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EUROPEAN PARLIAMENT
1999 2004
Committee on Industry, External Trade, Research and Energy

2003/0169(CNS)

4 November 2003

OPINION
of the Committee on Industry, External Trade, Research and Energy for the Committee on Economic and Monetary Affairs
on the proposal for a Council directive amending Directive 77/388/EEC as regards reduced rates of value added tax
(COM(2003) 397 – C5 0359/2003 – 2003/0169(CNS))

Draftsman: Elly Plooij-van Gorsel

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PROCEDURE

The Committee on Industry, External Trade, Research and Energy appointed Elly Plooij-van Gorsel draftsman at its meeting of 22 September 2003. It considered the draft opinion at its meetings of 7 October and 4 November 2003. At the last meeting it adopted the following amendments by 34 votes to 2. The following were present for the vote: Luis Berenguer Fuster (chairman), Yves Piétrasanta (vice-chairman), Jaime Valdivielso de Cué (vice-chairman), , Konstantinos Alyssandrakis, Per-Arne Arvidsson (for Guido Bodrato), Sir Robert Atkins, Ward Beysen (for Marco Cappato), Gérard Caudron, Giles Bryan Chichester, Concepció Ferrer, Francesco Fiori (for Dominique Vlasto), Norbert Glante, Michel Hansenne, Malcolm Harbour, Hans Karlsson, Bashir Khanbhai, Rolf Linkohr, Caroline Lucas, Eryl Margaret McNally, Erika Mann, Marjo Matikainen-Kallström, Ana Clara Maria Miranda de Lage, Elizabeth Montfort, Angelika Niebler, Reino Paasilinna, Paolo Pastorelli, Godelieve Quisthoudt-Rowohl, Imelda Mary Read, Mechtild Rothe, Christian Foldberg Rovsing, Paul Rübig, Konrad K. Schwaiger, Esko Olavi Seppänen, Claude Turmes, Alejo Vidal-Quadras Roca, Olga Zrihen Zaari.

SHORT JUSTIFICATION

The present proposal from the Commission seeks to simplify the current Community rules on Value Added Tax (VAT) introduced by Directive 92/77/EEC . Under the current rules, Member states may apply one or two reduced rates to the goods and services contained in a restrictive list. However, as a result of the negotiations leading up to the Directive, a large number of specific derogations were agreed allowing certain Member States to apply different rules. The Commission proposal seeks to simplify the current rules by eliminating or phasing out these derogations and amending the list of goods and services to which Member States can apply a reduced rate of VAT. This would not imply that reduced VAT would apply to the same goods and services in each Member State, but rather that all Member States would choose from the same list when applying reduced rates of VAT to a particular good or service.

When considering VAT, it is worth remembering that labour-intensive services such as hairdressing, minor refurbishing of buildings (painting, plastering, etc.) or the repair of shoes, clothes and bicycles possess characteristics not shared by other goods and services. Firstly, they are often provided by small and micro-entreprises. Secondly, they are both provided and used locally. It is well-known that such small and micro-enterprises constitute a vital sector of the economy and belong to a category of businesses which suffers more heavily from red tape, which often pays higher taxes than larger companies and which - since the nature of their services make them inherently local - are also disfavored by lacking opportunities in advantages of scale.

In 1998, the Commission launched an experimental application of VAT rates to certain labour-intensive services for a period of two years starting 1 January 2000 . The experiment was later extended by one year, thereby ending on 31 December 2002. Nine member states participated in this pilot project, each providing an evaluation report by the end of the project . In its conclusions of the experiment, the Commission states that "none of the reports of the Member States that participated in the experiment provide any solid evidence of the VAT reduction measure having an impact on employment." There are two problems with this statement. Firstly, the data collection in some Member States was poor and the data inconclusive. This is clearly stated i.e. in the French report. Secondly, positive effects were recorded, but these vary from sector to sector and from one Member State to another. In the Netherlands, hair dressers provided 2000 new jobs in the period of the project - a sectorial increase of nearly 6%. Had the project been given more time, and had the Commission looked more carefully at national and sectorial differences, the conclusions to be drawn could easily have been reversed. As it stands, the experiment remains inconclusive as regards conclusions applicable to the entire Community.

Yet, in the current proposal the Commission seeks to exclude some of the services participating in the pilot project from the list of services to which the Member States may apply the reduced VAT. In the view of your draftswoman, since the list is in no way mandatory to Member States, it should be as broad as possible as regards services provided locally; that is: services which do not distort competition in the Single Market. It seems unreasonable to definitively close the possibility of reduced VAT on these services to Member States on the basis of a short-term experiment with data of limited validity.

Your draftswoman welcomes the simplification of common VAT rules set out in the proposal, but also wishes to express her concern for any excessive limitation of the application of reduced VAT. There is a lack of qualitative and substantive evidence that reduced rates of VAT to locally based, labour-intensive services do not have a positive effect on employment and on the general structure of society in the medium and long term. With the additions of these sectors to the Annex H of the proposal, I recommend to approve the proposal as amended.

AMENDMENTS

The Committee on Industry, External Trade, Research and Energy calls on the Committee on Economic and Monetary Affairs, as the committee responsible, to incorporate the following amendments in its report:

Text proposed by the Commission
Amendments by Parliament
Amendment 1

Annex H, point 3

3. The supply of pharmaceutical products of a kind normally used for health care, prevention of diseases and treatment for medical and veterinary purposes, including products used for contraception and sanitary protection

Justification

This amendment is justified on social grounds.

Amendment 2

Annex H, point 10 a (new)
10a. The renovation, repair and maintenance of protected buildings and buildings officially listed for their architectural or historic merit.

Justification
This will help to encourage the preservation of Europe’s historical heritage by permitting reduced rates of VAT on this type of work.

Amendment 3
ANNEX H, point 20a (new)

20a. Hairdressing

Justification

Even under the uncertainties imposed by a very limited timeframe (2 years), exception of hairdressing from VAT in the Netherlands provided a considerable number of new jobs.

Amendment 4
Annex H, point 20 b (new)

20b. The supply of butane gas in containers

Justification

This amendment is justified on social grounds.