The EFC has co-signed the ECCVAT contribution to an EU consultation on the future of VAT rates and is using this opportunity to call for a fairer deal for philanthropy and charities in regard to VAT costs. With this consultation, the Commission has collected views on two broad options for the reform of the VAT rate system. The first option aims to keep the standard VAT rate of 15% and regularly update the list of goods and services eligible for reduced rates, on the basis of Member States suggestions. The second option substantially increases flexibility by removing the minimum rate of 15% and abolishing the list, thus granting Member States large discretion to fix their VAT rate. Under both options, all currently existing reduced rates (including derogations) legally applied in Member States would be maintained and made available to all Member States, ensuring equal treatment.
The EFC and ECCVAT have been working for many years to address the inherent problems in the current VAT system for charities. A system that increases flexibility for Member States across Europe could benefit the sector. ECCVAT does, however, have concerns about allowing flexibility to Member States without ensuring that Member States support the recognition that the current VAT system gives social benefit items – which it currently does through the application of certain exemptions. If protections were not built in to any new flexible system, ECCVAT believes that option one should be introduced. This option would also offer an improvement to the current system, albeit a less significant one, and would go a long way towards addressing some of the structural deficiencies in the VAT system.
The contribution also recalls that the current VAT system has a detrimental effect on the work of charities and philanthropy in Europe. The current system disadvantages philanthropic actors and charities as it favours the provision of these services by public bodies that are entitled to a refund of VAT. Philanthropic actors and charities on the other hand, cannot recover VAT costs when the service is VAT exempted or outside the scope. Hence they are often treated as final consumers and end up not being able to recover the VAT they pay. The EFC and ECCVAT hopes that the Commission will continue to take into account the unique position of philanthropic actors and charities and carefully consider potential impact of future reform on the sector.