Europe not so close on tax

The UK and Europe have been at odds on business taxes over the past few weeks, with the European Court of Justice (ECJ) ruling recently that ‘green’ tax breaks are illegal and the UK discovering that they pay the highest air taxes of any bloc member to fly to mainland Europe.

At the moment, energy efficient technologies, including solar panels, wind turbines, insulation and heat pumps attract a five per cent rate of VAT instead of the standard 20 per cent but the ECJ ruled earlier this month that the policy does not comply with the EU’s VAT Directive and that the reduced rate could only apply to transactions related to social housing. This in turn could have an impact on the UK’s Green Deal scheme, which offers loans to households and businesses covering the upfront cost of installing energy efficient measures.

Then, in another tax blow, a recent study has found that passengers flying in and out of the UK pay the highest taxes in Europe (£15 on short haul flights) and also pay above the global average when it comes to long haul, paying an average of £35. Meanwhile, the UK’s air passenger duty is £13 on short haul flights and £71 on long haul, which is much more expensive than the EU average of £10 for short hops and £23 for longer flights.

The study’s authors maintain that high air taxes can be harmful for airlines, business users and consumers and argue that countries and cities that are expensive to fly to lose out on tourism. In addition, they point out that higher air taxes can also be harmful to businesses, as in many commercial relationships there is no substitute for meeting face-to-face. They also claim that even though the taxes are pushed as offsets for the environmental impact of air traffic, the revenue raised is not ring-fenced for environmental protection projects.

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