EU leaders fail to agree on reduced VAT rates

EUROPEAN Union leaders failed at a summit to broker a deal on extending reduced value-added tax (VAT) rates on key services just two weeks before they expire, as German concerns remained a hurdle.

Instead, they instructed finance ministers, who have been deadlocked for months on the issue, to make another attempt to find a solution next month.

“I do think this is a piece of business finance ministers will have to deal with and bring this job to a conclusion,” Luxembourg Prime Minister Jean-Claude Juncker told reporters.

VAT reductions on labour-intensive services such as hairdressing, home repairs and window cleaning are applied by nine member states and expire on December 31, when technically the states would be in breach of EU law if they continued to apply them.

“There should be a deal (in January) according to the European Council,” Dutch finance minister Gerrit Zalm said.

Belgium, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and Britain apply lower VAT rates to the services than the minimum EU level of 15%.

France had hoped to include restaurants in services eligible for reduced VAT so that French President Jacques Chirac could fulfill a 2002 election pledge to help boost jobs.

EU finance ministers failed again to reach a deal on VAT reductions earlier this month due to German objections, which Mr Chirac said on Saturday had not been resolved.

“Regarding the rate of VAT on restaurants, our German friends shared their very great reservations, misgivings,” Mr Chirac told reporters.

Europe’s biggest state is raising its standard VAT rate from 16% to 19% from 2007 to help stretched national coffers, and an extension of VAT reductions could make the tax rise more difficult to sell to the public.