At this stage the Presidency believes that in order to move forward with the proposal, political guidance is required on the three following outstanding issues:
- a) Establishing a sunset clause to the following categories included in the Annex III of the VAT Directive closely related with the EU Green Deal objectives and the conclusions on climate change adopted by the European Council in its meeting on 10 and 11 December 2020: natural gas and firewood; chemical pesticides and chemical fertilisers.
- Presidency proposed solution: to phase out the possibility to apply reduced rates to these categories by the 1st January 2035.
- b) Including in the VAT Directive a standstill clause (Article 105a) for derogations which Member States currently apply regarding the application of reduced, parking, zero or super reduced rates and exemptions with or without deductibility of the tax.
- Presidency proposed solution: Member States can continue to apply their derogations, except existing derogations on fossil fuels, chemical pesticides and chemical fertilisers, which, to be consistent with the objectives of the Green Deal, should be subject to the same sunset clause that is proposed to related categories of Annex III, having to be phased out by 1 January 2035.
- Furthermore, in order to ensure equal treatment, and to comply with Article 27 of TFUE, derogations under the standstill clause would become available to all Member States, provided that interested Member States notify the VAT Committee until 1 January 2023.
- c) Ensuring a level playing field in the VAT Directive in what concerns the application of VAT rates, by allowing all Member States the right to apply a zero rate or a super reduced rate to a limited set of supplies of goods and services. Presidency proposed solution: Allow the application of these rates exclusively to certain supplies of goods and services that address basic needs and clear public policies (covering the categories related to food and water, medicines and health products, transport of persons, some cultural items and solar panels).
Against the above background and in order to get political guidance on the way to move forward with the VAT rates proposal, the Presidency would like to invite the Council to address the following questions:
- 1) Do Member States agree that both the categories included in Annex III and the application of derogations should be coherent with the EU Green Deal objectives? If this is the case, could the 1st January 2035 be accepted as the date to phase out the application of reduced rates to fossil fuels, chemical pesticides, chemical fertilizers and firewood, so that all Member States are given sufficient time to adapt their VAT rates system?
- 2) Can Member States accept a standstill clause by which, with the exception of those not in line with the Green Deal, current derogations would continue to be applied but would become available to all Member States to ensure fair and equal treatment and a level playing field?