ECOFIN agreement on changes to EU VAT rates rules

On 7 December, EU finance ministers reached an agreement on the changes to the current rules governing VAT rates for goods and services. Further to the Commission’s 2018 proposal to reform the VAT Rates rules, aimed at giving Member States more flexibility in rates-setting, the agreed package seeks to:

• Update the list of goods and services (Annex III to the VAT Directive) to which all Member States can apply reduced VAT rates. 
• Remove the possibility by 2030 for Member States to apply reduced rates and exemptions to goods and services deemed detrimental to the environment and to the EU’s climate change objectives.
• Make derogations and exemptions for specific goods and services, currently in place for historical reasons in certain Member States available to all countries. Furthermoere, existing derogations that are not justified by public policy objectives other than those in support of EU’s climate action will need to end by 2032.

The updated rules will be sent to the European Parliament for its consultation on the final text by March 2022.