Select Committee on European Scrutiny Twentieth Report


10 Value added tax

(a)

(25571)

8751/04

COM(04) 296

(b)

(25572)

8754/04

COM(04) 295


Draft Council Decision authorising the Czech Republic and Poland to apply a reduced rate of VAT to certain labour-intensive services in accordance with Article 28(6) and (7) of Directive 77/388/EC

Draft Council Directive amending Directive 77/388/EC by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia

Legal base(a) —

(b) Article 57 (1) Act of Accession, —; QMV

Document originated(Both) 21 April 2004
Deposited in Parliament(Both) 27 April 2004
DepartmentCustoms and Excise
Basis of considerationEM of 12 May 2004
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared

Background

10.1 Directive 77/388/EEC, the 6th VAT Directive, as variously amended, sets the general framework for the application of VAT in the Community. It provides for the possibility of various derogations to meet particular needs, collective or individual, of Member States. Directive 1999/85/EC amended the 6th VAT Directive to allow an experimental reduced VAT rate on certain labour-intensive services. The period for the experiment has been extended twice and it is now due to end on 31 December 2005.

The documents

10.2 The pre-accession negotiations for the new Member States did not deal with the possibility of a reduced rate of VAT on labour-intensive services in those countries as the experiment was then due to expire before accession. But given the extension of the experiment to the end of 2005 and that nine of the new Member States currently apply a reduced rate of VAT on labour-intensive services, the Commission proposes that the 6th VAT Directive be amended to allow the new Member States to benefit from the experimental provision if they so wish. The draft Directive in document (b) would make the necessary amendments.

10.3 Poland and the Czech Republic have already said that they would wish to apply a reduced rate of VAT to small repairs to bicycles, shoes and leather goods and clothing and household linen (Poland) and window cleaning, house cleaning and domestic care services (Czech Republic). The draft decision in document (a) would authorise them to do so.

The Government's view

10.4 The Paymaster General (Dawn Primarolo) says:

"The Government has not previously opposed the experimental reduced rate scheme, or its application by other Member States, given that the reduced rates involved had no impact on the UK. It would therefore have no objection in principle to the applications from the Czech Republic and Poland.

"However, the Government does have concerns whether the QMV legal base for the proposed Council Directive, Article 57 of the Accession Treaty, is appropriate. This provides a fast-track procedure for adaptation of existing EU legislation where such adaptation is required 'by reason of accession', and which was not adapted in the Accession Act itself. The Government considers that in principle legislation concerning tax should be made by unanimity."

Conclusion

10.5 We do not normally draw the attention of the House specifically to this sort of proposal in relation to the operation of the 6th Vat Directive. But we do so on this occasion given the Minister's comment on the legal base for the draft Directive.

10.6 We clear the documents but urge the Government to satisfy itself that use of Article 57 of the Accession Treaty does not compromise the principle of unanimity in relation to taxation matters and, if it does so compromise the principle, to oppose progress on the draft legislation.





 
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