Fast-food chains bid for lower VAT rate

Date: 29/04/1999

By Renée Cordes

SOME of Europe's largest fast-food chains and catering firms are fighting to be included within the scope of a planned EU law allowing governments to introduce special low sales tax rates for labour-intensive services.

Burger giant McDonald's, the UK's Whitbread and eight other members of the European Modern Restaurant Association (EMRA) are lobbying member states to apply the lower value added tax rate to their sector.

Eight EU countries already levy a reduced rate on restaurants, and EMRA is now pressing the other seven to follow suit.

The European Commission's proposal would allow governments to cut VAT rates on labour-intensive local services such as hair cutting, shoe repairing and house cleaning for an experimental three-year period as long as this did not distort cross-border trade. The lower rates could only be applied to services provided locally.

The proposal stemmed from a pledge to boost job creation at the Luxembourg 'jobs summit' in November 1997 and followed intense lobbying by the Dutch government.

Members of EMRA, which together own 20 brands including Burger King, Kentucky Fried Chicken, Quick and Taco Bell and employ some 50,000 people in the EU, plan to produce a study in coming weeks to back up their claim that a reduced VAT rate would actually create jobs.

" If job creation is really the top priority of the EU, we have to put actions behind words," said Simon Ward, strategic affairs director of Whitbread and chairman of EMRA.

Christophe Lecureuil, director of government relations for McDonald's in Belgium, argues that the sector provides jobs for many young people.

While the restaurants benefit from the use of a famous brand name and the know-how and training of a large franchising company, Ward and Lecureuil argue that a single or small group of restaurants would qualify as a small businesses of the type the proposal is seeking to help. They point out that franchise holders usually employ less than 250 people.

In addition, they say the businesses are local since people do not tend to drive across borders for a meal, and that the work required is labour-intensive. "It is not a situation where you can substitute a machine for people," said Ward.

EMRA members point to a study conducted last year for the British Tourist Authority which claimed that if the VAT rate in the UK were reduced from 17.5% to 8% in the restaurant and tourism sector, the British government would recoup the lost revenue within four years.

The study cited the example of Ireland, which halved the VAT rate on tourist accommodation and restaurants in the mid-Eighties. As a result, the number of visitors increased from 1.9 million in 1986 to 3.1 million in 1990, generating an increase in foreign exchange earnings of more than 50% in real terms.

Garry Parker, a spokesman for the EU small and medium-sized business association UEAPME, conceded that some franchises could be considered as SMEs. But he added: "I do not think this will fly with member states."

The European Federation of Contract Catering Organisations is also campaigning to be included within the scope of the directive.

The European Parliament is expected to vote in favour of amendments to the proposal next Friday (7 May) which would impose additional conditions on those seeking to qualify for a lower VAT rate, such as a requirement that it should have a "favourable effect" on the employment of semi and unskilled workers and should not create 'significant" distortions of competition.

A spokeswoman for Acting Internal Market Commissioner Monti said he would not recommend which sectors should be included. "It is up to member states to show that no distortion of cross-border competition would arise," she said.