Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, with regard to the duration of the obligation to respect a minimum standard rate
Date: 2010-06-24
Institutions: European Commission
Subjects: VAT, basis of tax assessment, delivery, distributive trades, provision of services, tax exemption, tax harmonisation, tax on consumption, tax relief

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EUROPEAN COMMISSION 

Brussels, 24.6.2010 
COM(2010)331 final 

2010/0179 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax, with regard 
to the duration of the obligation to respect a minimum standard rate 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

CONTEXT OF THE PROPOSAL 

Article 97(1)  of  Directive 2006/112/EC  of  28 November 2006  on  the  common  system  of 
value added tax1 (hereinafter "the VAT Directive") provides that from 1 January 2006 until 
31 December 2010 the standard rate may not be less than 15% and Article 97(2) stipulates 
that the Council shall decide, in accordance with Article 93 of the Treaty, on the level of 
the standard rate of value added tax (VAT) to be applied after 31 December 2010. 

This  provision  was  based  on  Article 93  of  the  Treaty  establishing  the  European 
Community  (the  EC  Treaty).  As  from  1 December  2009,  Article 93  of  the  EC  Treaty  is 
replaced by Article 113 of the Treaty on the Functioning of the European Union (TFEU). 
Article 113 TFEU stipulates that the Council shall, acting unanimously in accordance with 
a  special  legislative  procedure  and  after  consulting  the  European  Parliament  and  the 
Economic  and  Social  Committee,  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 and to avoid distortion of competition.  

With  a  view  to  establishing  the  internal  market  on  1 January  1993,  the  Commission 
presented proposals intended to set up a definitive system of tax harmonisation.  

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 VAT rates, it adopted Directive 92/77/EEC2. 

That  Directive  introduced  a  system  of  minimum  rates.  It  stipulated  that  from 
1 January 1993 to 31 December 1996, the standard rate could not be set lower than 15%. 
This provision has been extended four times and applies until 31 December 2010.  

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 
Member States, where standard rates have always varied between 15% and 25%.  

In  both  cases,  the  proposals  to  approximate  rates  were  amended  by  the  Council,4  which 
kept only the principle of a minimum rate, referring to a 15% minimum rate comparable to 
the system introduced by the 1992 Directive. 

However, these Council Directives were adopted with a statement for the Council minutes 
mentioning Member States' efforts to avoid widening the 10 percentage point span between 
the lowest and highest rates applied. This demonstrates the continued concerns of Member 
States  about  distortions  between  high  and  low  rate  countries  and  the  possible  budgetary 
effects of different levels of VAT rates. In the light of the current economic crisis, there are 

OJ L 347, 11.12.2006, p. 1. 
OJ L 316, 31.10.1992, p. 1. 
COM(95) 731 (OJ C 73, 13.3.1996, p. 22) and COM(98) 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). 

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further  arguments  for  keeping  a  minimum  standard  rate  to  be  laid  down  in  the  VAT 
Directive. 

Despite  various  improvements  to  the  common  VAT  system  based  on  the  Commission's 
pragmatic, phased VAT strategy launched in 20005 and updated in 20036, the VAT system 
continues  to  suffer  from  shortcomings  and  high  administrative  burdens.  This  means  it 
needs  to  be  fundamentally  reassessed.  New  economic  realities,  technological  processes, 
fraud patterns etc. also give rise to new challenges. That is why the Commission plans to 
publish  a  consultative  green  paper  soon  on  a  new  VAT  strategy.  This  will  launch  a 
consultation on future tax harmonisation. Only in the light of the outcome of that process 
can an appropriate decision be taken on the level of standard rates of VAT in the EU.  

Moreover, recent modifications to the VAT Directive7 have favoured taxation at the place 
of consumption, as this results in fewer possibilities for cross-border transactions seeking 
lower VAT rates, leading to distortions of competition. However, it remains important to 
prevent growing divergence in standard VAT rates applied by Member States from leading 
to  structural  imbalances  in  the  EU  and  distortions  of  competition  in  some  sectors  of 
activity.  To  this  end,  it  is  common  practice  in  the  field  of  indirect  taxes,  both  for  excise 
duties and VAT, to set minimum rates. Although no maximum rate is proposed, the span 
between the standard rates applied in the Member States can – as is currently the case – be 
expected to ensure the proper functioning of the internal market while acknowledging the 
possible need for new budgetary resources from consumption taxes.  

The accession of new Member States on 1 May 2004 and on 1 January 2007 did not alter 
the situation regarding the standard rate. That still ranges from 15% to 25% in 27 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  the  principle  of  a 
minimum  standard  VAT  rate  of  15%,  and  to  propose  that  the  current  arrangements  be 
extended.  

To  give  businesses  necessary  legal  certainty,  and  allow  further  evaluation  of  the 
appropriate level of the standard VAT rate at EU level, it seems appropriate to extend the 
provision for another five years, while the Commission reflects on a new VAT strategy and 
re-examines the standard VAT rate appropriate for a common approach. 

Since  the  application  of  the  minimum  standard  rate  under  Article 97(1)  of  Directive 
2006/112/EC  expires  on  31 December 2010,  the  object  of  this  proposal  is  to  enable  the 
Council to extend the period during which this rate applies. The minimum standard VAT 
rate is therefore set at 15% for five years from 1 January 2011 to 31 December 2015. The 
Commission would also expect the Council to renew the statement for the minutes agreed 
earlier on the span between the lowest and highest rates applied for that same period. 

