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Europe

EU Fails to Agree Deal on Minimum VAT Rates

The European Union failed Tuesday to agree on a list of labor-intensive services to be exempt from minimum EU value added tax (VAT) rules despite two and a half years of negotiation, EU diplomats said.

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A deal was close, but in the end fell through

EU member states were close to an agreement but the Czech Republic, Cyprus and Poland continued to press their demands, blocking an overall deal, diplomats following the talks said.

"Three member countries were given time until the end of the week to think about the proposal" on the table, an Austrian spokesman said.

Austria, which took over the EU's six-month presidency this month, is struggling to broker a deal based on a proposal that would extend the existing system to give VAT sales-tax breaks to such services as building renovation, hair-cutting and window-washing.

Earlier a deal had seemed within reach when France lifted its demands in the negotiations.

French President Jacques Chirac promised before re-election in 2002 to reduce standard value-added tax rates on restaurants, but he effectively threw in the towel on Monday after talks with German Chancellor Angela Merkel, whose country opposes the idea.

Business angry

That arrangement expired at the end of last year and business owners are increasingly angered over the uncertainty caused by the failure of the ministers to make a decision.

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The deadlock isn't good for business

Member states put off trying to get an agreement until Tuesday after the issue was pushed aside at a summit in December that focused on the EU's long-term budget.

As with all issues regarding tax harmonisation in the EU, the list of exceptions from normal minimum VAT rates must be unanimously accepted by all member states.

Exceptions aside, EU rules do not allow a minimum VAT rate of less than 15.0 percent.

Nine member states have chosen to benefit from the existing regime since it was set up in 1999 and the rest have opted not to. The stakes are high for the sectors concerned, and the current deadlock has left business leaders on the existing list in limbo and restaurant owners crossing their fingers.

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