Euro VAT plan ruled out

European VAT harmonisation is unlikely to happen, and certainly not in the prescribed four years, according to Customs & Excise VAT policy director Martin Brown.

The European Commission said it was working towards harmonisation of VAT rates by 2002. But Brown said it would ‘take much longer than that’.

He suggested harmonisation may prove impossible: ‘This isn’t a simple process,’ he said. ‘There are 15 member states with different tax regimes. Some have a rate of 25%, others of 15%. It isn’t fruitful to have ministers battling it out to agree a single rate. And it will be difficult to get any agreement.

‘Europe has signed up to subsidiarity; we’re only likely to come together where there is a clear need to do so,’ he added. Brown said Customs was in favour of ‘agreement on the technicalities of cross-border trade, a common definition of a “taxable amount”, and mutual assistance in detecting fraud’.

One Commission-watcher supported Brown’s view on harmonisation: ‘There doesn’t seem to have been any agreement on rates so far, although the initial push was only aimed at a broad rate band.’

Mark Alderton, VAT technical manager at Price Waterhouse, said: ‘It was never likely to happen in the Commission’s timescale because the plans involve slaying sacred cows, not least the UK zero-rate.

I suspect we’ll get there – but it could be decades down the road, when everyone has agreed to give up independence,’ he said.

But Peter Jenkins, head of VAT at Ernst & Young, was less sceptical.

‘EMU will make pricing differences less transparent and create consumer pressure for convergence.’

He said obstacles to convergence were not in the core countries, but in Scandinavia where rates are up around 25%. He agreed the UK zero-rate was ‘a hot potato’, but said it was an anomaly and would have to be axed.

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