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EU plan could call UK VAT exemptions into question
February 3, 2016
The European Union executive is planning a review of value added tax across the bloc that might call into question Britain’s right to waive the sales duty on food, medicines and children’s clothing.
The comment by Pierre Moscovici, the economics commissioner, could cause controversy as David Cameron prepares to call a referendum on Britain’s continued EU membership.
Briefing reporters late on Wednesday on a European commission plan to present measures this spring to overhaul the EU’s common VAT system, Moscovici, a former French finance minister, said it would consider whether to scrap the British “zero rate” on some items, a legacy predating the current EU minimum VAT of 5%.
“We will have to reassess everything,” Moscovici said, when asked if the VAT reform plans included ending states’ ability to set the tax at zero. He stressed that no decision had been made, but added: “Zero rate is not the best idea.”
However, he appeared to play down these comments on Thursday, saying that he had never said he supported scrapping Britain’s right to waive VAT on food, medicines and children’s clothing.
It was “far too early” to talk about proposals that may emerge from the review, Moscovici added, pointing out that the UK had a veto on any new arrangements.
Britain, along with Ireland, is unusual in the extent to which it waives VAT. It would have a veto on any proposal to do away with historical exceptions to the 5% minimum introduced in the 1990s.
A new argument with Brussels over tax could add to pressure on Cameron from Tory Eurosceptics who want to quit the EU. Three months ago, anti-EU campaigners seized on the government’s inability to waive VAT on tampons, due to EU rules, to call for a “Brexit” in the referendum, which could come as early as June.
However, several states have pressed the commission to review the VAT system, partly due to technological developments.
Last year, EU judges ruled that ebooks could not benefit from lower VAT charged on paper equivalents because they were not enshrined in a law drawn up before they were invented.
EU states must levy VAT of at least 15%, but can go as low as 5% on items on the EU “reduced rate” list.
Moscovici said the EU could draw up a new list or states could be allowed to draft their own, in a move that would give them more leeway in choosing goods benefiting from a lower tax rate.
British officials had no immediate comment on Moscovici’s remark. Cameron will be in Brussels on Friday for talks with the commission president, Jean-Claude Juncker, three weeks before a summit where he hopes to strike a deal on EU reforms before calling the referendum.