Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, with regard to the duration of the obligation to respect a minimum standard rate

Article 97 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ("the VAT Directive") provides that from 1 January 2011 until 31 December 2015 the standard rate may not be less than 15%. This provision was based on Article 93 of the Treaty establishing the European Community (the EC Treaty). As from 1 December 2009, Article 93 of the EC Treaty is replaced by Article 113 of the Treaty on the Functioning of the European Union (TFEU).

Article 113 TFEU stipulates that the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes to the extent that such harmonisation is necessary to ensure the establishment and functioning of the internal market and to avoid distortion of competition.

With a view to establishing the internal market on 1 January 1993, the Commission presented proposals intended to set up a definitive system of tax harmonisation. However, when it became clear that it would be impossible to adopt the Commission's proposals before 1 January 1993, the Council decided to adopt a transitional system. With regard to VAT rates, it adopted Directive 92/77/EEC. That Directive introduced a system of minimum rates. It stipulated that from 1 January 1993 to 31 December 1996, the standard rate could not be set lower than 15% in any Member State. This provision has been extended five times and applies until 31 December 2015.

Recent modifications to the VAT Directive have implemented taxation at the place of destination, as this results in only few possibilities for cross-border transactions seeking lower VAT rates, a behaviour that may lead to distortions of competition. However, it is common practice in the field of indirect taxes, both for excise duties and VAT, to set minimum rates, notably on account of the fact that VAT at origin, rather than destination, is still applied to cross-border shopping and distance sales below a threshold. Hence, a minimum standard rate applied in all Member States – as is currently the case – provides a useful safeguard to the proper functioning of the internal market.

Considering that all Member States currently levy a standard rate above 15%, the current arrangement for a minimum standard rate of 15% also ensures room for manoeuvre for Member States, allowing for VAT reforms intending to reduce the standard rate by broadening the VAT base and limiting the use of reduced rates.

On 6 December 2011 the Commission adopted a Communication on the future of VAT which proposed that the origin principle be abandoned and described several ways of achieving taxation at destination. In 2016 the Commission will publish an Action Plan for a simple, efficient and fraud-proof definitive system of Value Added Tax tailored to the single market. The Action Plan will set out the directions for future work following the achievements attained since the 2011 Communication. It will in particular set out the main features of the definitive VAT regime for intra-EU trade that the Commission wants to propose and the reforms it envisages to adapt the existing rules on VAT rates to a definitive regime characterised by the destination principle.

This review of rules on VAT rates will address two key issues: whether greater autonomy in rate-setting ('enhanced flexibility') can be granted to Member States, and how to deal with the temporary derogations allowing for exemptions, zero rates and super reduced rates, that would have to be reconsidered upon the introduction of the definitive VAT regime.

In these circumstances, and pending the decisions on the final shape of the definitive regime, it appears appropriate to maintain the principle of a minimum standard VAT rate of 15%, and to propose that the current arrangements be extended for [two years until 31 December 2017]. This time frame ensures that stakeholders enjoy the necessary legal certainty, and should allow a more comprehensive discussion on VAT rates in connection with the forthcoming Action Plan on VAT.

• Primary Source

EUR-Lex: COM(2015)646: Follow the progress of this proposal through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2015:646:FIN

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