Way cleared for EU VAT deal as Poland caves in

A deal to extend a scheme of low VAT for labor-intensive services in the European Union (EU) was saved on Wednesday after Warsaw backed down from its rejection.

The decision-making European Council said in a statement on Wednesday that Poland has finally agreed to the compromise brokered last week by Austria, which holds the rotating EU presidency.

"Today, Poland also confirmed to the (EU) Presidency that it agreed to the compromise," said the statement.

Two other countries, which were also initially opposed to the deal -- the Czech Republic and Cyprus -- changed their minds on Saturday.

"The (European) Council will adopt the legal text enacting this political agreement at one of its forthcoming meetings," said the council statement.

EU commissioner for taxation and customs union, Laszlo Kovacs, immediately welcomed the news.

"I am very satisfied that the three countries that originally expressed reservations have now rallied to this compromise proposal," he said in a statement.

"It is a sound and balanced compromise, which offers legal stability for the (European) Community as a whole and offers firm guarantees to some sensitive economic sectors in our member states. I wish to underline, that this solution will bring concrete advantages to all Member States."

Poland's rejection of the compromise threatened to throw the 25- nation bloc into legal disarray.

The agreement would allow EU member states to continue to apply VAT lower that the minimum of 15 percent to certain labor- intensive sectors, such as house repairs, window cleaning, hair dressing and domestic work.

The previous low VAT scheme agreed in 2003 expired on Dec. 31, 2005, leaving nine countries in breach of EU tax regulations.

With Warsaw's nod, the scheme can now be extended for five years.

Poland had wanted to extend until 2007 the low VAT scheme to include food, books and construction in line with existing VAT waivers it negotiated as part of its accession to the EU.

But Poland's position met opposition of Germany and several other countries.

France, which proposed lower VAT on restaurant visits, backed off in order to make a deal.

If Poland had not backed down, EU commissioner for taxation and customs union, Laszlo Kovacs, would have been forced to ask the nine member states currently applying reduced rates on labor- intensive services to start to apply the standard minimum rate of 15 percent.

The difficulty is that the change of VAT rate needs amendment to national legislation, which cannot be done overnight.

Source: Xinhua