By Anna McLauchlin & Hughes Beaudouin - 9th December 2003
The European Commission could back down over a tax experiment allowing member states to apply a lower rate of VAT to services including building repairs, hairdressers and restaurants.
Member states, industry and the European Parliament have all backed an extension of the pilot scheme, which has run for four years and is due to end at the end of this year.
The Commission has consistently refused to extend the experiment, set up to boost employment, claiming it has not had a significant effect.
But failure to push through a proposal in 2003 harmonising VAT rates as planned means that from January next year member states will suddenly have to apply full VAT rates to "labour intensive services" such as house repairs and restaurants.
In the absence of harmonised rules the commission is being pressured from all sides to let the scheme run until member states are able to agree on a common VAT law.
Commissioners will meet on Wednesday to discuss the situation.
At the same time France is upping the pressure for an agreement on the Commission's proposal, faced with furious lobbyists who were promised reduced VAT on restaurant services by Jacques Chirac in his 1995 electoral pledge.
The commission is not opposed to including this but unanimity is required for the proposal to be passed and Germany has so far vetoed this option.
French premier Jean-Pierre Raffarin announced this morning, "the French government is asking for an extraordinary meeting of finance ministers and the Ecofin council to deal with the subject of reduced VAT on restaurant services, which is still essential for us".
France's stance has angered the commission. A source said, "If France is so rich why doesn't it just throw its money out of the window? And if the French government has not managed to convince its German friends, maybe it's because it doesn't want to. Paris has to realise the financial implications of this decision".
He added, "France has already retreated, tail between its legs, on the takeover proposal. Maybe it should do the same on reduced VAT."
Have your say...
Please enter your comments below.