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Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs, said about the proposal: ‘These proposals will give EU countries greater freedom to apply reduced VAT rates to specific products or services. At the same time they will reduce red tape for small businesses operating across borders, helping them to grow and create jobs. In short: common rules where necessary for the functioning of the internal market; greater flexibility for governments to reflect their policy preferences through their VAT rates’.
That being said, the European Commission is proposing a standard VAT rate of minimum 15% across the bloc and, at the same time, is giving the Member States the flexibility to put in place:
- two separate reduced rates of between 5% and the standard rate chosen by the Member State;
- one exemption from VAT (also known as the 'zero rate');
- one reduced rate set at between 0% and the reduced rates.
In addition, the current list of goods and services to which reduced rates can be applied will be abolished. Instead, there will be put in place a so-called negative list of products on which the reduced rate or zero rate cannot be applied by Member States, which includes:
- Services subject to the tour operator margin scheme (TOMS);
- Goods subject to VAT under the margin scheme for second-hand goods;
- Goods subject to VAT in accordance with the special arrangements for sales by public auctions;
- Precious metals, jewelry and bijouterie;
- Alcoholic beverages;
- Tobacco products;
- Supply, hire, maintenance and repair of means of transport;
- Fuel oil, gas and lubricating oils;
- Weapons and ammunition;
- Computer, electronic and optical products and watches;
- Electrical equipment;
- Furniture;
- Musical instruments;
- Works of art;
- Financial and insurance services;
- Gambling and betting services.
The European Commission said that Member States will also have to ensure that the weighted average VAT rate is at least 12%. Another key point of the proposal is the fact that all goods currently enjoying rates different from the standard rate can continue to do so.
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