Finance ministers of the 27 EU Member States reached an unanimous agreement on the proposal for a directive on reduced-rate VAT on Tuesday 10 March.
This long awaited decision concerns the amendment of the VAT Directive to provide Member States with the flexibility to apply reduced VAT rates for some specific services on a permanent basis.
The sectors concerned are mainly the so called labour-intensive and locally supplied services, including housing.
RICS has been calling for a reduction in VAT for several years and has submitted a position to the Commission on this subject.
RICS believes that applying reduced rates will act as effective financial incentives for owners to carry out energy efficient measures on their existing building stock.
Among other benefits, reduced VAT rates are seen as a means to boost the troubled labour and construction market as well as to contribute to the sustainability agenda by promoting energy efficient measures.
The basic rules for applying VAT rates are the following: goods and services are normally subject to a rate of at least 15%.
Member States may apply reduced rates of not less than 5% to goods and services set out in a restricted list.
The current rules allow reduced tax rates for renovation and repair of private dwellings, but not for materials which form a significant part of the value of the service supplied.
The agreement includes certain specific clauses. For example, the UK's derogation for the application of the reverse-charge mechanism was extended for two more years, but it was not allowed to apply reduced rates to the renovation of places of worship, nor was Belgium allowed to apply it to the renovation of schools.
Regarding, the levying of reduced tax rates for environmentally friendly green products, the Czech Presidency argued that cut-rate VAT should focus on services rather than goods.
The European Commission has proposed a review of the European rules on energy taxation and energy efficiency in buildings with the aim of relating CO2 emission and taxation in April.
However, it is unlikely that this measure of taking forward environmental policy will receive positive response on the short term.
The political agreement will be formally adopted at a subsequent Council meeting.
You can download the RICS position paper on the right hand side of the screen. For more information, please contact Zsolt Toth at ztoth@rics.org.
