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As a part of the wider work being done to fundamentally reform the EU VAT system, in order to make it simpler, more efficient and more robust, the European Commission launched a public consultation on certain reduced VAT rates that will run until 3 January 2013. Citizens, businesses and other stakeholders are also asked to consider what a change in EU rules in this area might imply.

In line with the principles set out in the EU VAT Strategy presented in December 2011, the consultation focuses on three specific areas where reduced VAT rates need to be reviewed. First, respondents are asked whether any current reduced rate is distorting competition within the Single Market. Secondly, the list of goods and services which can benefit from a reduced rate was agreed by Member States many years ago, and EU policy has developed and evolved since then. Therefore, respondents are asked whether certain reduced VAT rates now contradict EU policy objectives. Here, answers should be concentrated on the reduced rates for water, energy, waste management and housing. Finally, the consultation asks how similar goods and services should be treated for VAT purposes, taking into account technological developments.

Member States must apply a standard VAT rate of at least 15% under the EU VAT Directive. However, they have the option of applying one or two reduced VAT rates, of minimum 5%, to goods and services included on a restrictive list annexed to the Directive. This list must be strictly interpreted i.e. Member States may not apply a reduced rate to a good or service which is not on that list. However this simple structure is complicated by a multitude of derogations which are included in the Directive or were granted to certain Member States, for example, in Acts of Accession or negotiations in Council.