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A supportive VAT framework for the PHS sector

EFSI contribution to the discussions on the amendment of directive 2006/112/EC as regards VAT rates

Due to its high employment content and high labour costs, the Personal and Household Services (PHS) sector cannot develop in the formal economy without supporting measures. Reducing VAT rate on PHS decreases the cost for users, which contributes to the development of supply of formal services. This is essential in a sector where the share of the undeclared market peaks 70% in some EU member states. Indeed, the purchase of more formal services directly increases formal employment and indirectly both the net labour tax revenue and the VAT revenue (depending on the consumption rate of new workers).

In the framework of the discussion on a directive amending 2006/112/EC as regards rates of value added tax, EFSI recommends to:

  • Make PHS services eligible for reduced VAT rates. The revised Annex III as a negative list as proposed by the European Commission (COM(2018)20final) is a viable option to this aim, as long as PHS are not included therein. In no case should Member States be obliged to introduce VAT rates on PHS services that were exempted until now, as it would irremediably damage competition, diffusion and affordability of quality services.
  • Prioritise VAT-reduction on services supplying high social benefits such as: home services (housework, ironing, small gardening, small repair work); childcare services; homecare services for elderly people; home-based courses (not restricted to school help); home IT and Internet assistance; organisational activities and management of PHS provision (intermediation services, the organisation being or not PHS worker’s employer); maintenance, upkeep and temporary home vigilance services.
  • Make sure the same type of PHS services benefits from the same VAT regime regardless of the way it is provided. As an example, in some EU countries childcare services benefit from VAT reduced rate when they are provided at home but they are VAT-exempt when performed in childcare facilities. As such, VAT exemption is cause of important residual tax costs.

Read the full paper at this link (PDF – 314 Kb).