Image: unsplash.com
The Commission welcomed the decision achieved by EU Finance Ministers at the ECOFIN Council meeting in Brussels on December 7, 2021, to revise the present rules controlling VAT rates for goods and services.
The new legislation will provide governments more freedom in applying tariffs while also guaranteeing more equity among EU Member States. At the same time, the revised rules would align VAT regulations with EU goals such as climate change, digitalization, and public health protection.
The current EU VAT rate laws are over thirty years old and in desperate need of updating, considering the change of the overall VAT rules over time.
The transition to a system in which VAT is paid in the consumer’s Member State rather than the supplier’s Member State means that higher rate diversity is less likely to undermine the Single Market’s functioning or produce competitive distortions. Simultaneously, we must avoid a proliferation of decreased rates, which would jeopardize Member States’ ability to collect revenues post-COVID-19.
Furthermore, the regulations as they stand must be completely linked with the EU’s overall aims, since they may have a negative impact on development in such areas in some situations.
The new regulations are as follows:
- Update the list of goods and services (Annex III to the VAT Directive) to which all Member States can apply reduced VAT rates. New products and services added to the list include those that protect public health, are good for the environment and support the digital transition. Once the rules come into force, Member States will for the first time also be able to exempt from VAT certain listed goods and services considered to cover basic needs.
- Remove the possibility by 2030 for Member States to apply reduced rates and exemptions to goods and services deemed detrimental to the environment and to the EU’s climate change objectives.
- Make derogations and exemptions for specific goods and services, currently in place for historical reasons in certain Member States available to all countries to ensure equal treatment and avoid distortions of competition. However, existing derogations that are not justified by public policy objectives will need to be wound down by 2032.
Source: ec.europa.eu
