55 Minimum standard rate of Value Added
Tax
| (26500)
8155/05
COM(05) 136
| Draft Directive amending Directive 77/388/EEC on the common system of value added tax, with regard to the length of time during which the minimum standard rate is to be applied
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| Legal base | Article 93 EC; consultation; unanimity
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| Document originated | 14 April 2005
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| Deposited in Parliament | 17 May 2005
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| Department | HM Treasury |
| Basis of consideration | EM of 17 May 2005
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
55.1 Under the Sixth VAT Directive (77/388/EEC) Member States
must apply a minimum standard rate of VAT of 15 per cent. This
provision was introduced in 1993 as part of a package for the
completion of the Single Market. It was designed to prevent competitive
under-bidding between Member States. The provision has been extended
three times and currently applies until 31 December 2005. At each
extension Member States have undertaken to make every effort to
avoid widening the span of ten percentage points between the then
lowest and highest standard rate applied by any Member State.
The document
55.2 The draft Directive would extend the provision about the
minimum standard rate until 31 December 2010. The Commission notes
that its revised VAT strategy (scrutinised by our predecessors
and debated during the last Parliament)[198]
sets out a programme of reform of the existing system, with the
objectives of simplification and modernisation of that system,
ensuring that the current rules are uniformly applied, and increasing
co-operation between Member States. It recalls that in the past
it had proposed both a minimum and a maximum standard rate based
on the lowest and highest rates — 15% and 25% — amongst
Member States and notes that, despite implementation only of the
minimum rate, the range of standard rates remains in the range
15% to 25%. The Commission says that during the programme of reform
it is important to prevent any growing divergence in the standard
rates of VAT applied by the Member States from leading to structural
imbalances in the Community and distortions of competition. It
notes that in the absence of agreement on an extension the current
minimum standard rate would lapse and Member States would be free,
subject to general Treaty principles, to set whatever rate they
wished.
The Government's view
55.3 The Paymaster General (Dawn Primarolo) says the Government
accepts that there are grounds for a limited extension of the
current minimum standard rate. She says the proposal has no practical
implications for the UK — it does not change any of the
reduced rate provisions of the Sixth VAT Directive nor its safeguards
for the UK's zero rates. She adds that discussion of the reduced
rates review[199] has
touched on the issue of the minimum standard rate.
Conclusion
55.4 Widely divergent standard rates of VAT amongst Member
States could produce unwelcome distortions and we note the Government's
view that a limited extension of the current minimum standard
rate is acceptable. We clear the document.
198
See (24978) 13853/03: HC 42-i (2003-04), para 1 (3 December 2003)
and Stg Co Deb, European Standing Committee B, 10 March 2004,
cols. 3-22. Back
199
Progress on which is reported in paragraph 52 of this Report. Back
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