EU opens reduced VAT on health, digital and organic products – CVBJ

12/07/2021 at 3:40 p.m. CET

Silvia martinez

“Where there is a will, there is a way and it is the European way”, celebrated with satisfaction the Commissioner for Economic Affairs, Paolo Gentiloni, after the approval of tax rate reform Value added tax (VAT) proposed almost four years ago by Brussels. The new rules will give more flexibility for Member States to set reduced rates VAT they consider and even apply zero VAT to certain items. “This dossier has been debated in the Council for a long time, and I am happy that we have found a way to conclude it & rdquor ;, the Slovenian Minister of Finance and Chairman of the Council of Ministers of Economy and Finance (Ecofin) joined, Andrej Šircelj.

First, the agreement will allow the Twenty-seven update the list of goods and services to which Member States may apply reduced rates VAT The new list will be expanded to include those intended to protect public health, as proposed last April by the European Commission to combat the impact of the covid-19 pandemic, such as gloves, masks or personal protective equipment. In addition, all products beneficial to the environment are included, such as bicycles, ecological heating systems or solar panels, as well as products and services which serve to support the digital transition and which until now could not not be subject to a VAT reduction such as Internet access or online broadcasting of cultural or sporting events. If European governments consider that reducing or applying a type 0 serves to meet their basic needs in the above categories, they can apply them.

Equal treatment

The pact will also oblige governments to eliminate by 2030 the possibility of applying reduced rates and exemptions to the goods and services considered. Harmful to the environment and the objectives of Fight against him climate change. In addition, and in order to avoid distortions of competition and restore equality of treatment, all countries will be able to benefit from the exceptions to which only certain Member States were entitled “for historical reasons”. In the case of existing exceptions which do not support climate goals, however, they will need to be removed by 2032. “A delicate balance has been struck ensuring equal treatment between member states without a proliferation of lower rates that would undermine fiscal consolidation post-covid & rdquor; era, underlined Gentiloni during the public debate held by the ministers.

The reform is based on an earlier agreement which establishes that VAT is paid in the Member State of the consumer and not in the Member State of the supplier. This, according to the EU, ensures that a a greater diversity of types (as agreed by Ecofin) is less likely to disrupt the functioning of the single market or create distortions of competition. In addition, it also prevents the proliferation of reduced rates, which would jeopardize the ability of Member States to collect revenue. For this reason, the new rules specify the minimum level of reduced rates and the list of goods and services to which they can be applied.

Three years of negotiation

It was in January 2018 that the European Commission put on the table the need to reform a system almost 30 years old and that it requires “urgent modernization & rdquor; align the situation with the new reality and new priorities of the EU. Once the new rules enter into force, Member States will have to continue to apply a standard VAT rate of at least 15%. However, European governments will also have the option of applying a reduced rate up to 5% goods and services of up to 24 categories on the list. And they will also have the right to apply a rate less than 5% or zero to a maximum of 7 products from the list of essential needs and in which they appear from food to medicine or pharmaceutical and health products.

After the unanimous agreement – in taxation, unanimity is required – the next step will be to return the text to consultation with the European Parliament, which will have to make its opinion non-binding, no later than March 2022. Once the opinion of the European Parliament, member states can formally adopt the rule, which will enter into force 20 days after its publication in the Official Journal of the EU, allowing governments to apply the new system from that date.