Batt O'Keeffe
Question:49 Mr. B. O'Keeffe asked the Minister for Finance if some Irish telecommunications users will face a 21 per cent increase in the cost of international calls as a result of the closing of a tax loophole. [22487/96]
Written Answers. - Telecommunications Costs.
I assume the Deputy is referring to value added tax. The position is that many member states of the European Union, including Ireland, are concerned that they may lose significant amounts of VAT revenues in the telecommunications area. This arises primarily because recent technological developments have overtaken the existing EU VAT law in this area. Calls originating in the EU can now be diverted to telecommunications networks in non-EU countries. For VAT purposes, this has the effect of shifting the place of taxation from within the EU to outside. EU consumers of telecommunications services who use this technology enjoy VAT-free supplies.
In view of this, the European Commission intends to bring forward proposals to amend the sixth VAT Directive. These proposals are likely to be discussed during 1997. In the meantime, all member states have requested a derogation under Article 27 of the sixth VAT Directive to deal with this problem in the shortterm. A draft Council decision which would give effect to these derogation requests is awaited from the Commission. The solution being proposed would make these services taxable where they are received. The business user of the services would then have to account for VAT on the cost of any calls made through a non-EU supplier. In the case of businesses which have deductibility on inputs, the additional VAT will be recoverable. However, VAT exempt businesses such as banks and insurance companies cannot reclaim VAT charged to them and would have to pay the relevant additional tax. I do not expect that such a solution would have an impact on the telephone bills of the ordinary customer. Any proposals for changes in the VAT law in this area will be published in the Finance Bill next year.