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EU fails to agree on reduced VAT freedoms – fossil fuel tax breaks

European Finance Minister meeting at ECOFIN on 18th June failed to agree on a compromise to enable more reduced rate setting freedoms for member states. Countries such as Germany, France and Sweden were not in agreement around environmental protections rules being proposed by the Portuguese Presidency. In particular, what they see as overly slow plans to withdraw reduced rates on fossil fuels, pesticides, and fertilizers.

An August 2021 study by the European Parliament highlighted how increased reduced VAT rates raises compliance costs of businesses. Follow all the European Union’s completed and planned reforms via VAT Calc’s EU VAT reform tracker.

The discussions were centred around various proposals to update the EU VAT Directive on what taxable supplies members states my give tax benefits to via categorising them below their main standard VAT rate.  Broadly, the Directive only allows two reduced VAT rates (must be above 5%) on a limited ranges of goods and services as defined in Annex II of the VAT Directive.

Breakthrough on positive list of supplies for reduced VAT rates?

The newest proposal is for a ‘whitelist’ of goods and services which could enjoy reduced rate rankings, while phasing out VAT reductions for environmentally harmful items.

The matter will now be picked up in the next rotating presidency of the Council of the EU, which will be held by Slovenia. The negotiations are currently progressing well and, although they are now focussed on a positive list of supplies to which the reduced rates may apply rather than on a negative list as in the original proposal2, these negotiations are still driven by the idea that the application of reduced or zero VAT rates should, alongside other criteria, take into account social policy aspects.

EU VAT reforms

Reform (click for details) Update
2025 VAT registration thresholds equivalence foreign businesses On track
Virtual events VAT rule changes Agreed
2024 Payment providers' seller transaction reporting and bookkeeping obligations On track
Digital Reporting Requirements (DRR), e-invoicing and live transaction reporting Implementation of VAT in the Digital Age?
2023 DAC 7 - marketplace reporting obligations on sellers' activities On track
Financial Services VAT exemption reform proposals Consultation complete; proposal 2023
Tour operator margin scheme VAT reforms EC undertaking fresh review
2022 EU definitive VAT system Member states not agreed on format
EU reduced VAT rate freedoms Enter into force 6 April 2022
IOSS reforms to prevent double taxation Proposals early 2022
VAT in the Digital Age proposals On track for Q3 2022 detailed proposal
Single EU VAT registration - extension of OSS for B2B and B2C On track for Q3 2022 detailed proposal
Proposal for VAT treatment of the platform economy On track for Q3 2022 detailed proposal
VAT Gap Initiative Q3 2022
2021 One-Stop-Shop (OSS) single EU VAT return In effect
Ending €22 import VAT exemption; new IOSS return In effect
Marketplace deemed supplier EU VAT reforms In effect
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option
EU Generalised Domestic Reverse Charge VAT Mechanism In effect, although no country has adopted this voluntary option
2015 B2C electronic services VAT reforms - MOSS return In effect

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