§ The EC Commission has taken the formal step of sending the UK Government a 'Reasoned Opinion' under Article 169 of the Treaty of Rome alleging that certain aspects of the VAT zero rates in force in the United Kingdom are contrary to the provisions of the Sixth VAT Directive which established Community rules for the structure and coverage of VAT.
§ The Reasoned Opinion is not a general attack on the UK zero rating system. It questions the application of specific zero rating groups to goods or services frequently supplied to the business sector.
§ The United Kingdom Government was given until early November to consider the Reasoned Opinion. A response will be given after detailed consideration of the arguments but it is the view of Treasury Ministers that our zero rates accord with the provisions of the Directive which was adopted in 1977. We therefore cannot accept the views expressed in the Opinion.
§ Under the Directive Member States were permitted to retain zero rates in existence at the end of 1975 provided that they had been implemented 'for clearly defined social reasons and for the benefit of the final consumer'. Insofar as zero rates cover supplies made to businesses and not to the general public, the Commission considers that they are not in accordance with the Sixth Directive, a view which the UK Government does not accept.
§ The items which are under challenge are as follows
- (i) Live animals of a kind used for food; animal feeding stuffs, food producing seeds and plants;
- (ii) Sewerage services and water, but only where a specific charge is involved— services provided through a water rate are outside the scope of VAT;
- (iii) Newspaper advertisements and news services (but not newspapers);
- (iv) Fuel and power (coal, gas, electricity, oil) when supplied to businesses, ie domestic consumption is not under challenge;
- (v) Construction of buildings and associated services, other than housing 'within a social policy' a term which the Commission does not define;
- (vi) Protective boots and helmets for industrial use insofar as sold to businesses and not private persons.