Europe Targets Vat Sales-tax Reduction Moves To Top Of Agenda

On July 10, a few hours before the leading lights of the European record industry rub shoulders with European bureaucrats and politicians at the International Federation of the Phonographic Industry (IFPI) Platinum Europe Awards dinner in Brussels, a delegation of execs representing that same body will be sitting down in a markedly different atmosphere at the offices of the European Commission (EC).

The IFPI delegation will meet with European internal market commissioner Frits Bolkestein as final preparations are made at Brussels' Plaza Hotel for the glittering awards dinner, which key policy makers from Brussels such as EC VP Neil Kinnock are expected to attend. Brussels-based European indie labels trade body Impala plans to have a meeting with Bolkestein in September. The EC is the legislative arm of the European Union (EU).

The IFPI delegation will use the July 10 meeting to put forward to the commissioner the music industry's views about reducing the level of VAT (sales tax) on recorded music as the EC prepares for the harmonization of tax rates across Europe in 2003. Currently, VAT on recorded music is based on a minimum 15% rate across Europe and is subject to higher rates in various EU member countries. The IFPI believes that rating is unfair, as it puts recorded music in a different category from such other cultural goods as books, films, or newspapers, which are subject to a lower VAT rate. "We will certainly push the issue of a VAT reduction on music," says Frances Moore, managing director of the IFPI's office in Brussels.

EMI Recorded Music senior VP Rupert Perry, who chairs the IFPI's executive committee for Europe, confirms, "We will be very active on that subject. The issue is that we are constantly referred to as a cultural industry—which we are—but they put us in a different category when it comes to taxation. Why are we discriminated [against]?"

Impala general secretary Philippe Kern welcomes what he calls "the late entry" of the IFPI in the fight for a lower VAT rate and says that Impala wishes to bring together other sectors of the music community to tackle the VAT issue. Kern says Impala is already talking to some key retailers and retail groups, as well as the Music Managers Forum, with a view to enlisting them in a large coalition. "There is still a sense of skepticism when this issue is raised, but things are moving forward in a good direction—it's time to go full speed ahead," Kern says, noting that European commissioner for culture Viviane Redding has already announced her support.

The other cultural goods and services that are subject to a reduced VAT rate—in some cases as low as 5%—are included in a 1992 addendum to the EC's VAT Directive, Annex H.

"Our concern is that music is not listed in Annex H and [is] therefore not eligible for a lower rate," Moore says. The IFPI and Impala's aim is to get the EC to move recorded music to Annex H. But such a move requires a unanimous decision by the finance ministers of all EU member states on the matter.

At least two European countries may go their own way on VAT. Italy might unilaterally lower its rate from 20% to 15% (Billboard, July 6), despite such a move being against EU regulations, while the new government in France is said to be contemplating a similar measure to comply with election promises made by president Jacques Chirac. At July 1 discussions in Paris between a joint IFPI/Impala delegation and French minister of culture Jean-Jacques Aillagon, the VAT rate topped the agenda. One informed source says, "These moves might be challenged by the commission, but both France and Italy could gain one or two years, awaiting a resolution of the issue at a European level."

Kern says, "Since 1995, the industry has asked music to be added to Annex H, and the internal market administration has always been reluctant to do so. This time, France and Italy are committed to make some noise about this issue, so we won't start empty-handed."