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COM(2000) 348 final of 7.6.2000. 
COM(2003) 614 final of 20.10.2003. 
Council  Directive  2008/8/EC  of  12  February  2008  amending  Directive  2006/112/EC  as  regards  the  place  of 
supply of services (OJ L 44, 20.2.2008, p.11) 

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2. 

RESULTS  OF  CONSULTATIONS  WITH  THE  INTERESTED  PARTIES  AND 
IMPACT ASSESSMENTS 

Considering  that  no  specific  complaint  was  reported  to  the  Commission  concerning  the 
rules  on  applying  the  standard  VAT  rate,  there  has  been  no  need  for  consultation  or 
external expertise.  

The  measure  concerned  purely  aims  to  prolong  the  temporary  provision  concerning  the 
length of time during which the current minimum standard VAT rate is to be applied. Such 
an  extension  simply  maintains  the  current  satisfactory  situation  concerning  the  standard 
VAT rate. It has a technical nature and thus does not require an impact assessment. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The Directive amends the VAT Directive. The legal basis is Article 113 of the Treaty on 
the Functioning of the European Union (TFEU).  

•  Subsidiarity principle  

The subsidiarity principle applies insofar as the proposal does not fall under the exclusive 
competence of the European Union. The objectives of the proposal cannot be sufficiently 
achieved by the Member States for the following reasons: 

The  European  Union  has  already  laid  down  harmonised  provisions  on  the  application  of 
VAT rates, in the VAT Directive. These provisions may only be amended or extended by a 
European  Union  act  and  Member  State  legislation  cannot  deviate  from  the  harmonised 
rules. 

Therefore,  only  European  Union  action  can  achieve  the  objectives  of  the  proposal  and 
ensure equal treatment of citizens in the European Union. The proposal therefore complies 
with the subsidiarity principle. 

•  Proportionality principle 

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

The  present  proposal  maintains  the  current  situation,  whereby  Member  States  apply  a 
standard VAT rate at a minimum of 15%.  

Given  that  the  proposal  merely  extends  the  period  during  which  an  existing  provision 
applies,  the  measure  is  proportionate  to  the  aim  pursued.  The  proposal  involves  no 
financial cost to the European Union and no new financial burden is placed on businesses 
or on consumers.  

•  Choice of instruments 

The  proposed  instrument  is  a  Directive.  No  other  means  would  be  adequate,  as  this 
proposal modifies provisions concerning VAT rates already enacted in a Directive. 

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4. 

BUDGETARY IMPLICATION 

The proposal has no implication for the European Union budget.  

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OPTIONAL ELEMENTS 

Notes on the Articles 

Article 1 

Article 1 proposes that the current minimum standard rate of VAT in Member States, set at 
15%, be extended from 1 January 2011 to 31 December 2015. 

Articles 2 to 4 

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

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2010/0179 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax, with regard 
to the duration of the obligation to respect a minimum standard rate  

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 113 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Parliament8, 

Having regard to the opinion of the European Economic and Social Committee9, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

Article 97 (1) of Directive 2006/112/EC of 28 November 2006 on the common system 
of value added tax10 provides  that from 1 January  2006 until 31 December 2010 the 
standard rate may not be less than 15%. 

The  standard  rate  of  value  added  tax  (VAT)  currently  in  force  in  Member  States, 
combined with the mechanism of the transitional system has ensured that this system 
has  functioned  to  an  acceptable  degree.  With  new  rules  on  the  place  of  supply  of 
services  which  favour  taxation  at  the  place  of  consumption,  the  possibilities  for 
exploiting differences in VAT rates through relocation have been limited further and 
potential distortions of competition reduced.  

To prevent growing divergence in standard VAT rates applied by Member States from 
leading to structural imbalances in the European Union and distortions of competition 
in some sectors of activity, it is common practice in the field of indirect taxes to set 
minimum rates. It is still necessary to do so for VAT. 

(4) 

Pending  the  outcome  of  consultations  on  a  new  VAT  strategy  which  is  expected  to 
address  future  arrangements  and  corresponding  levels  of  harmonisation,  it  would  be 

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OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 347, 11.12.2006, p. 1. 

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premature to set a permanent standard rate level or to consider changing the minimum 
rate level. 

It is therefore appropriate to maintain the current minimum standard rate at 15% for a 
further period long enough to ensure legal certainty, while allowing further review. 

This does not preclude a further revision of VAT legislation before 31 December 2015 
to address the outcome of the new VAT strategy. 

(5) 

(6) 

(7) 

Directive 2006/112/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Article 1 

Article 97 of Directive 2006/112/EC is replaced by the following: 

"Article 97 

From  1 January  2011  until  31 December  2015,  the  standard  rate  may  not  be  lower 
than 15 %." 

Article 2 

Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary  to  comply  with  this  Directive  by  1  January  2011  at  the  latest. 
They  shall  forthwith  communicate  to  the  Commission  the  text  of  those  provisions 
and a correlation table between those provisions and this Directive. 

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 text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 3 

Entry into force 

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

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Article 4 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the Council 
The President 

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