More flexible VAT rates [EU Legislation in Progress]

Written by Pieter Baert (3rd edition, updated on 26.09.2022).

Value added tax (VAT) is an important source of revenue for national governments and the European Union (EU) budget and, from an economic point of view, a very efficient consumption tax. However, the rules governing value added tax as applied to intra-Community trade are almost 30 years old and the current common EU VAT system is both complicated and vulnerable to fraud. Businesses doing cross-border trade face high compliance costs and the administrative burden of national tax administrations is also excessive.

In January 2018, the European Commission adopted a proposal to amend Directive 2006/112/EC (the VAT Directive) and reform the rules by which Member States set VAT rates. Whilst the Commission’s proposal was heavily amended, the Council adopted a revision to the VAT rate-setting rules in April 2022, modernising the list of products to which non-standard VAT rates can be applied, and in particular bringing the rules closer in line with the wider objectives of the EU (EU Green Deal, digitalisation, health).

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• More flexible VAT rates