was 
extended  until  31 December  2003  by  Decision 2002/954/EC  (OJ  L  331,  7.12.2002, 
p.28) and until 31 December 2005 by Decision 2004/161/EC (JO L 52, 21.2.2004, p. 
62).  The  Member  States  concerned  do  not  need  to  submit  a  new  request,  unless  they 
wish  to  change  the  list  of  sectors  in  which  they  apply  a  reduced  rate.  For  reasons  of 
legal clarity and so as to have a single act covering all Member States participating in 
the  experiment  concerning  labour-intensive  services,  all  the  provisions  concerning 
those  Member  States  (Belgium,  Spain,  France,  Italy  Luxembourg,  the  Netherlands, 
Portugal and the United Kingdom) have been included in this proposal for a Decision. 

Member States wishing to avail themselves for the first time of the possibility 
4. 
provided for in Article 28(6) of Directive 77/388/EEC and those wishing to amend the 
list  of  services  to  which  they  had  applied  that  provision  in  the  past  had  to  submit  a 
request  to  the  Commission,  together  with  the  relevant  particulars  for  the  purpose  of 
assessment, by 31 March 2006. Prior assessment by the Commission does not appear 
necessary  where  Member  States  have  previously  benefited  from  an  authorisation  and 
submitted a report on the matter to the Commission. 

5. 
Any  Member  State  wishing  to  introduce  such  a  measure  had  to  inform  the 
Commission  before  31 March  2006  in  accordance  with  the  procedure  and  in 

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compliance with the conditions set out in Article 1(2) of Directive 2006/18/EC. 

6. 
The  following  Member  States  submitted  a  request  in  accordance  with  that 
procedure and in compliance with those conditions and supplied relevant particulars for 
the  purpose  of  assessment:  the  Czech  Republic,  Cyprus,  Latvia,  Hungary,  Malta, 
Poland, Slovenia and Finland. In addition, Greece submitted a new request extending 
the scope of its previous request. 

ASSESSMENT BY THE COMMISSION 

The Commission takes the view that all the requests were submitted in accordance with 
the  procedure  and  in  compliance  with  the  conditions  set  out  in  Article 1  of  Directive 
2006/18/EC. 

Four requests were also submitted for authorisation to apply a reduced rated of VAT 
exceptionally  to  three  categories  of  the  services  listed  in  Annex  K.  In  each  case  the 
Commission takes the view that the reduction in rate in the third of the sectors selected 
can have only an insignificant economic impact. It is therefore in favour of authorising 
the  four  Member  States  concerned  to  apply  a  reduced  rate  of  VAT  in  the  sectors 
concerned. 

130 

•  Existing provisions in the area of the proposal 

Article 28(6)  of  Directive 77/388/EEC  as  regards  reduced  rates  of  VAT  for  labour-
intensive services, as last amended by Directive 2006/18/EC. 

•  Consistency with the other policies and objectives of the Union 

Directive 1999/85/EC  formed  part  of  EU  employment  policy  and  was  intended,  in 
particular, to promote an increase in employment and reduce the scale of the shadow 
economy.  The  problem  of  unemployment  was  so  serious  that  those  Member  States 
wishing to do so were allowed to experiment with the operation and impact, in terms of 
job creation, of a reduction in the VAT rate on labour-intensive services not listed in 
Annex H. 

However,  the  introduction  of  a  targeted  reduction  in  the  VAT  rate  could  have  a 
negative impact on the smooth functioning of the internal market and on tax neutrality. 
Consequently,  an  experimental  measure  was adopted,  applicable  on  an  optional  basis 
by the Member States. Provision was also made for a specific authorisation procedure 
and  for  the  scope  of  the  Decision  to  be  made  subject  to  strict  conditions  so  that  it 
remained  verifiable  and 
the  background  against  which 
Directive 2006/18/EC, which extended this experiment for the third time, was adopted 
and this Decision is being proposed. 

limited.  This 

is 

2.  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

219 

Directive 2006/18/EC  is  the  result  of  negotiations  in  the  Council  on  Commission 
proposal COM(2003) 397 final on the review of reduced rates of VAT. This proposal 
for  a  Decision  implements  that  Directive.  Interested  parties  have  not  therefore  been 

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consulted again. 

•  Collection and use of expertise 

Outside expertise has not been required. 

•  Impact assessment 

229 

230 

The  proposal  for  a  Decision  implements  Directive 2006/18/EC  of  14 February  2006, 
which, among other things, extends an existing provision. 

