Dáil Éireann debate -
Tuesday, 25 Jun 2002

Vol. 553 No. 5

Written Answers. - Tax Code.

Richard Bruton

Question:

180 Mr. R. Bruton asked the Minister for Finance the level of VAT chargeable on hotel and restaurant services here; the way in which this compares with other EU members states; and if he has the discretion to consider reducing the rate chargeable in order to provide a more level playing field in respect of tourism competition across the EU. [14554/02]

Minister for Finance (Mr. McCreevy)

The standard rate of VAT applicable in Belgium, Germany, Denmark, United Kingdom, Finland, Sweden and Austria applies to restaurants. France and Italy apply both a standard and reduced rate depending on the type of restaurant services supplied and the remaining member states apply reduced rates between 3% and 12% to such services.

As regards the VAT treatment of hotel services, the position is that the relevant standard rate applies to hotel services in Germany, Denmark and United Kingdom, while the remaining member states apply reduced rates between 3% and 12% to such services. Ireland applies its reduced rate of 12.5% to supplies of accommodation and restaurant services. While Ireland has a higher rate of VAT on restaurants and hotels than some member states, the rate is significantly lower than the one which applies in other member states.

Under EU VAT rules member states may have two reduced rates of not less than 5% for a specified list of goods and services listed in annex H of the Sixth VAT Directive. In addition, member states may retain, at a reduced rate of not less than 12%, any goods or services not already in the reduced rate list in Annex H of the Sixth VAT Directive, provided a reduced rate applied to them before 1 January 1991. In the case of restaurants these were at a reduced rate of 10% before 1 January 1991 and it is not possible to reduce the rate of VAT applying to restaurants below 12%. As regards hotels, it would be possible under EU law to introduce a rate as low as 5% in respect of accommodation provided by hotels and similar establishments including pro vision of holiday accommodation and the letting of camping sites and caravan parks.

Any such change would require the introduction of a second reduced rate of VAT. The introduction of a second reduced rate for hotel accommodation would increase pressure for the extension of such a rate initially to all tourist rented accommodation and ultimately to most of the categories in annex H of the Sixth VAT Directive. A reduction in the 12.5% rate of VAT applying to accommodation would cost in the order of €19 million and if all activities which could benefit from a reduced rate were rated at 5% this could cost in the order of €500 million per annum.

The Deputy will also appreciate that I get many requests for the introduction of lower or reduced rates on many goods and services. To accede to them all would mean a significant reduction in the VAT yield for the Exchequer and this would prevent the funding of necessary public services.

Richard Bruton

Question:

181 Mr. R. Bruton asked the Minister for Finance if his attention has been drawn to the fact that VAT is not allowed as an input to registered businesses in respect of accommodation and restaurant costs; if his attention has further been drawn to the fact that this is causing significant difficulty for the tourism industry in dealing with overseas businesses and conference organisers; and if he has discretion in amending the rules in this respect. [14555/02]

Minister for Finance (Mr. McCreevy)

It has long been national policy not to allow VAT registered businesses who operate inside or outside the State to reclaim VAT paid by them in hotels, restaurants, the lease or purchase of business cars and petrol and is the result of national VAT provisions. These restrictions also apply to overseas businesses and conference organisers.

The provisions of the Sixth VAT Directive allows us to maintain all our existing national restrictions on preventing recovery of input VAT. Under EU law all member states are prevented from extending deductibility to expenditure which is not business expenditure – such as luxuries, amusements or entertainments.

The national restriction on deductibility for accommodation and restaurants is intended to maintain the VAT yield not just from accommodation and restaurant services, but also to prevent abuse of recovery of VAT by businesses. If deductibility was allowed it would be difficult to determine whether the expenditure was tied to the core activity of the business and was not just entertainment. This would open the possibility of fraudulent use of the deductibility provisions. The removal of the restriction on deductibility for hotel and restaurant accommodation could, over time, lead to pressure for the same treatment of business cars. This could have a significant consequence for Exchequer revenues from this source.

The Deputy will appreciate that I get a significant number of requests for reductions in the rate of VAT applying to a range of goods and services. To accede to them all would mean a significant reduction in the VAT yield for the Exchequer and this would prevent the funding of necessary public services.