EU debates over sales tax shifts

EU finance ministers failed on Tuesday to break a two-year deadlock over lower sales tax rates that has left thousands of small businesses without an indication what their value added tax rates will be next year. Heads of state will try again to strike a bargain at the EU summit next week, a meeting that already will see difficult and complicated negotiations over the EU budget for 2007-2013. French Finance Minister Thierry Breton said he would like the issue to be discussed next week, but if the group was unable to reach an agreement the issue would be put on the agenda for the January meeting. Without a tax deal this year, restaurants, hairdressers and other businesses would be taxed at their national standard rate beginning January 1, instead of the lower rate currently used in nine countries. France has pushed for the rule to be loosened, and Breton promised that French restaurants will keep their lower VAT in January.

Before the meeting, German finance minister Peer Steinbrueck he would not vote for more lower rates, effectively scuppering an agreement. "The position is quite clear, I stick to the line set by (former finance minister) Hans Eichel," he said. Eichel had steadily refused French pleas to relent on the tax rates. Breton said Germany did vote against a deal, saying it wanted more time on the issue. Other countries, led by Germany, oppose more opt-outs. The new German coalition government is planning to increase the standard rate of VAT from 16 percent to 19 percent. Talks on a VAT deal fell through in June after Germany and Austria demanded lower VAT taxes for car rental companies, a step too far for other nations.

France, Britain, Belgium, Greece, Spain, Italy, Luxembourg, the Netherlands and Portugal currently have the lower rates for some sectors and could be dragged before the EU courts if they refuse to charge standard VAT. Germany fears its own chefs would demand similar treatment and that German eateries near the French border would lose clients to French restaurants, reports the AP. N.U.