To  achieve  a  better  understanding  of  the  impact  of  reduced  rates,  the  Directive  also 
lays  down  that  the  Commission  must  prepare  an  assessment  report,  on  the  basis  of  a 
study  carried  out  by  an  independent  economic  think-tank,  on  the  impact  of  reduced 
rates  applied  to  locally  supplied  services,  notably  in  terms  of  job  creation,  economic 
growth  and  the  proper  functioning  of  the  internal  market.  At  this  stage,  there  is 
therefore no reason to examine other options. 

3.  LEGAL ELEMENTS OF THE PROPOSAL 

305 

•  Summary of the proposed action 

To allow those Member States that have so requested in accordance with Article 28(6) 
of  Directive 77/388/EEC  to  apply  a  reduced  rate  of  VAT  for  certain  labour-intensive 
services. 

310 

•  Legal basis 

Article 28(6)  of  Directive 77/388/EEC,  as  amended  by  Directive 2006/18/EC  of 
14 February 2006. 

329 

•  Subsidiarity principle 

The proposal falls under the exclusive competence of the Community. The subsidiarity 
principle therefore does not apply. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reasons. 

331 

332 

The  Decision  authorises Member States specifically so requesting to apply  a reduced 
rate of VAT for certain labour-intensive services. It therefore imposes no obligation. 

Given  the  limited  scope  of  the  derogations  provided  for  in  the  Decision,  the  special 
measure is proportionate to the aim pursued. The Decision involves no financial cost to 
the Community. Although the reduction in the rates of VAT may involve a reduction in 
revenue  for  the  Member  States,  those  Member  States  that  have  submitted  requests 
expect that the effectiveness of the measure in increasing employment and reducing the 
scale of the shadow economy will offset this loss. VAT places no financial burden on 
economic operators and consumers should, in principle, benefit from the reduction in 
rates, since this will be reflected in final prices. 

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341 

342 

•  Choice of instruments 

Proposed instrument(s): decision. 

Other means would not be appropriate for the following reasons. 

Under Article 28(6) of Council Directive 77/388/EEC on the harmonisation of the laws 
of  the  Member  States  relating  to  turnover  taxes,  derogation  from  the  common  VAT 
rules is only possible on the authority of the Council acting unanimously on a proposal 
from the Commission. A Council Decision is the only suitable instrument. 

4.  BUDGETARY IMPLICATIONS 

409 

The proposal has no implication for the Community budget. 

5.  ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

533 

570 

In  accordance  with  Directive 2006/18/EC,  the  proposal  includes  a  sunset  clause  and 
provides for the expiry of the measures on 31 December 2010. 

•  Detailed explanation of the proposal by chapter or by article 

Chapter 1 

Article 1 

Article 1 lays down that those Member States authorised by Decision 2000/185/EC of 
28 February  2000,  in  accordance  with  the  procedure  provided  for  in  Article 28(6)  of 
Directive 77/388/EEC, to apply a reduced rates for certain labour-intensive services to 
continue to do so until 31 December 2010. 

Articles 2 to 9 

Articles 2 to 9 authorise, in accordance with Article 28(6) of Directive 77/388/EEC, the 
Member States referred to therein to apply the reduced rates provided for in the third 
subparagraph  of  Article 12(3)(a)  to  the  services  for  which  they  have  submitted  a 
request  in  accordance  with  the  required  procedure  and  which  are  listed  under  their 
names. 

Chapter 2 

Article 10 

Article 10  concerns  those  Member  States  wishing  to  apply  for  the  first  time  after 
31 December  2005  a  reduced  rate  for  certain  labour-intensive  services  in  accordance 
with  the  procedure  provided  for  in  the  fourth  subparagraph  of  Article 28(6)  of 
Directive 77/388/EEC. 

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Articles 11 to 19 

The purpose of Articles 11 to 19 is to authorise, in accordance with the first and fourth 
subparagraphs  of  Article 28(6)  of  Directive 77/388/EEC,  the  Member  States  listed 
therein  to  apply  the  reduced  rates  provided  for  in  the  third  subparagraph  of 
Article 12(3)(a) to the services for which they have submitted a request in accordance 
with the required procedure and which are listed under their names. 

