Setting VAT rates: the new project of the European Commission

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A proposal from the European Commission dated 18 January 2018 has been submitted concerning the setting of VAT rates by each of the Member States of the European Union.

A WILL TO REFUSE RULES FOR FIXING VAT RATES

The Commission’s proposal follows the measures envisaged in the context of setting up a new single and definitive European VAT area proposed in October 2017 (with the aim of combating VAT fraud). This provides for the establishment of a new flexible and harmonized regulatory framework for setting VAT rates.

As a reminder, the country with the lowest VAT rate is Luxembourg (17%). Hungary is the most VAT-taxed country with a rate of 27%, or more than a quarter of the value of the product. The average rate in Europe is around 21%.

The European Commission is therefore proposing a uniform treatment of VAT rate fixing within the Union with a budgetary framework.

1. Currently, the Member States of the European Union can establish two categories of products that can benefit respectively from a VAT rate of 5% and a rate of 0%. The project mentions a possible authorization for the Member States to introduce a third reduced VAT rate of between 0% and 5%;

2. The European Commission also proposes to delete the current list of goods and services eligible for reduced rates and to replace it with a list defining the goods to which the standard rate will necessarily apply, which can not be less than 15% ( restrictive list including in particular certain excise goods: alcoholic beverages, tobacco, etc.);

3. Finally, a framework for setting rates has been proposed, imposing a weighted average rate of not less than 12%, calculated on the basis of the rates applicable in a particular Member State (measure of the budgetary framework).

However, the Regulatory Scrutiny Board has expressed reservations about this recast.

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