EU VAT rate structure: towards unilateral convergence?

Rita de la Feria ()
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Rita de la Feria: University of Durham

No 1305, Working Papers from Oxford University Centre for Business Taxation

Abstract: Within Europe differentiated rates structures date back to the introduction of VAT itself. Although evidence as regards potential negative consequences of applying multiple rates was unavailable at that time, difficulties have been apparent for some decades. In light of this reality, since the late 1980s, there have been several attempts to amend European rates structures under the political guidance of the European Commission. There has however been surprising resistance by Member States to any proposed amendments which might lead to a reduced rate differentiation. Thus giving weight to the intuition that once reduced rates of VAT are introduced it is almost politically impossible to remove then. Indeed 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. Yet this reality seems to be changing in the last few years as a result of the economic and financial crisis which has fallen upon Europe. Since 2009 twenty-five of the thirty-three OECD countries have increased their VAT rates, resulting in a broad convergence of VAT standard rates across the EU around the 20% 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 raise the possibility that Europe might be finally entering a process of convergence of VAT rate structures, not by EU initiative but by domestic necessity; an unforeseeable, unplanned unilateral convergence, to contrast to the long-sought, but so far unattainable, EU harmonisation.

Keywords: VAT; EU (search for similar items in EconPapers)
Date: 2013
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