Biz Slams Ec Over Vat Rates

This story was prepared by Leo Cendrowicz in Brussels and Emmanuel Legrand in Paris.



Disappointed by the European Commission's refusal to cut the sales tax on recorded music, the music industry is continuing to press its case through all remaining avenues.

On July 9, the commission—the executive body of the European Union—is to unveil tax reform plans, including some proposed changes to the levels of value added tax (VAT) across the union. But a draft of the proposal released June 19 in Brussels states there is no need to amend current rules that set the VAT on CDs at as high as 25%.

The International Federation of the Phonographic Industry claims the draft proposal fails to redress what it views as blatant discrimination against the music industry. Frances Moore, IFPI regional director for Europe, says the document ignores the demands of more than 1,300 acts from across Europe who have signed petitions calling for an end to high VAT rates on music.

"Recorded music is unfairly treated in comparison to other cultural products and services that currently benefit from reduced VAT rates, such as books, magazines and newspapers, as well as tickets for cinemas, theaters and concerts.

"VAT rates on sound recordings in the EU currently range from 15% in Luxembourg to 25% in Denmark and Sweden," Moore says, "whereas other cultural products benefit from reduced rates upwards of 5%."

One day after the EC released its draft proposal, French culture minister Jean-Jacques Aillagon announced in Paris that his nation intends to continue to put pressure on the EC and on fellow EU member states to reduce VAT on recorded music.

"I am very disappointed by the attitude of the European Commission," Aillagon said, as representatives from the French recording industry and music retailers gathered to sign an agreement in which they committed to pass on to consumers the benefits of any VAT reduction. Aillagon says he is "convinced that we will succeed in lowering the rate."

But industry executives in France are concerned that the VAT issue may have lost its momentum. "There's obviously a lack of political support from EU members for this issue," says Hervé Rony, director general of labels body SNEP. In a statement, SNEP called the EC's draft proposal "catastrophic."

Industry sources have expressed worry that Frits Bolkestein, the EC commissioner on the internal market —which rules on tax issues—is opposed to lowering VAT on music. As a result, the industry is being obliged to increase its lobbying of member states. Even so, one source laments that "aside from France, no other important EU country has so far committed to the issue."

Rony says the issue could be raised July 15 when the EU's finance ministers meet, although no final decision is expected before September. Any change in tax rules requires the unanimity of the EU member states.

Moore has appealed again to the 20 European Commissioners—who will eventually decide on the proposal—to ensure that music is covered in the EC recommendations.