Vol. 439 No. 7
10 Mr. R. Bruton asked the Minister for Finance if he has assessed the impact of the VAT applied to scientific equipment on the level of original scientific research being conducted in Ireland; and if he will make a statement on the matter.
The level of scientific research conducted here is determined primarily by factors other than VAT, in particular, the amount of funding for such research provided by Irish industry, the State and its agencies, universities and hospitals, and from resources provided by international organisations.
The VAT treatment of scientific equipment, as with all goods and services generally, is governed by EU VAT law, which, in turn, governs Irish VAT law. Under EU law, because scientific equipment is not on the list of goods and services to which a reduced rate may apply, it is therefore taxable at the standard rate, which in Ireland is 21 per cent. As scientific equipment was not at a reduced rate here prior to 1 January 1991, it is not open to us to avail of the EU parking rate facility which allows application of a reduced rate of not less than 12 per cent on a temporary basis. Nor is it open to us, or indeed any other member state, to introduce further zero rates.
Generally speaking, VAT is recoverable only by registered businesses. A firm which undertakes scientific research in the course of furtherance of its business would usually recover the VAT on purchases of scientific equipment through the normal bi-monthly returns.
I would point out, however, that there is provision under the Protocol on Privileges and Immunities of the European Union whereby institutions of the EU are entitled to recover any VAT charged to them on foot of purchases for their official use. For example, where a research contract is carried out commercially for an EU institution, such contracts are, in effect, zero-rated. It should be noted that the relief is allowable only where the expenditure is borne directly by the EU institutions but, it would, of course, apply to any equipment directly purchased in the course of a research project. The relief does not apply to expenditure borne directly by a university or other non-taxable body carrying out contract works for the EU since, in accordance with EU and Irish VAT law, these bodies do not charge VAT and are not entitled to recover the VAT element of any expenditure borne by them. I would like to mention in this connection that the fact that bodies such as universities and hospitals cannot normally recover VAT on their expenditure is taken into account in determining the funding provided to them by the Exchequer.
I would also point out that, under the terms of a special refund scheme, a refund may be given equivalent to the full amount of VAT borne on certain high-cost medical equipment purchased through voluntary donations for use in hospitals including equipment used in their laboratories. Moreover, as the Deputy will be aware, I announced in my financial statement on 26 January last that I intend to extend this scheme to cover donated high-cost research equipment for use in the medical laboratories of universities and similar institutions.
In view of the above, I do not believe that a detailed study of the impact of VAT applied to scientific equipment on the level of scientific research being conducted in Ireland would serve any useful purpose.
Unfortunately, Deputy Richard Bruton cannot be here but he asked me to bring to the Minister's attention recent newspaper reports that pharmaceutical companies are considering leaving Ireland because of the VAT regime. Am I to take it from what the Minister said that these people will be able to reclaim VAT paid on purchases of equipment for research projects? I will ask Deputy Bruton to send the Minister details of the company involved. Will the Minister clarify that is the route he is suggesting that these companies follow if they wish to stay in Ireland?
Yes. I am endeavouring to extend the present system of refund orders to cover such companies. I think I know the company Deputy Bruton is referring to and I am in negotiations with them on the terms of the refund order. The company concerned spends a substantial amount of its research and scientific budget in this country. The Government appreciates the work it does here and we will come to some arrangement on the terms of the order.
