Commission welcomes ECOFIN agreement on new rules governing VAT rates in the EU

On 7 December 2021, the Commission welcomed the agreement reached by EU Finance Ministers, at the meeting of the ECOFIN Council in Brussels, to update the current rules governing value added tax (VAT) rates for goods and services. The new legislation will provide governments with more flexibility in the rates they can apply and ensuring more equality between EU Member States. At the same time, the updated rules will bring VAT rules into line with EU priorities such as the fight against climate change, digitalisation, and public health protection.

Current EU rules on VAT rates are almost thirty years old and are in urgent need of modernisation given the evolution of the overall VAT rules over the years. In particular, the move to a system where VAT is paid in the Member State of the consumer rather than  the Member State of the supplier means that greater diversity in rates is less likely to disrupt the functioning of the Single Market or to create distortions of competition. At the same time, we need to avoid a proliferation of reduced rates which would endanger Member States’ capacity to collect revenues in the post-COVID-19 era.

Furthermore, the rules as they stand need to be fully aligned with the EU’s overall priorities, because in some cases they can even have an adverse effect on progress in those areas.

In detail, the new rules:

• Update the list of goods and services (Annex III to the VAT Directive) to which all Member States can apply reduced VAT rates. New products and services added to the list include those that protect public health, are good for the environment and support the digital transition. Once the rules come into force, Member States will for the first time also be able to exempt from VAT certain listed goods and services considered to cover basic needs.
   
• Remove the possibility by 2030 for Member States to apply reduced rates and exemptions to goods and services deemed detrimental to the environment and to the EU’s climate change objectives.
   
• Make derogations and exemptions for specific goods and services, currently in place for historical reasons in certain Member States available to all countries to ensure equal treatment and avoid distortions of competition. However, existing derogations that are not justified by public policy objectives will need to be wound down by 2032.

For more information:

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