EU goes for VAT deal as French soften demands

"The legal basis for below-standard rates of value-added tax in nine EU countries on services from home repairs to window cleaning and haircuts ended on Dec. 31, but governments have so far failed to decide what to do next.

No deal would mean price rises for consumers unless the states decide to continue levying reduced rates illegally -- a step the European Commission says would trigger proceedings.

A key stumbling block has been an election pledge by French President Jacques Chirac to make restaurant meals eligible for reduced VAT too, aligning the business with the fast-food trade in France.

Any deal needs backing from all 25 EU member states.

On Monday evening, Chirac softened his stance, making it easier for a deal to be struck.

"What I hope for from the finance ministers' meeting tomorrow (Tuesday) is that even if a consensus cannot be reached tomorrow on this French request, at least this request is not definitively rejected," Chirac told a news conference.

Chirac spoke after meeting German Chancellor Angela Merkel.

"The chapter does not end tomorrow, but (rather) must be worked on further," Merkel told reporters.

EU leaders failed to reach a deal last month because Germany feared that if restaurant meals were included, it would come under pressure to cut VAT on meals too when public coffers are stretched.

The Commission wants a permanent solution to the twice-renewed, six-year experiment of reduced rates on labour-intensive services that was introduced in a bid to boost jobs and lure custom away from the grey economy.

The Austrian presidency of the EU wants the current reduced rates extended for five more years to the end of 2010.

But a less hardline view by the French may still not be enough to clinch a deal, because the Czech Republic threatened on Monday to veto the Austrian proposal.

The Czechs, Poland, Hungary and Latvia said Austria's draft was unacceptable because the reduced rates they levy would be continued only on building work on existing homes rather than all the services they are applied to now.

The extension for the new member states to 2010 would also be shorter than for the old members in practice as some services in new EU members would be taxed less anyway for two or three more years under the terms negotiated at accession. ((Editing by Dale Hudson; Brussels newsroom + 32 2 287 6817, huw.jones@reuters.com))

By Huw Jones

BRUSSELS, Jan 24 (Reuters) - EU ministers seek agreement on reduced sales tax for home repairs and other services on Tuesday with the horse-trading made simpler by France's decision not to insist on restaurant meals being added to the list.

The legal basis for below-standard rates of value-added tax in nine EU countries on services from home repairs to window cleaning and haircuts ended on Dec. 31, but governments have so far failed to decide what to do next.

No deal would mean price rises for consumers unless the states decide to continue levying reduced rates illegally -- a step the European Commission says would trigger proceedings.

A key stumbling block has been an election pledge by French President Jacques Chirac to make restaurant meals eligible for reduced VAT too, aligning the business with the fast-food trade in France.

Any deal needs backing from all 25 EU member states.

On Monday evening, Chirac softened his stance, making it easier for a deal to be struck.

"What I hope for from the finance ministers' meeting tomorrow (Tuesday) is that even if a consensus cannot be reached tomorrow on this French request, at least this request is not definitively rejected," Chirac told a news conference.

Chirac spoke after meeting German Chancellor Angela Merkel.

"The chapter does not end tomorrow, but (rather) must be worked on further," Merkel told reporters.

EU leaders failed to reach a deal last month because Germany feared that if restaurant meals were included, it would come under pressure to cut VAT on meals too when public coffers are stretched.

The Commission wants a permanent solution to the twice-renewed, six-year experiment of reduced rates on labour-intensive services that was introduced in a bid to boost jobs and lure custom away from the grey economy.

The Austrian presidency of the EU wants the current reduced rates extended for five more years to the end of 2010.

But a less hardline view by the French may still not be enough to clinch a deal, because the Czech Republic threatened on Monday to veto the Austrian proposal.

The Czechs, Poland, Hungary and Latvia said Austria's draft was unacceptable because the reduced rates they levy would be continued only on building work on existing homes rather than all the services they are applied to now.

The extension for the new member states to 2010 would also be shorter than for the old members in practice as some services in new EU members would be taxed less anyway for two or three more years under the terms negotiated at accession."

Source: reuters