ECOFIN Ministers agree in reduced VAT rates for certain sectors

The Council of Economics and Finance Ministers, ECOFIN, met in Brussels between March 9th and 10th 2009. During this meeting, which was focused on discussions over the economic situation and outlook in the euro area, in light of the recent economic and financial developments, the Council reached a political agreement on the use of reduced rates of value-added tax (VAT) in certain sectors. Council also endorsed terms of reference for the EU's participation in the meeting of G-20 finance ministers and central bank governors on March 14th that will prepare the April London G-20 summit.

One of the key issues which was on the agenda for the Council of Economics and Finance Ministers, ECOFIN, meeting in Brussels, was the agreement for reduced VAT rates in certain sectors. The December 2008 European Council requested the Council (ECOFIN) to settle, by March 2009, the issue of: "the possibility, for the member states that so wish, of applying reduced VAT rates in certain sectors".

After debates within the Council, acknowledging that reduced VAT rates may, depending on the circumstances, have positive and negative economic effects, so that more efficient alternative solutions should always be considered before a member state decides to use the option to apply reduced VAT rates; Ministers finally reached a political agreement on Commission's proposal that all member states, by amending directive 2006/112/EC, should have the option to apply reduced VAT rates on a permanent basis.

Reduced VAT Sectors

  • Minor repairing of bicycles, shoes and leather goods, clothing and household
  • Linen (including mending and alteration)
  • Window-cleaning and cleaning in private households
  • Domestic care services such as home help and care of young, elderly, sick or disabled
  • Hairdressing
  • Renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied.
  • Restaurant services
  • Books on all physical means of support

Common messages to the G-20 summit

The Council endorsed terms of reference for the EU's participation in a meeting of G-20 finance ministers and central bank governors on March 14th that will prepare the G-20 summit on the global economy and international financial governance in London on April 2nd. An informal meeting of EU G-20 heads of state and government was held in Berlin on February 22nd.
The London summit will bring together the heads of state and government of the world's developed and emerging economies and representatives of international financial institutions (IFIs), with the aim of identifying the means for restoring economic confidence and financial stability. The aim will be to reach agreement on coordinated actions to revive the global economy, reforming and improving financial systems and principles for the reform of IFIs, namely the International Monetary Fund, the Financial Stability Forum and the World Bank.

The EU terms of reference cover the following issues:

  • Closer international coordination of macroeconomic policieS
  • Global financial market regulation based on increased transparency and accountability
  • Strengthened cooperation between financial authorities at international level
  • The strengthening of the International Monetary Fund
  • The role of multilateral development banks in countering the effects of the financial and economic crisis, in particular for the poorest and most vulnerable populations

Climate issues over economic recovery and Reduction of asministrative burdens

The ECOFIN Council also recalled the European Council Conclusions of 19-20 June 2008 requesting a comprehensive strategy on financial aspects of climate change, and welcomes the Commission Communication "Towards a comprehensive climate change agreement in Copenhagen". Council reaffirmed  the EU’s determination to reach a global and comprehensive climate agreement in Copenhagen in December 2009. The general objective of such an agreement should be to limit the global temperature increase to below 2oC compared to pre-industrial levels.

The ECOFIN Council notes the existence of substantial opportunities to achieve multiple benefits by addressing the current global economic crisis, energy security and climate change in a coordinated manner. Accordingly, the efficiency and the effectiveness of the EU climate and energy package and the cost-efficient transition to a low carbon economy is to a large extent dependent on the conclusion of an ambitious and comprehensive global agreement.

Referring to the European Council Conclusions of 8-9 March 2007 requesting a review of progress on Better Regulation on a yearly basis, the Council welcomes the Commission’s report “Third strategic review of Better Regulation in the European Union”.

ECOFIN Ministers consider that better regulation, including the reduction of administrative burden, is a key element of the renewed Lisbon Strategy. Improvement of the regulatory environment is crucial for realising the full potential of the Single Market, stimulating entrepreneurship and innovation and enhancing competitiveness.