EU Tells France To End Low Drug VAT Rate

The European Commission has told France to end its super-reduced rate of Value-Added Tax on reimbursable drugs, as it contravenes European Union regulations. The Commission has given France two months to modify the legislation or face action in the European Court.

The Commission says the justification for this low rate (2.1% on reimbursables against 5.5% on others) to ease the burden on the social security system is unacceptable. The 1977 VAT Directive authorizes the maintenance of reduced rates, but the justifying criterion has to be "a criterion of objective differentiation" which does not lead to a position where identical products bear different rates of VAT; this is the case with self-medication products and nonprescription items generally.

France has not yet indicated its response, but argues that the switch to a general 5.5% rate will increase not only social security costs but also government income, which would have an impact on the Maastricht convergence criteria.