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EU: Taxation

Volume 706: debated on Thursday 18 December 2008

Question

Asked by

To ask Her Majesty's Government further to the Written Answer by Lord Myners on 18 November (WA 181) stating that “the Government believe that taxation is a matter for [European Union] member states to determine at a national level”, how that statement relates to value added tax. [HL215]

The earlier Question to which the noble Lord refers related to the financing of the European Community (EC) Budget and, specifically, whether there would be a shift from financing via national contributions, as now, to a system whereby proceeds from a direct ELI tax went directly to the Community.

In that context, while a notional level of national value added tax (VAT) receipts is one element in determining member states' contributions to the EC Budget, how such contributions are actually financed is entirely a matter for member states to decide. There are no national tax revenues hypothecated to finance the EC Budget: all VAT receipts accrue to the Exchequer.

As far as the structure and rates of specific taxes are concerned, these are generally a matter for member states. In relation to VAT, rules on some aspects of tax structure and minimum rates of taxation have been agreed by the Council of Ministers by unanimity with a view to ensuring the smooth functioning of the single market, in line with the provisions of Article 93 of the treaty establishing the European Community.

The most significant obligations taken on by the UK in relation to VAT occurred in 1973, in the UK's accession to the then European Economic Community, and as part of the 1993 package of measures relating to the completion of the internal market.

Changes to EC VAT agreements are subject to the unanimous agreement of all member states. The Government have always made clear that the UK will not agree to any proposals that would harm our social objectives or undermine the fairness of the UK VAT system.