Television giants to be hit by Bolkestein tax hike

Date: 03/07/03

By Peter Chapman

FRENCH pay-TV giant Canal Plus and Italian premier Silvio Berlusconi's Mediaset empire - and their millions of customers - are set to be the biggest victims of European Commission plans to tighten up loopholes to VAT rules.

FRENCH pay TV giant Canal Plus and Italian premier Silvio Berlusconi's Mediaset empire are set to be the biggest losers from European Commission plans to shake-up the regime for Value Added Tax in the Union.

Tax Commissioner Frits Bolkestein is expected to deliver the blow next week as part of a proposal updating the list of sectors eligible for a reduced rate of VAT. The proposals updating the list - known in the jargon as "annex h" - have been fought over by member states and industry groups for months.

France has already won the battle to make sure its world-famous restaurants enjoy the same reduced rates as take-away outlets from the beginning of next year. But in a surprise move, Bolkestein is expected to call for the right to a reduced rate for the TV sector to be abolished. He says it makes no sense to have a special rate for TV because programmes can increasingly be delivered over the internet, where services are subject to full VAT.

Keeping the reduced rate could therefore lead to differences within countries depending on how they are delivered. At the same time, allowing low VAT could "very easily cause cross-border distortions to competition" because channels can broadcast from anywhere in the Union.

Losing the tax perk would be a hammer blow for Canal Plus, owned by Vivendi Universal and Berlusconi's Mediaset. The TV giants gambled millions of euro in new digital services in a bid to stem the tide of subscribers away from expensive premium services.

The tax plans would hurt them because France and Italy, together with Belgium, Greece, Austria and Finland (for public broadcasts) have availed of the right to set reduced rates of the tax.

The French rate is currently 5.5% instead of the standard 19.6%. In Italy, TV services are taxed at 10% instead of the normal 20%.

Petra Wikström, EU affairs manager for the Association of Commercial Television, told European Voice subscription fees would have to increase or investments in new content would have to drop to make up the shortfall if the new taxes are levied. Either way, she said, "the consumer pays".

Meanwhile, Bolkestein's plan is also expected to upset Europe's flagging music industry. Record companies and artists have demanded the right to charge reduced rate for CDs. They said it was crazy to charge high rates for music when many countries are allowed to charge low VAT on books.

"At the moment, if someone buys a CD of Beethoven's music, they pay a standard VAT rate of 15-25%," argues Italian pop star Eros Ramazzotti in this week's European Voice (see Comment, Page 9). "But, if they buy a biography of Beethoven's life, they pay a reduced rate. It makes absolutely no sense."

The lobbying campaign has fallen on deaf ears - even though Bolkestein is chairman of the Amsterdam Bach Soloists. The Dutchman's blueprint says reduced VAT rates should be the exception to the rule - and cannot, in any case, be used as a way of subsidizing certain industries.

It said an experiment with low rates for "labour-intensive services" such as bicycle repairs had delivered few benefits to end consumers. The lobbying campaign will now switch to the Council of Ministers. EU finance ministers could still make changes to the proposals, which need the unanimous approval of member states to become law.

Frits Bolkestein, European Commissioner responsible for tax issues, is to propose abolishing a loophole in the EU's VAT rules which allows countries to charge reduced tax rates for TV services.