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No reduced VAT rate for materials allowing energy saving

The European Court of Justice Ruling

Brussels, 10 June 2015 | Published in Economy

One of the latest decisions of the European Court of Justice (ECJ) affects the UK housing sector but may also affect housing across the EU. Our French member USH explains...


By Virginie Toussain*

The European Commission addressed the Court in October 2013 regarding a controversial decision by the UK government that, as part of the implementation of its energy-saving policy, the so called “Green Deal”, had set up a reduced rate of VAT for "green" materials improving the energy efficiency of buildings.

The Commission did not accept this initiative, claiming that actually, the option to apply a reduced rate for housing is due to the social nature of the policy that is implemented and not concerning its environmental character.

Reduced VAT rates, negotiated unanimously among the Member States and exhaustively listed include construction, renovation and refurbishment of housing, as part of a social policy. The materials used, though, are not examined separately.

The Court agreed with the Commission analysis, despite the British arguments related to the effect of such measures on energy poverty, which would indeed be the "social component".

However, the ruling underlines that supporting people with difficulties to keep their homes adequately warm could be regarded as reasons of general interest. The provisions on VAT for housing provided within the framework of social policy may therefore apply.

The rejection by the ECJ of the system set up by the UK also lies on its lack of detail. The framework applies to all homes, without distinguishing between categories of occupants, their income levels, age or other criteria for the definition of the social interest.

This leaves the European Parliament and especially the Member States to reach an agreement for the introduction of tax measures favourable to sustainable development and environmental objectives. The debate on the future of VAT is on…

* Virginie is Legal Advisor at Union Sociale pour l’Habitat (USH)