EU ministers split over sales tax cuts

September 13, 2008
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, France, September 13 – EU finance ministers clashed Saturday on whether to shake up European sales tax rules to allow especially reduced rates for targetted services and products.

The European Union has long debated the merits of allowing such reduced value added tax rates, but efforts to change existing rules have stalled in the face of resistance, mainly from Germany but also from Austria and Denmark.

"It\’s difficult" to overcome the differences, said Belgian Finance Minister Didier Reynders as he arrived for a meeting with his EU counterparts in the southern French city of Nice.

"But I\’m sure that it is important to (reduce rates) because there are some sectors with a very important capacity to give more jobs to the people, like in the restaurants. Why not reduce rates?" he added.

"We have expressed a certain degree of scepticism," said Austrian Finance Minister Wilhelm Molterer said. "We have doubts that consumers get the benefits of the tax cuts."

Currently, EU governments can only apply temporarily a reduced VAT rate as low as 5.0 percent on products or services from a list under strict rules. However, many member states have obtained over the years various temporary derogations for various services.

Normally EU countries cannot apply a VAT rate of less than 15 percent in order to avoid big price discrepancies across what is supposed to be the EU\’s single cross-border market.

Much to Berlin\’s discontent, the European Commission weighed into the debate about VAT in July by proposing to make it easier to apply reduced rates in a greater number of labour-intensive or locally supplied services than currently allowed.

Changing EU tax rules requires the unanimous support of all 27 EU member states.

During the debate in Nice, German Finance Minister Peer Steinbrueck said there were still too many open questions about the merits of targetted reduced rates to expand it to more services and products, according to one official.

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