TAXATION: PARIS NOT ALONE IN HOPING FOR EXTENSION OF REDUCED VAT RATE DIRECTIVE.

Negotiations have been marking time for more than two years and on October 14, fresh discussion at the Committee of Member States' Permanent Representatives to the EU (COREPER) failed to yield any real progress. "We are a very long way from an agreement", one source close to the Council admitted. "At least six delegations (including Germany, Sweden, Estonia, Slovenia and Denmark) are still opposed to one rather formula", according to the same source. The British compromise forms the backdrop to discussions, drawing largely on the previous compromise presented last spring by the Luxembourg Presidency.

The future of the Directive on reduced VAT rates for labour-intensive services (which expires on December 31) is closely linked to negotiations on an overhaul of the Sixth VAT Directive regarding reduced rates. This Directive would permit the nine member states currently applying reduced rates of VAT to labour-intensive services, to recover a legal basis beyond January 1, 2006. However, in order for this to be possible, the member states must first agree on the new amended VAT Directive.

Announcing in advance that France will maintain a reduced VAT rate whatever the outcome, Thierry Breton was above all seeking to reassure the thousands of small construction and renovation firms awaiting a clear signal from the Finance Ministry. Industry and a number of MEPs are lobbying for an extension of the current procedure should negotiations fail. The European Commission has meanwhile rejected the scenario, urging the member states instead to agree on a new compromise. Economy and Finance Ministers are due to reach a decision at the next EcoFin Council on November 8.

French stick to their guns.

"We need the formal go-ahead from the European Union and we'll have it in November at the next EcoFin meeting", France's junior Minister for Industry, Francois Loos, apparently replied to a question from an MEP during question time in the Assemblee Nationale on October 11. "The Prime Minister has taken the decision to give our workers the possibility of budgeting in these terms, and to foresee purchases for all consumers on this basis, consequently we are carrying on", Mr Loos said. "5.5% VAT for renovation work is a win-win solution. In the construction industry, lower VAT rates will help workers find more work, euro three billion worth of extra work, which in turn means 50,000 extra jobs", he concluded.

MEPs' petition.

A group of MEPs from the European People's...