Brussels to extend VAT scheme

By Anna McLauchlin - 10th December 2003

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Brussels intends to extend a VAT pilot scheme allowing member states to apply reduced rates to services such as hairdressing and building repairs for a further two years.

An extraordinary meeting may be held to add restaurant services to the list after French prime minister Jean-Pierre Raffarin insisted a low rate is still "essential" for France.

Under the pilot scheme nine member states opted to impose a lower rate of VAT on labour intensive services from 2000 to 2002. The scheme was then extended for a further year and was due to expire on December 31 2003.

But in the absence of harmonised VAT rules for the EU, on which member states have been unable to reach agreement, the commission has caved in to industry and government pressure to extend the provisional scheme.

A proposal will be made at the end of next week, a commission spokesman said on Wednesday, and it should be approved by the end of the year.

He would not confirm whether France's demands for restaurant services to be included would be met.

"We are talking about the extension of an existing regime," he told journalists. "This is the kind of decision that could be taken at (internal) level."

"But if France wanted to...add to the list, it may be necessary to have a council."

He criticised member states for failing to reach agreement on the harmonised VAT proposal put forward by the commission in July.

"The commission does feel [catering] is a labour intensive service, so when we made the proposal [to harmonise VAT], catering was included," he said. "But some member states, including France, were opposed to it."

Industrial sectors affected by the proposal have welcomed Wednesday's move.

The European Builders Confederation said "The craftsmen and SMEs of Europe's construction sector as well as their employees are relieved."

"The experience of France, Italy and Belgium has shown the efficiency of this measure for job creation and struggle against illegal work."