EU to consider VAT cuts on green goods

EU news & policy debates
- across languages -

Click here for EU news »

Wednesday 22 May 2013

BROWSE ALL SECTIONS

NEWS
Van Rompuy seeks tax compromise by imposing deadline
A proposal by European Council President Herman Van Rompuy to fight tax evasion, heralded in draft conclusions to today’s EU summit, will seek to maintain momentum on the EU savings directive by asking leaders to agree the initiative by the end of the year.

News | EU ministers want budget talks concluded by end of June
News | Parliament fails to approve ambitious 2030 renewables target
News | UK wants Hezbollah on EU terrorist list
News | The Irish loophole behind Apple's low tax bill
News | MEPs pencil in May 2014 for European elections
Hot topics
>> more
SPECIAL REPORTS
Special Reports
>> more
LINKSDOSSIERS

Fighting alcohol harm: The EU's strategy under review
Europeans have the highest per-capita consumption of alcohol, and drinking causes nearly 1-in-10 cases of ill health and premature death. The European Commission’s informal alcohol strategy, launched in 2006, is set for a detailed evaluation in 2013, with the policy objective of reducing the health and social harm caused by excessive alcohol consumption.

LinksDossier | Agenda for Change: EU’s helping hand gets an overhaul
LinksDossier | Italian elections 2013: A nation at a crossroads [Archived]
LinksDossier | Euroscepticism: More than a British phenomenon
LinksDossier | Cloud computing: Leveraging the digital economy
LinksDossier | Cybersecurity: Protecting the digital economy
INTERVIEWS

Friedbert Pflüger: Climate change is no longer the EU’s only priority
The EU’s climate policy has not vanished but the approach today is probably more balanced towards other aims like energy supply security and competitiveness, Friedbert Pflüger said in an interview with EurActiv Slovakia.

Interview | Intel exec: Europe must invest to remain competitive
Interview | Tajani: Europe can reach 20% industry target
Interview | Gas industry chief: We cannot wait for a more ambitious energy policy
Interview | UNESCO envoy: Cultural action is key for Mali’s reconstruction
Interview | James Hansen: We are on the verge of creating climate chaos
OPINIONS

Domestic violence begins at home, combating it begins in Europe
Not assisting or protecting victims of violence is a cost for society. New rules to be adopted in the Parliament this week will allow women assaulted in one country to be equally protected when they travel elsewhere in the Union. This is a landmark decision that proves Europe stands by its citizens, write Viviane Reding and Antonio López-Istúriz.

Opinion | Time to shake off the gloom: Europe matters
Opinion | Germany's unfair practice in the field of energy intensive industries
Opinion | Soaring energy costs make Europeans poor
Opinion | The European energy community is now
Opinion | The 'greening' of industrial policy
BLOGS

End of tax fraud
The Plenary Session in Strasbourg is being characterized by taxes, more precisely by the collection of taxes. It is estimated that the EU countries ar..

Blog | No Need for an Euro-zone Government à la Hollande
Blog | Inflation in Germany is not an automatic remedy for the periphery’s economic woes
Blog | China, the United States, and Greece: The race of mirrors
Blog | The Arab World should give priority to phasing out Subsidies on fossil Fuels
Blog | Under the Open Access Policy UNESCO Opens up its Publications Free of Charge
VIDEOS

^-A ⁺A

Published 17 March 2008

Tags

energy efficiency, green consumption, VAT

Heads of state and government from the EU’s 27 member states agreed to consider a Franco-British proposal to cut value-added tax (VAT) on certain environmentally-friendly goods, such as energy efficient light bulbs and insulation materials.

The plan to change the EU’s tax rules – first pushed for by UK Prime Minister Gordon Brown and French President Nicolas Sarkozy in July 2007 – initially looked doomed to failure, due to a lack of support from other nations.

Yet, the final conclusions from the Spring Summit meeting, released on 14 March, invite the Commission to "examine areas where economic instruments, including VAT rates, can have a role to play to increase the use of energy-efficient goods and energy-saving materials" - a feat appararently achieved thanks to Brown's intense lobbying of other EU leaders.

