Explanatory Memorandum to COM(1999)703 - Amendment of Directive 77/388/EEC on the common system of VAT - transitional provisions granted to Austria and Portugal - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(1999)703 - Amendment of Directive 77/388/EEC on the common system of VAT - transitional provisions granted to Austria and Portugal. |
|---|---|
| source | COM(1999)703  |
| date | 17-12-1999 |
1. Article 2(e) of Annex XV (part IX, 'Taxation') to the Act of Accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden to the European Community i authorised Austria to derogate from Article 28 i of the Sixth VAT Directive 77/388/EEC i and to apply a reduced rate to the letting of immovable property for residential use until 31 December 1998, provided that the rate was not lower than 10%.
2. Under Article 13(B)(b) of the Sixth VAT Directive, the letting of immovable property for residential use in Austria has been exempt from VAT since 1 January 1999 without the right to deduct input tax. However, under Article 13(C)(a) of the Directive Austria may allow taxpayers the right to opt for taxation. In that case the normal VAT rate applies, as do the usual rules for the right to deduct.
3. However, Austria considers that the derogation is still essential, mainly because the transitional VAT regime is still in force and the situation has not really changed since the negotiation of its act of accession. Austria therefore wishes to continue taxing the letting operations in question at a reduced VAT rate, as dispensing with the reduced rate of 10% (replaced either by the normal rate of 20% or by an exemption without the right to deduct) would inevitably lead to an increase in the price of property rental for the final consumer, which would run counter to Austria's housing policy.
4. Given the information provided by Austria and as no complaint has been made against the derogation granted to it, the Commission considers that the risk of distortion of competition in the letting of immovable property for residential use can be considered non-existent.
5. In the light of the foregoing, the Commission proposes an extension of the derogation provided that its application is limited to the transitional period referred to in Article 28l of the Sixth Directive.
PORTUGAL
6. Portugal applied a reduced rate of 8% to restaurant services before 1991. Under Article 28(2)(d) of the Sixth Directive, introduced by Directive 92/77/EEC i of 19 October 1992, Portugal was permitted to continue applying that rate.
7. However, after a comprehensive amendment of the rates and for political and budgetary reasons, the normal rate was applied to restaurant services from 1992.
8. Following complaints from representatives of the sector, Portugal wanted to re-introduce a reduced rate on restaurant services from 1 July 1996 on the basis that maintaining the normal rate had had adverse consequences.
9. Portugal considers that taxing restaurant services at the normal rate leads to an increase in the price of restaurant services for the final consumer and a particular risk of severe job cuts in the sector. A reduced VAT rate could contribute significantly to Portugal's policy to combat unemployment.
10. Application of the normal rate to restaurant services was also likely to encourage the enterprises concerned to join or remain in the black economy, taking on people with few or no qualifications who are willing to accept undeclared employment.
11. However, Article 28(2)(e) of the Sixth Directive, which provides that Member States that applied a reduced rate at 1 January 1991 may apply a reduced rate not lower than 12% to restaurant services, no longer permits this, as Portugal dispensed with the reduced rate in 1992.
12. In the light of the information provided by Portugal and as no complaint has been made against application of the reduced rate, the Commission considers that the risk of distortion of competition in restaurant services can be considered non-existent, since the measure applies to Portugal only.
13. In the light of the foregoing, the Commission proposes granting a derogation under the transitional measures provided for by Article 28 of the Sixth Directive allowing Portugal to introduce a reduced rate for restaurant services, provided that application of the derogation is limited to the transitional period referred to in Article 28l of the Directive.
Comments on the articles
Article 1
This article adds two new points to Article 28 i of Directive 77/388/EEC: point (j), which authorises Austria to maintain a reduced rate on the letting of immovable property for residential use; and point (k), which allows Portugal to apply a reduced rate to restaurant services.
Articles 2 to 4
These articles contain provisions on the entry into force of the Directive.