I propose to take Questions Nos. 65 and 227 together.
The issue of allowing businesses to deduct VAT on conference related business expenses has been raised on a number of occasions in recent years. The Government's tourism action plan implementation group has recommended a change in the VAT rules to allow for the deductibility of VAT incurred by businesses on conference related expenditure, that is, hotel accommodation and meals. In this regard, its proposal distinguishes between routine business travel which is non-discretionary and location specific and a subset of business travel known as MICE — meetings, incentives, conferences and events — which is discretionary and is not location specific. The main argument put forward in favour of the proposal is that it would allow Irish hotels to compete more favourably with their European counterparts for conference related business.
We do not currently allow businesses to recover VAT incurred in respect of hotel accommodation and meals. There is a similar block on deductibility for business cars and petrol. These restrictions were put in place to limit revenue loss and tax avoidance. EU VAT law allows such restrictions.
While it would, in theory, be possible to remove or reduce these restrictions, it would not then be possible under EU law to reinstate them. In addition, any scheme designed to remove or reduce these restrictions would have significant cost implications for the Exchequer. The Revenue Commissioners have estimated that if full deductibility was allowed on accommodation and meals, it would cost €115 million in a full year. Furthermore, Article 17(6) of the sixth VAT directive limits the type of deductibility allowable to business expenses. This means there is no provision in EU law that would permit expenditure on entertainment to be allowable. Therefore, any scheme that would allow businesses to deduct VAT on accommodation and meals would have to take account of this fact.
The Revenue Commissioners also raised concerns regarding potential abuse, and it is clear the design of a scheme that would allow businesses to deduct VAT on such expenses, even in a limited form, is complex. However, officials from my Department, the Revenue Commissioners and the Department of Arts, Sport and Tourism are examining this issue. Specifically, they are exploring if the focus of the proposal could be narrowed by certain administrative solutions to ensure that it is targeted and complies with EU law. I have asked for this examination to be completed as soon as possible.