Brussels  - European Union finance ministers Tuesday agreed to allow member states to permanently reduce VAT rates in labour- intensive sectors such as catering or cleaning, diplomats said.

The deal, brokered by the Czech presidency of the EU with the help of the European Commission, was expected to end months of wrangling about the effectiveness of such a measure.

While some member states had insisted it would help create new jobs at a time of economic crisis, others had argued it would merely result in a fall in tax revenues.

Tuesday's agreement followed a softening of opposition from Germany, Sweden and Malta, among others.

All taxation issues require unanimity by the 27-member bloc.

Goods and services sold in the EU are normally subject to a rate of at least 15 per cent. But member states can apply reduced rates in certain cases and a number of exceptions apply. (dpa)