EU says has no plan to review British VAT exemptions

BRUSSELS (Reuters) - The European Union plans to review and simplify value-added tax across the 28-nation bloc but has no immediate plans to propose ending VAT exemptions on various products in Britain, the EU’s top tax official said on Thursday.

Economics Commissioner Pierre Moscovici told a news conference that the executive European Commission’s aim was to have a “definitive” VAT regime for the bloc, but noted that all decisions in this area were subject to national veto rights.

He had sparked controversy on Wednesday when, asked about potential changes to “zero rate” VAT, which Britain applies to items including food, books and children’s clothes, he said the Commission would have to “have to reassess everything”.

Moscovici said that while no change had been proposed, a “zero rate is not the best idea”. That gave ammunition to Eurosceptics as Prime Minister David Cameron prepares to call a referendum on Britain’s continued membership of the bloc.

A British government spokeswoman stressed there was no EU proposal to scrap zero rates and that London would veto it if there were. “Our position on this is clear,” she said. “We will keep zero rates of VAT on certain goods and services we negotiated when we joined the European Community.”

Asked about his remarks on Thursday, Moscovici was quick to explain no plan to scrap Britain’s exemptions was in the works.

“I never said that. What I said is that we have reaffirmed our intention to bring forward legislative VAT simplification measures to help small e-commerce business, in particular to operate cross borders,” he said.

“We want also to move forward with the comprehensive package to simplify VAT for SMEs as part of our 2016 VAT action plan which will set a definite regime of VAT in the EU.”

“It is far to early to talk about what proposals may emerge from the review and in any case any decision in this area requires unanimity by member states,” Moscovici said.

That would give Britain -- and Ireland, which also zero-rates many items -- a veto on any plan to end these historic exceptions to the 5 percent minimum introduced in the 1990s.

Last year, anti-EU campaigners seized on the government’s inability to waive VAT on tampons due to EU rules to call for “Brexit” in the vote that could come as soon as June.

Diane James, a European lawmaker from the UK Independence Party, said: “The EU wants full political and eventually fiscal union and by taking away Britain’s zero VAT rating ... they are being entirely consistent with their own logic.” UKIP wants Britain to leave the EU, which it joined in 1973.

Several states have pressed the Commission to review the VAT system, partly due to technological developments.

Last year, EU judges ruled that ebooks could not benefit from lower VAT charged on paper equivalents because they were not enshrined in a law drawn up before they were invented.

EU states must levy VAT of at least 15 percent, but can go as low as 5 percent on items on the EU “reduced rate” list.

Moscovici said on Wednesday the EU could draw up a new list or states could be allowed to draft their own, which would give them more leeway to apply a lower tax rate on certain goods.

Editing by Catherine Evans