REPORT on the proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax, with regard to the duration of the obligation to respect a minimum standard rate

on the proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax, with regard to the duration of the obligation to respect a minimum standard rate

(COM(2010)0331 – C7‑0173/2010 – 2010/0179(CNS))

(Special legislative procedure – consultation)

The European Parliament,

–   having regard to the Commission proposal to the Council (COM(2010)0331),

–   having regard to Article 113 of the Treaty on the Functioning of the European Union pursuant to which the Council consulted Parliament (C7‑0173/2010),

–   having regard to the opinion of the European Economic and Social Committee[1],

–   having regard to Rule 55 of its Rules of Procedure,

–   having regard to the report of the Committee on Economic and Monetary Affairs (A7‑0325/2010),

1.  Approves the Commission proposal as amended;

2.  Calls on the Commission to alter its proposal accordingly, in accordance with Article 293(2) of the Treaty on the Functioning of the European Union;

3.  Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

4.  Asks the Council to consult Parliament again if it intends to amend the Commission proposal substantially;

5.  Instructs its President to forward its position to the Council, the Commission and the national parliaments.

• [1]     Opinion of .... (not yet published in the Official Journal).

Introduction

With its proposal, the Commission proposes to extend by 5 years the current requirement for EU countries to have a minimum standard VAT rate of 15%. Therefore, the proposal will have no consequences in terms of tax rates. The Commission proposes that the extension takes effect on 1 January 2011 for a period ending on 31 December 2015. The Proposal is based on Article 113 of the Treaty on the Functioning of European Union (TFEU).

Background

With a view to the establishment of the internal market without borders in January 1993, the Commission presented proposals aimed at setting up a definitive system of tax harmonisation. As regards rates, the Commission initially proposed a harmonised tax structure with two compulsory rates of VAT (a standard and a reduced rate) and harmonisation, within a band, of the rates applied by the Member States.

However, when it became clear that it would be impossible to reach political agreement in the Council to adopt the Commission's proposals before 1 January 1993, the Council decided to adopt a transitional system. With regard to rates, it adopted Directive 92/77/EEC, approximating rates, which introduced a system of minimum rates. The Directive stipulated that from 1 January 1993 to 31 December 1996 the standard rate could not be set at less than 15%. This Provision has since then been extended four times. The last extension runs until 31 December 2010.

The 2004 and 2007 accessions did not result in any changes to the situation regarding the VAT rates, which still range from 15% to 25% in 27 Member states (see annex). The Commission has confirmed that no Member State has expressed objections to an extension of the standard VAT rate.

To maintain the degree of harmonisation of rates already achieved, the Commission has twice submitted proposals providing for a standard rate band with a minimum rate of 15% and a maximum rate of 25%.(COM(95) 731 and COM(1998) 693 The band was derived from the rates applied in practice in the Member States, where the standard rates had always varied between 15% and 25%.

In both cases the proposals to approximate rates were amended by the Council which kept only the principle of the minimum rate, referring to a 15% minimum rate comparable to the system introduced by the 1992 Directive.

However, when adopting the successive Directives (96/95/EC, 1999/49/EC, 2001/4/EC and 2005/92/EC), the Council agreed to make the following statement in the minutes of the Council instead:

"Member States undertake – as far as can be foreseen today – that from 1 January 2006 to 31 December 2010 they will make every effort to avoid widening the current span of 10 percentage points above the current lowest standard rate applied by Member States."

Rapporteur's preliminary assessment - The future of the VAT system

It its present proposal, the Commission indicates that the purpose of the extension is not only to businesses the necessary legal certainty, something that your Rapporteur fully supports, but also to allow further evaluation of the appropriate level of the standard VAT rate at EU level.

At his exchange of views with the Committee for Economic and Monetary Affairs, Commissioner Šemeta announced that the Commission will launch a green paper on the review of the VAT system with the objective of creating a more favourable environment for business and a simpler and more robust system for the Member States. Your rapporteur considers that the Commission should not only examine the specific issue of the standard VAT rate and other rates, but also, as announced by the Commissioner, the broader issue of a new VAT strategy, including the scope of VAT and the derogations.

Your rapporteur recalls that the current VAT system, with its increased complexity not only in terms of rates, is not keeping pace with the development of the Internal Market. This puts European businesses, and especially SMEs, in a disadvantaged position. Furthermore, as the European Parliament has recalled in the past, the VAT system, as currently designed and implemented by Member States, has weaknesses that fraudsters use to their advantage, something which costs billions of euros in tax revenue.

Therefore, your rapporteur, urges the Commission to come quickly with the results of its analyses and to involve the European Parliament in the debate.

Annex

Standard VAT Rates in Member States