Cut flower tax dispute may be settled by ECJ

Date: 21/03/1996

By Fiona McHugh

THE European Court of Justice may soon be called in to settle a long-running dispute between EU member states over the tax rates applied to cut flowers.

Far from inspiring love, roses, tulips and daffodils have been provoking furious rows in EU circles for some time now and last week proved to be no exception.

Despite the European Commission's best peace-making efforts, finance ministers failed to agree on a compromise plan which would have allowed different VAT rates to apply within the Union for a further two years and harmonised flower taxes from the beginning of 1998.

Member states have now been given one last chance to reach an agreement over the coming weeks. If they fail to do so the Commission has vowed to see them in court.

According to a plan agreed in 1992, all member states should have applied full VAT rates to horticultural products from the beginning of 1995, but several countries refused to do so.

Germany, Greece, Spain, France, Luxembourg, the Netherlands and Austria currently impose a reduced rate of between 6 and 7&percent; to cut flowers, whereas countries such as Belgium impose the full rate (21&percent; in Belgium), in accordance with EU law.

This substantial gap is causing distortions on the market as flower growers in low-rate countries undercut their counterparts in high-rate countries. It has also led to a surge in illegal flower trafficking as, for example, Belgian shopkeepers dodge Belgian taxes by buying their blooms in neighbouring Netherlands, where prices are lower.

Emerging from the Ecofin meeting last week, Belgian Finance Minister Philippe Maystadt challenged the Commission to bring disobedient member states into line, saying it had no option but to get tough with lawbreakers. “It is a question of creating precedents and not respecting legal rules. If we tolerate that, we risk unravelling the entire body of EU legislation,” he said.

Maystadt, skirting around the fact that lower rates in Belgium would lead to huge budget losses, rejected the idea that his country might also apply lower rates in order to create a level playing field.

“If we lower rates on flowers then the shoemakers, for instance, would start to complain. If you do it for one sector, you would have to do it for them all,” explained a Belgian diplomat.

But countries such as Germany disagree. They refuse to scrap the tax concessions for flower growers which have existed for years, if not decades, in their countries. “We have traditionally applied low VAT rates to flowers, as we do to books, and we want to maintain that tradition. It is as simple as that,” said one German diplomat.

“We do not want price increases from one day to the next which would reduce the market overnight.”