VAT 'breakthrough' played down

France and Germany's agreement on applying reduced VAT to restaurant services may not unblock negotiations, the European Commission warned on Thursday.

"Any changes require unanimity and this will be difficult in council", a spokesman said.

"Spain wants reduced VAT on bottled gas and Belgium wants it on something else" he went on.

"And Denmark didn't want any extension of the list (to which member states may opt to apply reduced VAT) because it will then face internal pressure reduce more rates".

Talks on harmonising those areas in which member states can apply a reduced VAT in Europe have repeatedly stalled as delegations argue over whether the current list should be extended.

As it stands reduced VAT in the EU is a fragmented legal affair, with member states allowed to keep existing reduced rates such as the UK's zero rate on kidswear and France's low rate on TV broadcasting.

The French government has been most vocal about wanting to reach a pan-European agreement because it wants to apply a new 5.5 per cent rate on restaurant services as part of an election pledge.

Having managed to soften Germany, which consistently opposed the addition of restaurants, at the 'Big Three' summit on Wednesday, Paris will be keen to get the subject back on the agenda.

At the same time EU officials on Thursday will consider an informal document from the commission looking at whether member states might be free to choose where to apply reduced VAT as long as it does not distort the EU's markets, under the 'subsidiarity' principle.

But a spokesman warned this too could lead to disagreement among EU governments.

"If the principle that reduced rates can be applied only where there is no distortion is agreed, this will mean some countries that can apply a reduced rate in some areas at the moment, will lose that right", he told journalists.

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