On January 18th of 2018, the European Commission made a proposal to introduce more flexibility for Member States to change the VAT rates they apply to different products.
What is the Commission proposing?
Equal treatment of Member States in setting VAT rates:
- At the moment, VAT rules agreed by all Member States allow for two distinct categories of products to benefit from a reduced VAT rate of as low as 5% in each country. A number of Member States also apply specific derogations for further reduced rates.
- The proposed definitive regime is based on taxation at destination instead of origin, as initially envisaged. Restrictive rules on the application of rates are therefore no longer essential to avoid distortion of competition.
- The new harmonised and flexible rules proposed will enable all Member States, in addition to the two reduced rates of a minimum of 5% and one 0% rate, to apply a third reduced rate of between 0% and 5%.
- The current list of goods and services to which reduced rates can be applied will be abolished and replaced by a new list of products to which the standard rate of minimum 15% must always be applied. This list will include products such as weapons, alcoholic beverages, gambling and tobacco.
- To safeguard public revenues, Member States must also ensure that the weighted average of all VAT rates applied is at least 12%.
Source European Commission
