Answer from the commission
UNIEP president Erik Kruiderink contacted the European Commission on a consultation regarding the reduction of VAT
23 May 2008:
Dear Sir,
Herewith we respond to your invitation to submit comment on your Consultation Paper “Review of existing legislation on VAT reduced rates”. UNIEP is the representative European Association of painting companies which has as its members national painting associations in Europe. UNIEP represents approximately 80% of the companies, turnover and fte’s concerned. Firstly, we should like to confirm the conclusions in the investigation of Copenhagen Economics that:
- in order to be effective reduced rate measures need to be definitive;
- reduced rates are most effective where the services are supplied to private consumers; this is the case in the painting business of private dwellings;
- if production is labour-intensive there seems to be a stronger production and employment response to lower VAT-rates in the industries affected; this is the case in the painting business of private dwellings;
- lower VAT rates can increase overall productivity and GDP in a member state if they can induce consumers to spend fewer hours on do-it-yourself activities and more hours on their ordinary job and thus shift activities from do-it-yourself to the formal economy; this is also illustrated in the painting business of private dwellings;
We further add that UNIEP-research in 2006 showed that reduced VAT- rates for painting works in private dwellings have no impact on the European internal market. We therefore urge for a swift adoption of a definitive article which enables member states to remove uncertainty as to reduced rates of VAT for “renovation and repairing of private dwellings”. Copenhagen Economics justly states that reduced VAT rates need to be definitive in order to be effective. In 2003, 2004 and 2006, we experienced the impact of uncertainty over tariffs in the painting market when for some time uncertainty existed about the continuation of reduced VAT for painting works. This is yet another strong signal that all parties, i.e. the Commission, Member States, consumers and painting companies, will profit from swift clarity as to the definitive directive on reduced VAT rates for painting works on private dwellings.
We would like to make one final remark. In your Consultation Paper, you suggest that you might consider to reformulate the possibility of reduced VAT rates for “renovation and repairing of private dwellings” into “small renovation, repair, maintenance and cleaning of housing”. If there is a need to develop a new formulation for the new Council directive, we would like to point to the fact that it is of the utmost importance that a new formulation will not restrict present practice in those member states that apply reduced VAT rates for painting work in private dwellings. It is important that member states can continue to apply reduced VAT rates for painting works on the scale they apply it today.
We send as annexes:
- Fact sheet on Costs and benefits of the reduced VAT rate for maintenance work to homes, by drs. J. Schellevis, Economic Institute for the Building Trade, Netherlands (Economisch instituut voor de Bouwnijverheid (EIB), March 2005
- UNIEP-letter with the results of UNIEP-research in the European painting market shows that reduced VAT rates in the painting business of private dwellings have no impact on the European internal market,
Brussels, 23 May 2008
Erik Kruiderink
Reduced VAT for laborintensive services
The European commission answered UNIEP
Dear Mr Fischer,
Thank you for your electronic message of 15th September 2008 addressed to Commissioner Kovács, in which you stated your support for the Commission’s approach regarding the application of reduced VAT rates to labour intensive services and further for your response to the public consultation. I have been asked, in my capacity as Director General in DG Taxation and Customs Union, to reply on his behalf.
As you may be aware, the public consultation was launched by the Commission in order to canvass the views and opinions of all stakeholders on the review of the Community legal framework regarding reduced VAT rates. Furthermore, the Commission sought to gather relevant feedback from interested parties on the economic, social, environmental and internal market impacts of applying reduced VAT rates. While a detailed summary report of the results of the public consultation is to be published as soon as possible, I can confirm that a large majority of stakeholders have supported making definitive the temporary provisions on the labour-intensive services currently listed in Annex IV to the VAT Directive. (1)
In view of the findings of the 2007 Copenhagen Economics study (2), to which you also refer, the Commission is of the opinion that there are good reasons to include locally supplied services in Annex III to the VAT Directive which lists the goods and services eligible, on a permanent basis, for a reduces VAT rate. To this end, in the Proposal for a Directive (3) adopted on 7th July 2008, the Commission proposed to include in Annex III all the categories of Annex IV, which are local in nature and not likely to cause distortions of competitions, and to extend the scope of reduced rates to some other services which are fundamentally local.
As to your concern not to restrict the current possibility for Member States to apply reduced VAT rates to painting works in private dwellings, you may find it useful that under the new category 10a, the possibility to apply reduced VAT rates in this respect is not only maintained, but also extended to the services of renovation, repair, alteration and maintenance of housing and of cultural heritage and historical monuments as recognised by the Member States concerned.
Finally, I would like to draw your attention to the fact that any proposal by the Commission to amend the scope of the existing legislation on reduced VAT rates must be adopted in the Council by unanimity. The French Presidency started the discussion on this proposal in July at Council level and the discussion is still on-going.
Yours sincerely,
Robert Verrue
1) Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, OJ I, 347, 11.12.2006.
2) See http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rates/intex_en.htm
3) Proposal COM (2008) 428 for a Council Directive amending Directive 2006/112/EC as regards reduced rates of value added tax. See http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/COM(2008)428_en.pdf