According to him, products that could benefit from a reduced VAT rate of 5%, rather than the current minimum of 15%, include cars with reduced CO2 emission, insulation materials, efficient light bulbs and energy-efficient domestic appliances.

The move came as leaders restated their commitment to cutting greenhouse emissions and combating global warming (EurActiv 17/03/08).

However, the real test will come once the Commission – generally in favour of a greater harmonisation of VAT rates and the use of taxes as a tool for "greening" the EU economy – presents its new VAT plans in the summer.

They will require the unanimous backing of all 27 EU member states. Yet, any change in VAT rates across the EU remains a very sensitive issue, with many countries fearing the move could make them lose out on vast revenues generated by their VAT.

Another issue will be that of selecting which products are to be included in the list, with some saying a static list will not work, as technology evolves so fast that what is energy-efficient today won't be tomorrow.

Positions:

"I think people have been persuaded by the argument that we should look at this very carefully," said UK Prime Minister Gordon Brown, after the meeting, insisting the statement made by leaders on VAT was a sign of "substantial progress" on the issue.

"VAT is a uniquely European tax. Europe has now got an energy policy to cut carbon emissions […] If - whether it be lightbulbs, or fridges or household goods generally, or whether it be the insulation materials that make for more energy efficient homes - if we can cut the rates of VAT, then I believe that will be a good thing for Europe," he said.

"Over the next few months I think other countries will join the debate that France and Britain have already started," he added.

French President Nicolas Sarkozy said he was "very satisfied" that green VAT was mentioned in the summit conclusions, although he conceded that the debate was far from over and that a number of countries remained opposed.

"We have not taken the decision - not yet - but the Council is asking the Commission to reflect and make proposals on the matter. You know that [discussions on] reduced VAT are a hell of a fight, so we are not there yet. But I can see more density in the Council’s communications. When you recall the rigidity of debates on the issue of VAT, this is an event.

While green NGOs are generally favourable to such VAT reductions to support the purchase of energy-efficient products, industry is divided on the question. According to t he European Renewable Energy Council (EREC), the current VAT rules create a "perverse incentive in favour of energy consumption, which conflicts with the goals of the EU in terms of energy and environmental policy". But, the European association of household appliance manufacturers (CECED) cautioned against any reduction of VAT rates to promote the uptake of energy-efficient goods. It said this would "lower the value of the product in the eyes of the consumer […] contrary to the signal we should be sending out, which is that energy efficiency has a value".

Next steps:

Summer 2008: Commission due to bring forward new legislative proposals on harmonising EU VAT rates

External Links

EU official documents

Council:Presidency Conclusions of the Brussels European Council(14 March 2008)
Commission (memo):Communication on VAT reduced rates – Frequently Asked Questions(5 July 2007)
Commission (DG TREN):Energy Efficiency
Commission (DG TAXUD):Information on VAT

Business & Industry

European association of household appliance manufacturers (CECED):VAT reductions on energy efficient appliances are not the best solution(September 2007)
European Renewable Energy Council (EREC):EREC view on VAT(November 2007)

NGOs and Think-Tanks

WWF:Making Energy Efficiency Happen(May 2007)

Background:

Current EU rules on value-added tax (VAT), spelled out in the 2006 VAT Directive , specify that member states must subject supplies of goods and services to a rate of at least 15%.

However, they also allow countries to apply reduced rates (never less than 5%) in a broad range of areas deemed essential, like medicines, or labour-intensive services, including renovation of private dwellings, cleaning and hairdressing (EurActiv 27/07/06).

While reduced rates for energy consumption are also allowed to ensure poorer households have access to energy, social considerations rather than 'green' objectives have traditionally driven the selection of items on the list.

The EU executive is due to bring forward new legislative proposals on VAT rates in the summer of 2008 with a view to putting some order to this highly disparate and complex VAT structure and create some additional certainty for businesses and consumers.