Filenews 8 December 2021 - by Theano Thiopoulou
The Council of Finance Ministers of the European Union decided yesterday to change the VAT rules for goods and services, giving more flexibility to countries, as there are more categories of low rates, even zero rates, to which other products or services related to public health and the green and digital transitions can be added.
As announced by the European Commission, which welcomed the agreement on the changes, "the updated legislation will bring VAT rules into line with common EU priorities, such as fighting climate change, supporting digitalisation and protecting public health".
According to the Commission, member states unanimously agreed on this reform and will at the same time avoid the erosion of public revenues, in the context of the huge effort being made for a sustainable economic recovery after the COVID-19 pandemic and the huge investment needs in the future, in view of the green and digital transitions.
For the changes to take effect, the assent of the European Parliament must also be given. The updated rules will be sent to the European Parliament for consultation on the final text by March 2022. Once formally adopted, the legislation will enter into force 20 days after its publication in the Official Journal of the European Union, allowing Member States to apply the new system from that date.
Changes in coefficients
Member countries will continue to apply, as standard, a VAT rate higher than 15%. However, they will now be able to apply two reduced rates, the lowest at 5%, to goods and services relating to up to 24 of the categories included in the updated and modernised Annex III to the VAT Directive. Countries will also be able to apply a much reduced rate, lower than 5%, and a zero rate, for up to seven categories on the list that meet basic needs, e.g. food, medicines and pharmaceuticals.
Expanding list
Member states agreed to expand the current list of goods and services (Annex III to the VAT Directive) that can benefit from reduced VAT rates. Specifically, the list has been updated to include:
- digital services, previously not eligible for reduced prices, such as internet access and live streaming of cultural and sporting events
- goods that protect public health and that have proven to be critical tools in the fight against COVID-19 and that could prove useful in future crises, such as personal protective equipment, masks and certain medical equipment, as well as more items considered essential aids for people with disabilities
- certain species, such as bicycles, green heating systems and solar panels installed in private homes and public buildings, which can have a positive impact on the EU's climate change priorities
- various products and services deemed appropriate and useful by the member states, guided by the general interest of public policy objectives.
It is considered to be an extremely important change
This reform is extremely important for Member States, as VAT is an important and growing source of EU revenue and is equivalent to more than €1 trillion, i.e. 7% of EU GDP. This change was deemed necessary, as 2022 marks 30 years since the common EU VAT rules agreed by all (then) Member States in 1992, which are now outdated and overly restrictive. Among other things, the rules amended by yesterday's decision allow Member States to apply reduced VAT rates to only a few sectors and products. Member States may currently apply a reduced rate of up to 5% to two different categories of products in their own country. Some Member States also apply specific derogations for further reduced rates.
Greece: Celebrating VAT rules
The Greek Ministry of Finance issued a statement yesterday welcoming the Ecofin decision on the new VAT rules and saying that the decision satisfies the need to support small farmers (from about 2025), with reduced VAT rates on agricultural machinery and cotton, issues raised as a condition by the Greek side, introducing a clause to ensure the possibility of applying reduced VAT rates to pesticides - fertilisers.
Greece supported and achieved the enrichment of the list of reduced rates by providing the possibility of:
- Application of reduced rates to solar panels, baby diapers, surgical masks, live streaming services of shows.
- VAT exemption on essentials and services of essentials, as well as medical equipment and wheelchairs
- Application of VAT exemption in cases of crises, disasters, pandemics.
According to the Greek Ministry of Finance, this is a success for the country, as it is also possible to support the geographical particularities of Greece, through the support of the Aegean islands and the strengthening of social cohesion.
