Recording industry calls for VAT cut

Date: 04/07/1996

By Fiona McHugh

EVEN before Taxation Commissioner Mario Monti officially unveils his plans to harmonise Value Added Tax in the EU, the horse-trading is about to begin.

Pop stars and starlets will flock to Brussels next week, not to quibble about reduced rates, but to collect platinum awards from European Commission President Jacques Santer for their outstanding contributions to the European economy.

Marie Fredriksson of Roxette and Michael Hutchens of INXS will be among the scores of

rock icons rubbing shoulders with Commission, Council of Ministers and European Parliament officials at next Thursday's (11 July) glittering event, the first of its kind.

But the morning after the night before, industry representatives will get down to serious business, launching a high-profile campaign for lower VAT rates on recorded material.

Monti is due to launch his long-awaited offensive to harmonise indirect taxes in the Union as part of the drive to complete the single market before the summer break.

Under his proposals, the new VAT system would be based on the country-of-origin principle and should save European businesses up to 4 billion ecu in unnecessary administrative costs, reduce the risk of fraud and boost tax revenues.

But before getting the unanimous approval from EU finance ministers required for any changes to the VAT regime to enter into force, countless deals will no doubt be cut.

The International Federation of the Phonographic Industry (IFPI) - which represents the six major record companies and more than 1,200 independents and distributors, and is organising next week's event - hopes that this time around it will be a beneficiary of the kind of haggling which ususally characterises talks on European taxation.

At the moment, books and films, which were accorded special cultural status during the last round of tax negotiations, benefit from reduced VAT rates in most member states and zero rates in some.

The IFPI, arguing that records are also creative works, wants the privilege to be extended to musical products and recordings of literary epics.

“Under the current system, you could pay 25&percent; VAT for the works of Charles Dickens on CD and only 5&percent; for the written version,” says Adrian Strain of the IFPI.

France, a long-standing champion of cultural causes, has already thrown its weight behind the industry's campaign.

French Culture Minister Philippe Douste-Blazy, speaking at a festival last week, said that making records was an art and listening to them a cultural experience - a view shared by President Jacques Chirac.

Some of the less-culture conscious countries, however, are unlikely to be swayed by such high-minded ideas. They will have their thoughts focused on more mundane questions such as fiscal revenue.

The IFPI counters fears about likely shortfalls in national budgets by arguing that lower VAT rates would boost per capita spending on cultural goods and thereby actually increase revenue.

Already selling 16 billion ecu's worth of records a year, industry experts estimate the music business could double its worth with a little help from member state governments and Monti.

But his support is far from guaranteed. Although the former Italian economics professor has condemned cultural discrimination in the past, he is not in the business of handing out derogations to general VAT rules lightly.

After all, the Commission's aim in proposing reforms is to simplify, rather than complicate, European tax matters.

The IFPI will also ask the Commission to use Bulgaria's application to join the World Trade Organisation to put pressure on Sofia to clamp down on music piracy.

The federation says that Bulgaria, together with China, Turkey and Italy, has one of the worst records for copyright infringements.