EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services - Main contents

Please note

This page contains a limited version of this dossier in the EU Monitor.

dossier	COM(2002)525-1 - Amendment of Directive 77/388/EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain ...
source	COM(2002)525
date	25-09-2002

On 22 October 1999, as part of its implementation of the recommendations of the European Council of 11 and 12 December 1998, and in particular the 'Vienna Strategy for Europe', the Council adopted Directive 1999/85/EC i amending Directive 77/388/EEC i (the 6th VAT Directive) as regards the possibility of applying on an experimental basis a reduced VAT rate on labour-intensive services. Its purpose is to allow Member States that so wish to test the impact, in terms of job creation and a reduction of the underground economy, of a targeted reduction of VAT on these services.

Member States wishing to introduce the measure had to inform the Commission before 1 November 1999. i

Article 28 i of the 6th VAT Directive authorises the experimental application of a reduced rate of VAT on labour-intensive services up to 31 December 2002. It requires Member States that have applied such reduced rates to draw up a detailed report by 1 October 2002 assessing the measures' effectiveness in terms of job-creation and efficiency.

Based on these reports the Commission is required to submit a global evaluation report to the Council and the European Parliament by 31 December 2002, accompanied if necessary by a proposal for a final decision on the VAT rate to be applied to labour-intensive services.

The evaluation must also take account of the Commission Communication on A strategy to improve the operation of the VAT system within the context of the internal market, i which advocates revising and rationalising the rules and derogations to be applied to reduced VAT rates in the medium term, and considering how reduced rates of VAT can be used to further various Community policies, particularly job creation.

Since no assessment reports have yet been submitted to the Commission by the Member States, and in view of the time needed to evaluate such reports thoroughly in accordance with the guidelines of Directive 1999/85/EC, it is essential to alter the period set in Article 28 i of the 6th VAT Directive.

Under these circumstances that Commission considers that the first subparagraph of Article 28 i of Directive 77/388/EC and the first paragraph of Article 1 of Decision 2000/185/EC should be amended to extend the period of validity of the authorisation to 31 December 2003 at the latest. This would allow the nine Member States currently applying a reduced rate of VAT to labour-intensive services to continue to do so for another year under the same conditions, without changing or extending the scope of the experiment.