With regard to the VAT point raised in the correspondence, regarding proposed changes to the current 4.8% bloodstock VAT rate, I would point out that European Court of Justice Case C108/2011 concerns the rate of VAT applying to (a) the supply of live horses and greyhounds, (b) the hire of horses and (c) the supply of ‘no foal, no fee’ insemination services. All of these activities, including livestock in general, are currently charged to VAT in Ireland at the super-reduced rate of 4.8% under Article 110 of the EU VAT Directive. On 14 March 2013 the Court found against Ireland, in that some of the conditions of Article 110 were not fulfilled in applying the 4.8% rate to the supply mentioned. The application of the 4.8% rate to the supply of livestock in general, however, was not in dispute. Ireland must comply with the ECJ Judgement, and Finance (No. 2) Bill 2013, which is published today, includes measures in this regard. However, while the Finance Bill changes comply with the Court decision, the measures introduced are also mindful of the possible impact of VAT increases on the sectors concerned.
Firstly, the VAT rate applying to (a) the supply of live horses, other than those intended for use as foodstuffs or for use in agricultural production, (b) the supply of greyhounds, and (c) the hire of horses, will be increased from 4.8% to 9%. However, the 4.8% rate will continue to apply to livestock in general, and to horses that are intended for use as foodstuffs or for use in agricultural production.
In addition, the VAT rate on ‘no foal, no fee’ insemination services will be increased from 4.8% to the 13.5% reduced rate, so that the same 13.5% rate applies to all insemination services, for all animals, including livestock, horses and greyhounds. The 13.5% rate also applies to the supply of livestock and horse semen.
I would point out that the application of the 9% and the 13.5% rates, respectively, are the minimum VAT rates allowable to these supplies under EU VAT law, given the current VAT rate structure in Ireland.
I would also point out that when these changes are introduced, Ireland will still apply one of the lowest VAT rates in the EU to these services. Most Member States apply the standard VAT rate to the supply of horses not intended as food or for agriculture; with France applying their 19.6% and the UK applying their 20% rate, for example.
In addition, the Finance Bill provides for the new arrangements to come into effect from 1 May 2014. This will allow additional time for the sector to transition to new VAT arrangements.
Furthermore, after the introduction of the legislation, the Revenue Commissioners will produce a leaflet which will provide clarification on how the new arrangements will apply particularly in respect of horses intended for use as foodstuffs and for use in agricultural production, to which the 4.8% VAT rate will continue to apply. The delayed introduction of the new VAT treatment to 1 May 2014 will facilitate a proper consultation between Revenue and the industry concerned in relation to this leaflet, to ensure that all relevant services and supplies that qualify, remain at the 4.8% rate.
With regard to the impact of the increase in the VAT rate of horses and greyhounds not qualifying for the 4.8% rate from 1 May 2014, it should be noted that horse breeding and minding will continue to qualify as agricultural services under the flat-rate farmer scheme. As such, the VAT rate increase should not impact on flat-rate farmers supplying horses. VAT registered farmers supplying horses to other registered persons or farmers will, as always, be entitled to reclaim VAT on business purchases and as such the rate of VAT does not impact on them.
Where a flat-rate farming horse breeder purchases a horse from a VAT registered dealer, the VAT on this purchase will increase from 4.8% to 9%. However, the increase in the cost of purchasing horses due to the VAT increase will be accounted for under the flat-rate addition calculation in subsequent years. In addition, flat-rate farmers engaged in horse breeding will continue to have the option to become registered for VAT to claim VAT on their purchases.