Joe Carey
Question:178. Deputy Joe Carey asked the Minister for Finance the procedures used in considering a review of the application of VAT rate decisions; and if he will make a statement on the matter. [35859/14]
View answerTuesday, 23 September 2014
Questions (178)
Written answers
The determination of the VAT rate applicable to various goods and services, and what changes may be made to the VAT rate applying to any activity, must be mindful in the first instance of EU VAT law. VAT is governed by the EU VAT Directive, with which Irish VAT law must comply, and the application of VAT rates to various goods and services must comply with the rules regarding VAT rates in that Directive. For instance, the VAT Directive provides that Member States must apply a standard VAT rate which in Ireland is 23%. The Directive also allows Member States to apply up to two reduced VAT rates to goods and services as listed in Annex III of the Directive. The application of the 9% VAT rate to tourism activity is possible because of this provision. In addition, the VAT Directive allows for historic VAT treatment to be maintained under set conditions. Article 110 allows for the continuation of the application of a zero rate or a rate less than 5% to goods or services where that rate applied on and from 1 January 1991. Ireland takes advantage of this provision in our application of the zero rate to most food, books, medicine and children's clothing, as well as our application of the 4.8% VAT rate on livestock. Furthermore, Article 118 of the Directive allows Member States to retain the application of a reduced VAT rate of 12% or more on goods and services not contained in Annex III, that had applied at a reduced VAT rate on and from 1 January 1991. The application of the 13.5% VAT rate in Ireland to domestic fuels, commercial construction and some labour intensive services is based on this provision.
Furthermore, making changes to existing VAT rate treatment is also conditional on the terms of the EU VAT Directive, especially considering much of Ireland's VAT rating is historic and subject to specific rules. It is possible to apply the standard VAT rate to all goods and services. Taking any particular good or service currently applying at the 23% standard VAT rate, it is only possible to apply a reduced VAT rate of 9% or 13.5% to it if it is listed in Annex III of the VAT Directive; it is not possible to apply a zero rate to it as this only applies to goods and services applying at the zero rate since 1991. It is not possible to apply a different reduced VAT rate to it as it is only allowable to apply two reduced VAT rates.
It is possible to apply a reduced or standard VAT rate to the goods currently applying at the zero rate, however, the conditions of Article 110 provide that it would not be possible to revert those goods back to the zero rate as the zero rating must be continued from 1991. Similarly, it is possible to apply a standard VAT rate to the goods and services currently applying at the 13.5% rate under Article 118, but it would not be possible thereafter to revert them to a reduced VAT rate. In addition, as stated earlier, it is not possible to apply a rate of less than 12% to goods and services under Article 118, which means that it would not be possible to apply our 9% VAT rate to the goods currently applying at the 13.5% rate under this Article.
Outside of the conditions laid out in the EU VAT Directive, Ireland is free to set the level at which the various VAT rates apply, and free to apply a reduced or standard VAT rate to the goods and services contained in Annex III of the Directive. In this context, the determination of the level of the standard and reduced VAT rates is based on their economic effect and on the demands of the Exchequer, on a national level and in relation to the specific sector to which a particular good or service relates. This is undertaken as part of the annual Budget cycle.
Question No. 179 answered with Question No. 149.
Questions Nos. 180 to 182, inclusive, answered with Question No. 153.