Content : Taxation
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EU tax law
The EU does not have major competences in the area of direct taxation (i.e. company and personal tax). The situation is different as far as value added tax (VAT) is concerned. The EU does not have a single VAT rate but has set minimum rates for goods and services consumed within the Member States:
- the standard rate must be at least 15%;
- one or two reduced rates which must be at least 5%.
This basic structure is complicated by numerous temporary derogations (zero rates, super reduced rates, parking rates, etc) granted to some Member States for specific goods and services.
VAT for the hospitality industry
The two main components of the hospitality industry – hotels and restaurants - are given very different treatment under the EU VAT regime. Whereas hotel services are eligible for reduced VAT, restaurant services are subject to the standard rate.
The reason is that Member States can only apply the reduced rate to specific goods and services listed in Annex III of the VAT Directive (2006/112). Hotels appear on that list, but restaurants do not.
There are, however, several exceptions to the rule that restaurants are subject to the standard VAT rate:
- Member States which, on 1 January 1991 – prior to the adoption of the VAT Directive (1992/77) – applied a reduced VAT rate to restaurants can continue to apply this rate. The eight countries concerned are: Austria, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain;
- Certain Member States that joined the EU in May 2004 negotiated the right to apply a reduced VAT rate to restaurants on a transitional basis. After 31 December 2007 they must increase the VAT rate for restaurants to at least 15%. These countries are: Cyprus, Hungary, Poland and Slovenia.
As a result of these exceptions, therefore, 11 out 27 Member States enjoy today a VAT rate of less than 15%. In July 2003, as part of a broader legislative proposal, the Commission proposed to add restaurant services to Annex III of the VAT Directive in order to make the current “exception” (reduced rate) the general rule. However, the unanimity of 27 governments is needed on tax matters, and agreement on this particular point could not be reached. The Directive adopted (2006/18) following the Commission proposal does nonetheless provide that the Commission should publish a report by 30 June 2007 assessing the impact of reduced rates on locally supplied services, including restaurant services. The report should notably examine the effects on job creation, economic growth, and the functioning of the internal market.
HOTREC position
HOTREC believes that the VAT rate on both hotels and restaurants should be as low as possible in all Member States. A lower VAT rate would imply reduced prices, an increase in customer demand and the creation of more jobs in the sector.
On the specific issue of the EU VAT regime, HOTREC has consistently argued that restaurant services should be incorporated under the reduced VAT rate. The rational of the EU VAT regime – to prevent downward pressure on tax rates as a result of Member States’ competing for business investments – clearly does not apply to restaurants.
Main HOTREC documents