VAT spat solution

After a week of tension between Warsaw and Brussels, a compromise on reduced VAT on 'labor intensive' services in the EU was finally reached, during a meeting of Polish Finance Minister Zyta Gilowska, her Austrian counterpart Karl-Heinz Grasser, Austrian Chancellor Wolfgang Schuessel, and the EU's Tax Commissioner, Laszlo Kovacs. "It is a sound and balanced compromise," said Kovacs in a statement following the meeting.

The majority of member states backed the proposal to extend by five years a now lapsed arrangement that allows VAT on some services in 'old' EU countries to be kept below the minimum rate of 15 percent. Only the Czech Republic, Cyprus and Poland expressed reservations but the first two countries compromised a couple of hours later.

Poland demanded more exemptions for its construction sector. It was able to block negotiations because any amendments to EU tax regulations require unanimity.

"We do not plan, to the slightest degree, to block a compromise, or harm the interests of EU citizens, or block the operations of the companies that until now have benefited from [lower VAT rates]. We simply raise the question of the need to take into account our reservations," Gilowska said.

Had Poland stuck to its veto, 'old' EU members would have to start taxing the 'labor intensive' services, such as hair dressing, bike repairs and house renovations, at the minimum standard tax of 15 percent and not five percent as they have been able to do. According to construction-sector lobbies from the concerned countries it would have led to the loss of some 250,000 jobs in the construction sector alone. (Reuters)