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: 2015-12-14
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT rate, tax harmonisation

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   EUROPEAN COMMISSION  Brussels, 14.12.2015  COM(2015) 646 final 2015/0296 (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  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Article 97  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  2011  until  31 
December 2015 the standard rate may not be less than 15%. 

the  Treaty  on 

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  European  Union  (TFEU). 
the  Functioning  of 
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% in any Member State. 
This provision has been extended five times and applies until 31 December 2015.  
Recent  modifications  to  the  VAT  Directive3  have  implemented  taxation  at  the  place  of 
destination, as this results in only few possibilities for cross-border transactions seeking lower 
VAT rates, a behaviour that may lead to distortions of competition.. However, it is common 
practice in the field of indirect taxes, both for excise duties and VAT, to set minimum rates, 
notably  on account  of  the  fact that VAT  at  origin,  rather  than  destination,  is  still  applied  to 
cross-border shopping and distance sales below a threshold. Hence, a minimum standard rate 
applied in  all  Member  States  –  as  is  currently the  case  –  provides  a  useful  safeguard  to  the 
proper functioning of the internal market. 

Considering  that  all  Member  States  currently  levy  a  standard  rate  above  15%,  the  current 
arrangement  for  a  minimum  standard  rate  of  15%  also  ensures  room  for  manoeuvre  for 
Member  States,  allowing  for  VAT  reforms  intending  to  reduce  the  standard  rate  by 
broadening the VAT base and limiting the use of reduced rates.   
On  6  December  2011  the  Commission  adopted  a  Communication  on  the  future  of  VAT4 
which  proposed  that  the  origin  principle  be  abandoned  and  described  several  ways  of 
achieving taxation at destination. In 2016 the Commission  will publish an Action Plan for a 
simple, efficient and fraud-proof definitive system of Value Added Tax tailored to the single 
market.  The  Action  Plan  will  set  out  the  directions  for  future  work  following  the 
achievements  attained  since  the  2011  Communication.  It  will  in  particular  set  out  the  main 

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4 

OJ L 347, 11.12.2006, p. 1. 
OJ L 316, 31.10.1992, p. 1. 
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) 
COM (2011) 851 

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features  of  the  definitive  VAT  regime  for  intra-EU  trade  that  the  Commission  wants  to 
propose and the reforms it envisages to adapt the existing rules on VAT rates to a definitive 
regime  characterised  by  the  destination  principle.  This  review  of  rules  on  VAT  rates  will 
address two key issues: whether greater autonomy in rate-setting ('enhanced flexibility') can 
be  granted  to  Member  States,  and  how  to  deal  with  the  temporary  derogations  allowing  for 
exemptions, zero rates and super reduced rates, that would have to be reconsidered upon the 
introduction of the definitive VAT regime. 

In these circumstances, and pending the decisions on the final shape of the definitive regime, 
it appears appropriate to maintain the principle of a minimum standard VAT rate of 15%, and 
to propose that the current arrangements be extended for [two years until 31 December 2017]. 
This  time  frame  ensures  that  stakeholders  enjoy  the  necessary  legal  certainty,  and  should 
allow  a  more  comprehensive  discussion  on  VAT  rates  in  connection  with  the  forthcoming 
Action Plan on VAT. 

• 

Consistency with existing policy provisions in the policy area 

By  prolonging  an  existing  provision  (Article  97  of  the  VAT  Directive),  the  proposal  is 
consistent with current legislation.  

• 

Consistency with other Union policies 

Not relevant. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

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

• 

Subsidiarity (for non-exclusive competence)  

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 

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 only  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.  

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• 

Choice of the instrument 

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. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

The  current  minimum  standard  VAT  rate  has  been  prolonged  five  times.  This  sixth 
prolongation  maintains  the  current  satisfactory  situation  and  provides  legal  certainty  for 
stakeholders, while allowing the definitive VAT regime for intra-EU trade to enter into force 
on the basis of a reviewed set of rules for standard and reduced VAT rates. 

• 

Stakeholder consultations 

Considering that the proposal only prolongs the current situation for a limited amount of time, 
that no specific complaint or request was reported to the Commission concerning the rules on 
applying the standard VAT rate and that a broader evaluation of the rates system is foreseen 
in connection with the Action Plan on VAT, there was no need for a stakeholder consultation 
at this point in time.  

• 

Collection and use of expertise 

Considering that no specific complaint or request was reported to the Commission concerning 
the  rules  on  applying  the  standard  VAT  rate,  there  was  no  need  for  collection  and  use  of 
external expertise.  

• 

Impact assessment 

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 situation concerning the standard VAT rate.  

In any case, no economic, social, regional or environmental impacts should be expected from 
the proposed measure given that no changes are required compared to the status quo. 

• 

Regulatory fitness and simplification 

The proposal is not linked to REFIT and involves no regulatory burden.  

• 

Fundamental rights 

Not applicable. 

4. 

BUDGETARY IMPLICATIONS 

The proposal has no implication for the European Union budget.  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

Given  that  the  Commission  will  review  all  of  the  rules  on  VAT  rates  in  2016,  it  is  not 
necessary to specifically evaluate the prolongation of the minimum standard rate.  

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• 

Explanatory documents (for directives) 

Currently all Member States comply with the minimum 15% VAT rate. There is no need for 
explanatory documents on transposition.  

• 

Detailed explanation of the specific provisions of the proposal 

Article 1 

Article 1 proposes that the current minimum standard rate of VAT in  Member States,  set at 
15%, be extended from 1 January 2016 to 31 December 2017. 

Article 2  

Article 2 provides for the transposition of the Directive. 

Article 3  

Article 3 provides for the entry into force of the Directive. 

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2015/0296 (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 Parliament5,  
Having regard to the opinion of the European Economic and Social Committee6, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

Article 97 of Council Directive 2006/112/EC7 provides that from 1 January 2011 until 
31 December 2015 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  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. 

Pending  the  final  arrangement  of  a  definitive  VAT  regime  for  intra-Union  trade,  it 
would be 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 2017 
to address the final arrangement of a definitive VAT regime for intra-Union trade. 

(7) 

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

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OJ C , , p. . 
OJ C , , p. . 
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p. 1). 

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HAS ADOPTED THIS DIRECTIVE: 

Article 1 

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

"Article 97 

From  1 January  2016  until  31 December  2017,  the  standard  rate  may  not  be  lower 
than 15 %." 

Article 2 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary to  comply  with  this Directive by 1 January  2016 at the latest. 
They shall forthwith communicate to the Commission the text of those provisions. 

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 

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

Article 4 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the Council 
The President 

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