Alcohol duties and VAT tax EU finance ministers

Europe’s finance ministers hold a taxing Ecofin council on Tuesday amid growing divisions on VAT and alcohol duties.

Ministers return to European commission proposals to hike minimum excise duties on alcohol, excepting wine, by 31 per cent over four years – the first rise since 1992.

Consumers in countries such as Finland or Sweden, which have high duty rates, increasingly buy their alcohol in neighbouring states such as Estonia, where taxes are lower.

Talks failed last month as Germany, the Czech Republic, Lithuania and Latvia blocked the move – all EU tax measures must be backed unanimously.

The rise could see price increases of at least of 1 euro cent on a half litre of beer in the seven countries most affected, Germany, the Czech Republic, Malta, Latvia, Lithuania, Luxembourg and Spain.

Small beer?

Berlin is particularly keen to avoid increases in the price of German beer as German leader Angela Merkel braces for an unpopular three per cent rise in VAT from next January.

The Finnish EU presidency – which is unlikely to be affected by the duty increase as it already has some of the highest rates in the Europe  - has tabled compromise plans to increase duties by 4.5 per cent in line with inflation.

Finland is proposing an automatic inflation adjustment in duties every three years from 2011 to avoid future divisions on the issue.

Another plan will put 4.5 per cent on beer and 31 per cent for other alcoholic drinks.

Disagreement on increasing duty-free allowances, to €300 from €175, for travellers entering the EU are also expected to surface.

VAT splits

VAT is also set to divide ministers as the issue of how to tackle fraud splits Brussels, Berlin, London, Paris and Vienna.

Germany and Austria are expected to block VAT reforms aimed at simplifying registration for cross border businesses – despite the overhaul benefiting Berlin.

Both countries are retaliating after finance ministers rejected – and are set to block again – German plans to fight carousel VAT fraud, which costs Berlin €17bn a year.

Austria and Germany are seeking radical changes to their national VAT systems to introduce “reverse charging” but face concerns from Brussels and Paris over the impact of reforms on other EU member states.

France is concerned that unilateral changes to EU rules could see fraud exported across Europe as crooks dodge from one European regime to another.

The UK too will be seeking French and other support in a British bid, less wide-ranging than Germany’s, to change national VAT rules.

London is seeking to “reverse charge” VAT to the final customer for computer chips, mobile phones and hand-held computers.

Carousel swings and roundabouts

Fiscal fraud totals up to €250bn a year and of that VAT fraud totals €60bn, according commission estimates.

Trans-national trading in the EU is exempted from tax and VAT is paid only in the country where the final sale of goods takes place.

Fraud often involves importers buying tax-free goods from another EU state, then selling them with VAT added but without passing on the money to national authorities.

Berlin and Vienna have asked commission for the green light to generally apply “reverse charging” in a bid to beat cross border VAT fraud.

The reverse charge mechanism allows VAT to be charged at the end point of supply, for businesses only.

The supplier does not pay the VAT, the customer does and then deducts a self-invoiced amount, when the goods or services are used for business purposes.

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