Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax, with regard to the obligation to respect a minimum standard rate
Date: 2017-12-19
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT rate, single market, tax collection, tax harmonisation, tax law

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   EUROPEAN COMMISSION  Brussels, 19.12.2017  COM(2017) 783 final 2017/0349 (CNS)  Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax, with regard to the obligation to respect a minimum standard rate  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Value-added  tax  (VAT)  is  Europe’s  longest-standing  consumption  tax.  In  1967,  the 
commitment  was  made  to  establish a  definitive  VAT  system  operating  within  the European 
Community  in  the  same  way  as  it  would  within  a  single  country1  without  agreeing  specific 
rules on VAT rates apart from the application of a standard VAT rate, but no lower or upper 
rate limits were imposed2. 

The abolition of fiscal frontiers between Member States by the end of 1992 made it necessary 
to reconsider the way in which trade in goods was taxed within the Community. The goal was 
that goods would be taxed in the country of origin, perfectly reflecting the idea of a genuine 
internal market. Since the political and technical conditions were not ripe for such a system, 
transitional VAT arrangements were adopted3.  

The  transitional  system  required  rules  on  VAT  rates  to  avoid  distortions  in  cross-border 
shopping  and  trade  following  the  abolition  of  fiscal  frontiers.  In  October  1992  the  Council 
agreed  on  rules  limiting  the  discretion  of  Member  States  to  set  VAT  rates4.  Member  States 
were required to apply a standard VAT rate of a minimum of 15% until 31 December 1996. 

The  minimum  of  15%  for  the  standard  VAT  rate  has  been  prolonged  six  times  since  then. 
Currently,  Article 97  of  Council  Directive  2006/112/EC  of  28 November  2006  on  the 
common  system  of  value  added  tax5  (hereinafter  "the  VAT  Directive")  provides  that  from 
1 January 2016 until 31 December 2017 the standard rate may not be less than 15%. 
In  its  2016  VAT  Action  Plan6  the  Commission  proposed  replacing  the  current  transitional 
arrangements  for  the  taxation  of  trade  between  Member  States  by  definitive  arrangements 
based  on  the  principle  of  taxation  in  the  Member  State  of  destination  in  order  to  create  a 
robust  single  European  VAT  area.  Meanwhile,  also  the  place  of  taxation  of  services  had 
progressively  changed  to  the  country  of  destination  since  2010.  The  decision  was  taken  in 
2008, when the Council adopted a proposal with a view to prevent distortions of competition 
between Member States operating different VAT rates7. 

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First  Council  Directive  67/227/EEC  of  11 April  1967  on  the  harmonisation  of  legislation  of  Member 
States concerning turnover taxes. 
Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member 
States concerning turnover taxes – Structure and procedures for application of the common system of 
value added tax. 
Council  Directive  91/680/EEC  of  16 December  1991  supplementing  the  common  system  of  value 
added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (OJ L 376 
of 31.12.1991, p. 1). 
Council  Directive  92/77/EEC  of  19 October  1992  supplementing  the  common  system  of  value  added 
tax and amending Directive 77/388/EEC (approximation of VAT rates) (OJ L 316, 31.10.1992, p. 1). 
OJ L 347, 11.12.2006, p. 1. 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time to 
decide (COM(2016) 148 final) 
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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On  4 October  2017  the  Commission  adopted  the  first  proposal  introducing  the  definitive 
system  for  the  taxation  of  trade  between  Member  States8  and  outlined  successive  steps  and 
sub-steps  for  introducing  this  system  in  its  follow-up  to  the  VAT  Action  Plan9.  It  also 
announced that it would propose a reform of VAT rates, which would be consistent with the 
definitive  arrangements  based  on  the  destination  principle  that  will  gradually  replace  the 
current transitional arrangements. 

Although a definitive VAT system based on the principle of taxation in the Member State of 
destination  would  allow  to  grant  Member  States  more  flexibility  in  setting  VAT  rates,  a 
minimum for the standard VAT rate should be maintained in such a definitive VAT system 
and therefore be made permanent. 

Considering that all Member States currently apply a standard rate of at least 17%, the current 
arrangement  for  a  minimum  standard  rate  of  15%  remains  appropriate.  It  will  permanently 
implement an agreed limit that ensures the proper functionning of the internal market whilst 
leaving flexibility for Member States in setting the standard VAT rate at the same time. 

• 

Consistency with existing policy provisions in the policy area 

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

• 

Consistency with other Union policies 

Not relevant. 

2. 

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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).  This  Article  provides  for  the  Council,  acting 
unanimously  in  accordance  with  a  special  legislative  procedure  and  after  consulting  the 
European  Parliament  and  the  Economic  and  Social  Committee,  to  adopt  provisions  for  the 
harmonisation of Member States’ rules in the area of indirect taxation. 

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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 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 Union act and 
Member State legislation cannot deviate from the harmonised rules. 

Therefore,  only  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. 

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Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  harmonising  and 
simplifying  certain  rules  in  the  value  added  tax  system  and  introducing  the  definitive  system  for  the 
taxation of trade between Member States (COM(2017) 569 final). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee – On the follow-up to the Action Plan on VAT – Towards a single EU 
VAT area – Time to act (COM(2017) 566 final). 

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Proportionality 

The  proposal  complies  with  the  proportionality  principle,  because  it  maintains  the  current 
situation whereby Member States apply a standard VAT rate at a minimum of 15%.  

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Choice of the instrument 

A Directive is needed to amend the current VAT Directive. 

3. 

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RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

Not relevant.  

• 

Stakeholder consultations 

An  open  public  consultation  on  VAT  rates  was  held  for  12  weeks  from  21 December  2016 
until 21 March 2017 resulting in 327 contributions. More than half of the respondents (52%) 
agreed to keep the current minimum of 15%, whereas 16% were against keeping it. 32% did 
not express an opinion on this matter.10  

• 

Impact assessment 

The  proposal  has  no  economic,  social,  regional  or  environmental  impacts,  because  all 
Member  States  comply  with  the  minimum  requirement  and  no  changes  to  national laws  are  
required. 

• 

Regulatory fitness and simplification 

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

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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 

The Commission will continue to monitor that Member States respect the minimum of 15% 
for the standard VAT rate.  

• 

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 97 prevents that the minimum of 15% for the standard rate expires on 1 January 2018 
and  ensures  that  all  Member  States  apply  a  standard  rate  of  a  minimum  of  15%  on  a 
permanent basis. 

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Consultation page: https://ec.europa.eu/taxation_customs/consultations-get-involved/tax-
consultations/review-existing-legislation-vat-reduced-rates_en 

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2017/0349 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax, with regard 
to 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 Parliament1,  
Having regard to the opinion of the European Economic and Social Committee2, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

Article 97  of  Council  Directive  2006/112/EC3
31 December 2017 the standard rate may not be less than 15%.  

  provides  that  from  1 January  2016  until 

The  application  of  a  standard  rate  of  value  added  tax  (VAT)  ensures  the  smooth 
functioning of the common system of VAT and should therefore be kept in place. 

It  is  appropriate  to  maintain  the  current  minimum  standard  rate  at  15%,  also  in  a 
definitive  VAT  system  based  on  the  principle  of  taxation  in  the  Member  State  of 
destination and to make it permanent.  

(4) 

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

HAS ADOPTED THIS DIRECTIVE: 

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

Article 1 

The standard rate shall not be lower than 15 %." 

"Article 97 

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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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Article 2 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  1 January  2018  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. 

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

Article 3 

This Directive is addressed to the Member States. 

Done at Brussels, 

Article 4 

For the Council 
The President 

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