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(BRUSSELS) – EU finance ministers agreed Tuesday to update current rules governing value-added tax (VAT) rates for goods and services, giving them more flexibility to apply reduced and zero VAT rates.
The new rules will provide governments with more flexibility in the rates they can apply.
The updated legislation will also bring VAT rules into line with common EU priorities such as fighting climate change, supporting digitalisation and protecting public health. They allow a phase out of preferential treatments for environmentally harmful goods.
The Council updated and modernised the list of goods and services for which reduced VAT rates are allowed (Annex III of the VAT directive), taking into account the digital transformation of the economy. The update of the list was driven by a number of principles, such as the benefit of the final consumer and the general interest. However, to prevent a proliferation of reduced rates, the Council decided to limit the number of items to which reduced rates could be applied.
The Council also decided to ensure that all member states are treated equally. To achieve this, existing derogations that allowed some member states to apply preferential rates for certain products were opened to all member states, provided that they are compatible with the agreed principles. A new provision in the VAT directive was also added to address possible future crises and to enable member states to respond swiftly to exceptional circumstances, like pandemics, humanitarian crises or natural disasters.
The Council agreed to phase out reduced VAT rates or exemptions on fossil fuels and other goods with a similar impact on greenhouse gas emissions, by 1 January 2030. Reduced rates and exemptions for chemical fertilizers and chemical pesticides will end by 1 January 2032, to give small-scale farmers more time to adapt. In addition, the Council introduced environmentally-friendly goods and services in the list for which reduced rates are allowed, such as solar panels, electric bicycles and waste recycling services.
The European Parliament now has to issue its opinion on the proposal, after which the Council will formally adopt the directive.
Agreement on new rules governing VAT rates - background guide
Council general approach on proposal to update rates of value added tax
Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards rates of value added tax
