‘Blueprint for Reform of VAT Rates in Europe – by Rita de la Feria’

Blueprint for Reform of VAT Rates in Europe

Aug 29 2014 (This is an extract from an article to be published soon on the intertax.

About the Author: Rita de la Feria is currently the Professor of Tax Law, Durham University, Programme Director, Oxford University CBT and Legal adviser and commentator. More information and other articles posted by Rita  can be found here

One more article finished, soon to be published in the Intertax. This time the topic is VAT policy, and my recommendations included therein are heavily influenced by my experience working with the Portuguese Government after the troika bail-out (2011-2012). Here is the abstract:

“Within Europe differentiated rates structures date back to the introduction of VAT itself. Evidence as regards the negative consequences of applying multiple rates has been apparent for some decades. In this context, since the late 1980s, there have been several attempts to amend European rates structures under the political guidance of the European Commission. However, the most recent agreed upon amendments to the rates structure have increased the level of differentiation, rather than decreased it, with more goods and services being subject to reduced rates in Europe today than even as recently as ten years ago. This reality seems to be changing in the last few years. Since 2008 a staggering twenty-two of the twenty-eight EU Member State countries have increased their VAT rates, resulting in a broad convergence of VAT standard rates across the EU around the 21% mark. Furthermore, there has also been a decrease in levels of differentiation with a reduction in number of VAT rates applicable in many Member States, as well as various base broadening measures. The latest developments seem to indicate that conditions may be present which allow the reversal of the status quo bias, creating the opportunity for base broadening tax reform. This raises the possibility that European countries might engage in an involuntary process of convergence of VAT bases, fuelled by domestic necessities. A politically achievable blueprint for reform of VAT rate structures in European is presented, which would result in a broader-based, and thus more efficient and neutral, VAT. Moreover, application of this blueprint across EU Member States would have the additional advantage of resulting in further convergence of VAT rate structures in Europe, to replace the long-sought, but so far unattainable, EU harmonisation.”