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Value Added Tax (VAT)
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General information
Germany increased its standard VAT rate from 16% to 19% from 1st January 2007. They apply a reduced rate of 7% to a limited range of goods and services, such as foodstuffs.
As regards the two new Member States that joined the EU on 1 January 2007, the standard VAT rate in Bulgaria is 20%, with a reduced rate of 7% applied to hotel services when part of a tourist package. In Romania, the standard rate is 19%, with a reduced rate of 9% applied to, amongst others, books, magazines, newspapers, etc. and accommodation in hotels.
As from 1st December 2008, the UK reduced its standard rate from 17.5% to 15% for a 13 month period as one of a number of measures to address the present economic crisis.
Further details on the EU's VAT regime, including information on VAT strategies, systems and rates, etc., can be found on the Commission's website.
The legislation
The rules that apply to the charging and collection of VAT across the EU were originally laid down in the 1977 Sixth VAT Directive (77/388/EEC). This Directive has been amended countless times over the years and it was decided that a recast and up to date version of the legislation was necessary. The new codified version, Directive 2006/112/EC, was finally approved at the EcoFin Council meeting on 28 November 2006 and entered into force on 1st January 2007.
However, these rules create considerable problems for many travel retail operators, particularly Mobile Retail Operators (MROs), and the ETRC (and its forerunner, the ITRC) has lobbied since 2000 for changes to these rules.
Simplifying the rules / Place of supply of services
In October 2004, the Commission finally issued its proposal for the simplification of value added tax obligations following the conclusion of a detailed study undertaken by consultants PricewaterhouseCoopers (PWC) in 2002/3. This report concluded that there was an urgent need to simplify how and when VAT obligations are fulfilled and also to define a single place for where these obligations are fulfilled. Also, as part of this process, in July 2005, the Commission published proposals as regards VAT on the place of supply of services.
Following extensive and difficult negotiations at numerous Council meetings since the proposals were published, EcoFin finally adopted the directive on 12 February 2008 and the agreed reforms will now be implemented as from 01 January 2010.
From 1 January 2010, the new rules on the place of supply of services will mean that business-to-business supplies of services will be taxed where the customer is situated, rather than where the supplier is located. For business-to-consumer supplies of services, the place of taxation will continue to be where the supplier is established.
However, in certain circumstances, the general rules for supplies both to businesses and to consumers will not be applicable and specific rules will apply to reflect the principle of taxation at the place of consumption. These exceptions concern services such as restaurant and catering services, the hiring of means of transport, cultural, sporting, scientific and educational services, and telecommunications, broadcasting and electronic services supplied to consumers.
Unfortunately, amendments to the VAT directive do not provide Mobile Retail Operators (MROs), the airlines and ferry companies, with the hoped for simplification on how and where VAT obligations are fulfilled, the one-stop shop principle, as unanimity could not be realised on this issue, other than for telecommunications, broadcasting and electronic services supplied to customers.
However, it has been confirmed that the change to the rules on VAT on restaurant and catering services will be "without prejudice" to the Commission review provided for in current VAT legislation on the place of taxation of goods for consumption on board ships, aircraft or trains. Therefore, there will be no change to the current arrangements for taxing restaurant and catering services when the revised arrangements are implemented.
The full text of the Directive 2008/08/EC (pubished in the OJ on 20 February 2008) can be found on this page.
 Excise Duties
Other Tax issues
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