VAT: labour-intensive services

The present directive allows those Member States wishing to do so to experiment with the operation and impact, in terms of job creation, of a targeted reduction of the VAT rate for labour-intensive services.

ACT

Council Directive 1999/85/EC of 22 October 1999 amending Directive 77/388/EEC as regards the possibility of applying on an experimental basis a reduced VAT rate on labour-intensive services [Official Journal L 277 of 28.10.1999].

Council Directive 2006/18/EC of 14 February 2006 amending Directive 77/388/EEC with regard to reduced rates of value added tax [Official Journal L 51 of 22.2.2006]

SUMMARY

Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - common system of value added tax: uniform basis of assessment provides that Member States may apply either one or two reduced rates, of at least 5%, on supplies of goods and services of a social and cultural nature.

This Directive amends Directive 77/388/EEC. It allows Member States to apply the reduced rates to the services listed in a maximum of two of the categories set out in the Annex.

The services in question are:

• small repair services (bicycles, shoes and leather goods, clothing and household linen);
• renovation and repair of private dwellings, excluding materials which form a significant part of the value of supply;
• window cleaning and cleaning in private households;
• domestic care services;
• hairdressing.

All these services must satisfy the following requirements:

• they must be local and labour intensive;
• they must be supplied direct to consumers;
• they must not be likely to create distortions for competition;
• they must have a high price elasticity (if their price falls, demand increases).

The Member States must present a general report to the Commission assessing the effectiveness of the measures in terms of its objectives.

The Commission must submit a report to Parliament and the Council on the Directive, its relevance and implementation.

RELATED ACTS

Council Decision of 30 January 2007 authorising Romania to apply a reduced rate of VAT to certain labour-intensive services referred to in Article 106 of Directive 2006/112/EC [Official Journal L 22 of 31.1.2007].

Council Decision of 7 November 2006 authorising certain Member States to apply a reduced rate of VAT to certain labour-intensive services in accordance with the procedure provided for in Article 28(6) of Directive 77/388/EEC [Official Journal L 314 of 15.11.06].

Council Directive 2004/15/EC of 10 February 2004 amending Directive 77/388/EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services [Official Journal L 52 of 21.02.2004].

Report of 2 June 2003 from the Commission to the Council and the European Parliament entitled "Experimental application of a reduced rate of VAT to certain labour-intensive services" [COM(2003) 309 - Not published in the Official Journal].

In this report the Commission gives a global evaluation of the experiment to test the effect that reducing the VAT rate on specific, labour-intensive services has had on job creation and cutting back the black economy. Where the services included in the experiment in nine Member States are concerned (small repair services, renovation and repair of private dwellings, window cleaning, domestic care services and hairdressing), the report states that there is no solid evidence of the measure having had a favourable effect on jobs or having reduced the black economy.

Council Directive 2002/93/EC of 3 December 2002 amending Directive 77/388/EEC to extend the facility allowing Member States to apply reduced rates of VAT to certain labour-intensive services [Official Journal L 18 of 23.1.03].

Council Decision of 28 February 2000 authorising Member States to apply a reduced rate of VAT to certain labour-intensive services in accordance with the procedure provided for in Article 28(6) of Directive 77/388/EEC [Official Journal L 59 of 4.3.2000].

Last updated: 13.02.2007