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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.


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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