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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
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2035 Harmonisation of EU e-invoicing and domestic regimes Jan 2035
2030 Digital Reporting Requirements and e-invoicing harmonisation July 2030
Structured e-invoices supercede paper invoices July 2030
EC Sales lists replaced by Digital Reporting Requirements July 2030
2028 EU Customs reforms Published May 2023
€150 import consignment threshold removed Published May 2023
2027 Single VAT Registration in the EU - extension of OSS July 2027
Call-off stock VAT simplification ends July 2027
Harmonisation of B2B Reverse Charge rules July 2027
Proposal for VAT treatment of the platform economy July 2027
2026 DAC8 harmonised crypto asset reporting Approved May 2023
2025 VAT registration thresholds equivalence foreign businesses 1 Jan 2025
Virtual events VAT rule changes 1 Jan 2025
Financial Services VAT exemption reform proposals Consultation complete; proposal awaited
Tour operator margin scheme VAT reforms EC undertaking fresh review
2024 Payment providers' seller transaction reporting and bookkeeping obligations In effect since 1 Jan 2024
2023 DAC 7 - marketplace reporting harmonisation In effect since 1 Jan 2024
2022 IOSS reforms to prevent double taxation On hold
EU reduced VAT rate freedoms Entered into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
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


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