Chapter 3 

Articles 20 and 21 

These  Articles 
Directive 77/388/EEC and the addressees of the Decision. 

the  period  of 

concern 

application  of  Article 28(6)  of 

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Proposal for a 

COUNCIL DECISION 

authorising certain 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 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having regard to 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 assessment1, and in particular Article 28(6) thereof, 

Having regard to the proposal from the Commission2, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Under  Article 28(6)  of  Directive 77/388/EEC,  the  Council,  acting  unanimously  on  a 
proposal  from  the  Commission,  may  authorise  any  Member  State  that  has  submitted 
an  application  in  accordance  with  the  procedure  and  conditions  provided  for  in  that 
Article to apply a reduced rate of VAT to certain labour-intensive services. 

services 

The 
conditions  provided 
Directive 77/388/EEC and be included in the list given in Annex K thereto. 

concerned  must  meet 

the 

for 

in 

Under Council Decision 2000/185/EC of 28 February 20003, Belgium, Spain, France, 
Italy,  Luxembourg,  the  Netherlands,  Portugal  and  the  United  Kingdom  (only  in  the 
Isle of Man) could apply until 31 December 2005 a reduced rate of VAT to the labour-
intensive services for which they had submitted a request. 

Article 28(6) of Directive 77/388/EEC was amended by Council Directive 2006/18/EC 
of 14 February 2006 amending Directive 77/388/EEC with regard to reduced rates of 
value  added  tax4  in  order  to  extend  its  application  until  31 December  2010,  allow 
those  Member  States  that  so  wish  to  avail  themselves  for  the  first  time  of  the 
possibility provided for therein and permit those Member States that so wish to request 
an amendment of the list of services to which they apply the provisions of the Article. 

1 
2 
3 

4 

OJ L 145, 13.6.1977, p.1. Directive as last amended by Directive […]. 
OJ C , , p. . 
OJ L 59, 4.3.2000, p, 10. Decision as last amended by Decision 2004/161/EC (OJ L 52, 21/2/2004, p. 
62). 
OJ L 51, 22.2.2006, p. 12. 

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(5) 

(6) 

(7) 

(8) 

(9) 

In order to allow those Member States authorised by Decision 2000/185/EC to apply a 
reduced rate to continue to do so until 31 December 2010 and in the interests of legal 
clarity,  the  provisions  of  that  Decision  should  be  included  in  this  Decision  for  those 
Member States that have not amended their initial request. 

In accordance with the fourth subparagraph of Article 28(6) of Directive 77/388/EEC, 
Greece,  which  was  already  authorised  by  Decision 2000/185/EC  to  apply  a  reduced 
rate for two of the sectors listed in Annex K, has submitted a new request extending 
the scope of its previous request. This Decision should therefore grant Greece a further 
authorisation to apply a reduced rate in accordance with its new request. 

The  Czech  Republic,  Cyprus,  Latvia,  Hungary,  Malta,  Poland,  Slovenia  and  Finland 
have  submitted  requests  to  apply  a  reduced  rate  of  VAT  to  certain  labour-intensive 
services  in  accordance  with  the  procedure  and  conditions  provided  for  in  the  fourth 
subparagraph of Article 28(6) of Directive 77/388/EEC. 

Three  of  those  Member  States,  i.e.  the  Czech  Republic,  Hungary  and  Poland,  and 
Greece have submitted requests for authorisation to apply, as an exceptional measure, 
a reduced rate to three categories of the services listed in Annex K. In each case, the 
reduction  in  rate  in  the  third  of  the  sectors  selected  can  have  only  an  insignificant 
economic impact. 

In  order  to  ensure  the  continuous  application  of  the  reduced  rates  provided  for  in 
Decision 2000/185/EC,  as  last  extended  by  Decision 2004/161/EC,  this  Decision 
should apply from 1 January 2006. 

(10)  This Decision will have no impact on the Communities' own resources derived from 

VAT, 

HAS ADOPTED THIS DECISION: 

CHAPTER 1 

Article 1 

In  accordance  with  the  first  subparagraph  of  Article 28(6)  of  Directive  77/388/EEC,  the 
Member States referred to in Articles 2 to 9 are hereby authorised to apply the reduced rates 
provided for in the third subparagraph of Article 12(3)(a) during the period 1 January 2006 to 
31 December 2010 to the services referred to in those Articles. 

Article 2 

Belgium is authorised for the following two services, referred to in points 1 and 2 of Annex K 
to Directive 77/388/EEC: 

(a) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

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(b) 

renovation  and  repairing  of  private  dwellings  more  than  five  years  old, 
excluding materials which form a significant part of the value of the supply. 

Article 3 

Spain is authorised for the following two services, referred to in points 2 and 5 of Annex K to 
Directive 77/388/EEC: 

(a) 

bricklaying for the repair of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

hairdressing. 

Article 4 

France  is  authorised  for  the  following  three  services,  referred  to  in  points 2,  3  and  4  of 
Annex K to Directive 77/388/EEC: 

(a) 

renovation and  repairing of  private  dwellings completed more  than  two years 
ago,  excluding  materials  which  form  a  significant  part  of  the  value  of  the 
supply; 

(b) 

domestic care services; 

(c) 

window cleaning and cleaning in private households. 

