Most member states of the European Union (EU) choose to have lower taxes on goods and services that they think are socially or economically important.
Since 2009, member states have also been able to vary rates charged on services that do not compete across borders, such as hairdressing, window cleaning and repairs of clothes and other goods.
However, the European Commission treats some tax exemptions permitted by national authorities as against the principles of the Single Market, as they may allow businesses in one member state to compete unfairly with those in another member state. This is known as 'state aid'.
The EU Treaty allows the European Commission to take a member state to court if it believes a particular exemption or tax rate is state aid.
The Derogations Schedule is a list of exemptions allowing member states to introduce their own VAT rules. This is to allow them to change or simplify EU VAT rules if they want to, although they do not have to.