Facts & Figures

MAARSSEN, the Netherlands - As a result of Council Directive 2006/18/EC, member states are allowed to apply the reduced VAT-rate on certain labour-intensive services, among which bicycle repairs. The reduced rate of minimum 5% can be applied until the end of 2010.

Five member states have decided to make use of this measure aimed at job creation. Belgium, Luxembourg and Holland 6%. In Poland the rate is 7% and in Greece 9%.

Commission proposal

Following the above-mentioned Directive, by the end of June 2007, the Commission had to submit to Council and Parliament an overall assessment of the impact of reduced rates, in terms of job creation, economic growth and the internal market.

The report had to be based on a study carried out by an independent economic think tank. In July 2007, the Commission launched a political debate on how to improve and simplify the current EU legislation with regard to reduced VAT rates, by means of a Communication based on a study by Copenhagen Economics.

In this document the Commission argues that there is a real need for a simplification and rationalisation of the current VAT rates structure, in particular the reduced VAT rates. With that, the main issue is to find the right balance between political and economic imperatives.

The Copenhagen Economics’ study argues that there are real and valid arguments for lower VAT rates in very specific sectors. However, the study has also found that, in general, reduced VAT rates are not the most effective policy tool for the promotion of certain goods and services. Nevertheless, in order to start up the debate in Parliament, Council and among the interested parties, the Commission proposes two reduced rates.

For goods and services of first necessity, a very low rate, e.g. in the range of 0 to 5%, would apply. In addition, a second rate of for instance 10 to 12% could be used for other purposes that are not basic needs, but that are felt deserving of preferential treatment for other reasons (e.g. cultural and educational reasons, public transport, employment, energy and environment, etc). The application of such a reduced rate would remain optional to preserve Member States political choices.

Further harmonization?

For many years now, ETRA, ECF, Colibi and Coliped have been lobbying for the application of the reduced rate to all bicycle products and services for environmental reasons. The Commission’s proposal opens up new perspectives for such a reduction. What’s more, their idea got support from an unexpected angle.

In July 2007, French President Nicolas Sarkozy and UK Prime Minister Gordon Brown jointly announced that they would ask their finance ministers to propose to the Commission for all ecologically clean products to benefit from a reduced rate of VAT. Sarkozy and Brown want a European-wide rate of 5%  for green products such as cars with reduced CO² emissions, insulation materials, efficient light bulbs and energy-efficient appliances. It seems quite obvious that all bicycle products and services would be part of that list.

Sarkozy and Brown managed to rally the whole Council behind the idea of further research into the possible effects of reduced VAT to certain categories of products. The Commission is currently examining the feasibility of a more far reaching proposal from an environmental point. The results are expected before the end of 2008.

The main problem in harmonising VAT rates is that it requires unanimity; all 27 member states have to be in agreement. Parliament only has a consultative role in this matter. This unanimity rule is currently obstructing an agreement on the latest Commission proposal aimed at adding certain labour-intensive services, among which bicycle repairs, to Annex III. Consequently, the option for member states to apply the reduced rate to bicycle repairs would become permanent. At the Ecofin meeting of last November, the 27 failed to reach the required unanimity.