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EU criticises French reduced VAT

  • Jul 25, 2016 | Richard Asquith

EU criticises French reduced VAT

The European Commission has issued a report that criticises heavily indebted France for over use of reduced VAT rates.

The report estimates that France’s extensive use of reduced VAT costs it around 1% in GDP compared to other EU member states. Given that France has missed the Euro currency 3% deficit limit for almost ten years in a row, the report suggests a rethink.

VAT is relatively easy to administer for governments, and is less damaging to economic growth compared to income or employment taxes. It has therefore become a much more popular source of revenues than income taxes for EU member states. The average share of VAT to total revenues in the EU is 17.5%. However, it is only 14.5% in France mainly due to the frequent application of reduced rates and full exemptions.

The current French standard VAT rate is 20%. This compares to the average EU VAT rate of 21.6%. France has three reduced VAT rates: 2.1%; 5.5%; and 10%. The EU VAT Directive only permits two reduced VAT rates, the lower of which must be 5% or above.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.