Irish-style zero-rate VAT included in latest EU proposals

IRELAND’S zero VAT rate was written into the latest proposal to allow EU countries to maintain reduced rates of value-added tax.

This is the first time the zero-rate has been recognised in this way and could mean the rate - which typically applies to children’s clothing and shoes - could be maintained in the longer term.

The move was welcomed by Finance Minister Brian Cowen, attending the monthly EU Finance Ministers meeting in Brussels. He said it meant that Ireland could help progress the negotiations for agreement on the issue.

“The British presidency is prepared to protect zero rated VAT and our disposition is more positive as a result,” said Mr Cowen.

The proposal was made by the British who currently hold the presidency of the union and it coincides also with the interests of their domestic VAT arrangements and has the support of Luxembourg.

But there was no clear agreement on accepting this situation at yesterday’s meeting of ministers, where unanimity is needed.

The subject will be revisited in December by the ministers when the current three-year scheme allowing some countries to charge lower VAT on some labour-intensive services comes to an end.

Member states are split over whether to extend the current situation for another 10 years to 2015 with 10 countries, including Ireland, that apply reduced or zero VAT anxious to keep it.

The compromise devised by Luxembourg would allow the reduced rates to be adopted by Poland and the Czech Republic but limit sectors it would apply to.

Negotiations are also underway on Commission proposals on simplified VAT obligations, particularly for companies that have no base in member states where they carry out activities.