On the 7th of December 2021 the European Commission announced on its website that the ministers of finance of the EU-member countries have reached an agreement to update the existing rules on VAT rates for goods and services.
Such reform has already been proposed by the European Commission in the year 2018.
The proposals include the following:
i) Updating the list of goods and services (Annex III to art. 98 of the VAT Directive), to which all EU-member countries can apply reduced VAT rates, where:
The old list is replaced by a new simplified one;
The minimum reduced rates as well as the maximum number of goods and services in Annex III to which EU-member countries may apply those rates shall also be indicated;
EU-member countries will also be able to apply for the first time a reduced rate of less than 5%, or exempt from VAT a small number of goods from the list according to art. 98 of the VAT Directive.
ii) Eliminating by the year 2030 the possibility for EU-member countries to apply reduced rates and exempt goods and services, considered harmful to the environment and to the climate change objectives of the EU.
iii) Allowing in all EU-member countries the derogations and exemptions for specific goods and services, which have been introduced for historical reasons in some EU-member countries so as to ensure equal treatment and to avoid distortions of competition, and vice versa, stopping by the year 2032 existing derogations which are not justified by public policy objectives, with the exception of derogations supporting EU action on climate change.
The purpose of the changes is to introduce more flexibility for governments, rules helping to combat climate change, to support digitalization and to protect public health.
By March 2022 the updated rules will be sent to the European Parliament for consultations on the final wording.