Article 5 

Italy is authorised for the following two services, referred to in points 2 and 4 of Annex K to 
Directive 77/388/EEC: 

(a) 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

domestic care services. 

Article 6 

Luxembourg is authorised for the following three services, referred to in points 1, 3 and 5 of 
Annex K to Directive 77/388/EEC: 

(a) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

(b) 

hairdressing; 

(c) 

window cleaning and cleaning in private households. 

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Article 7 

The Netherlands are authorised for the following three services, referred to in points 1, 2 and 
5 of Annex K to Directive 77/388/EEC: 

(a) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

(b) 

hairdressing; 

(c) 

painting  and  plastering  services  for  the  renovation  and  repairing  of  private 
dwellings more than 15 years old, excluding materials which form a significant 
part of the value of the supply. 

Article 8 

Portugal is authorised for the following two services, referred to in points 2 and 4 of Annex K 
to Directive 77/388/EEC: 

(a) 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

domestic care services. 

Article 9 

The  United  Kingdom  is  authorised  for  the  renovation  and  repairing  of  private  dwellings, 
excluding materials which form a significant part of the value of the supply, as referred to in 
point 2 of Annex K to Directive 77/388/EEC, but for the Isle of Man only. 

CHAPTER 2 

Article 10 

In  accordance  with  the  first  and  fourth  subparagraphs  of  Article 28(6)  of  Directive 
77/388/EEC, the Member States referred to in Articles 11 to 19 are hereby authorised to apply 
the reduced rates provided for in the third subparagraph of Article 12(3)(a) during the period 
1 January 2006 to 31 December 2010 to the services referred to in those Articles. 

Article 11 

The Czech Republic is authorised for the following three services, referred to in points 2, 3 
and 4 of Annex K to Directive 77/388/EEC: 

(a) 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

window cleaning and cleaning in private households; 

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(c) 

domestic care services. 

Article 12 

Greece  is  authorised  for  the  following  three  services,  referred  to  in  points 1,  2,  and  4  of 
Annex K to Directive 77/388/EEC: 

(a) 

(b) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

renovation  and  repairing  of  old  private  dwellings  (not  constructed  recently), 
excluding materials which form a significant part of the value of the supply; 

(c) 

domestic care services. 

Article 13 

Cyprus is authorised for the following two services, referred to in points 2 and 5 of Annex K 
to Directive 77/388/EEC: 

(a) 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

hairdressing. 

Article 14 

Latvia is authorised for the following two services, referred to in points 2 and 5 of Annex K to 
Directive 77/388/EEC: 

(a) 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(b) 

hairdressing. 

Article 15 

Hungary  is  authorised  for  the  following  three  services,  referred  to  in  points 1,  2,  and  4  of 
Annex K to Directive 77/388/EEC: 

(a) 

(b) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(c) 

domestic care services. 

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Article 16 

Malta is authorised for the following two services, referred to in points 1 and 4 of Annex K to 
Directive 77/388/EEC: 

(a) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

(b) 

domestic care services. 

Article 17 

Poland  is  authorised  for  the  following  three  services,  referred  to  in  points 1,  2  and  5  of 
Annex K to Directive 77/388/EEC: 

(a) 

(b) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

renovation and repairing of private dwellings, excluding materials which form 
a significant part of the value of the supply; 

(c) 

hairdressing. 

Article 18 

Slovenia  is  authorised  for  the  renovation  and  repairing  of  private  dwellings,  excluding 
materials which form a significant part of the value of the supply, as referred to in point 2 of 
Annex K to Directive 77/388/EEC. 

Article 19 

Finland is authorised for the following two services, referred to in points 1 and 5 of Annex K 
to Directive 77/388/EEC: 

(a) 

small services for repairing bicycles, shoes and leather goods and clothing and 
household linen (including mending and alteration); 

(b) 

hairdressing. 

CHAPTER 3 

Article 20 

This Decision shall apply from 1 January 2006 until 31 December 2010. 

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Article 21 

This  Decision  is  addressed  to  the  Kingdom  of  Belgium,  the  Czech  Republic,  the  Hellenic 
Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of 
Cyprus, the Republic of Latvia, the Grand Duchy of Luxembourg, the Republic of Hungary, 
the  Republic  of  Malta,  the  Kingdom  of  the  Netherlands,  the  Republic  of  Poland,  the 
Portuguese  Republic,  the  Republic  of  Slovenia,  the  Republic  of  Finland  and  the  United 
Kingdom of Great Britain and Northern Ireland. 

Done at Brussels,  

For the Council 
The President 

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