I propose to take Questions Nos. 192 to 197, inclusive, together.
Taxpayers are entitled to structure their businesses and undertake their business activities in the most tax efficient manner permitted by the law. Where taxpayers minimise their tax liabilities or, as is alleged in the case of the poultry sector, use the interaction of the flat-rate scheme for farmers and the normal VAT system to maximise their level of VAT input recovery and do so within the law no 'overclaiming' of VAT on input costs arises. Unregistered farmers apply a flat-rate addition to the value of the agricultural goods or services supplied to a VAT registered business; they cannot apply a higher rate than that provided in law or apply it to a value other than the price charged for the supply of the goods or services. It follows that they cannot at a later date seek to adjust upwards the amount of the flat-rate addition added at the time of the supply.
The flat-rate addition, currently 5.4%, is reviewed each year and adjusted where necessary to ensure that farmers that are not registered for VAT are compensated at the aggregate level for the unrecoverable VAT borne on their input costs.
However, while business structures and contractual arrangements in an agricultural sector may be lawful they are not acceptable if they result in a systematic overcompensation of farmers for the VAT borne on their input costs. Accordingly, when this matter was brought to my attention I introduced a provision in Finance Act 2016 that enables me to exclude, by Ministerial Order, any specified agricultural sector where the business structures or models employed result in a systematic excess of flat-rate addition payments over input costs borne by flat-rate farmers within that sector. If it proves necessary to do so, I fully intend to make any order required to exclude any sector from the flat rate scheme.
While there is evidence that business structures and contractual arrangements have emerged in the poultry sector that would be likely to result in an excess of flat rate addition payments to farmers over the VAT borne on their input costs, no economic analysis of the level of VAT recovery in the poultry sector has been undertaken. With regard to the question about 'artificially inflating feed prices', the Deputy will be aware that prices are a matter to be agreed between buyers and sellers and that sellers will be in a position to point to a range of factors influencing price levels, including quality, consistency, traceability, etc.
I am advised by The Revenue Commissioners that following enactment of the provision referred to above officials met with the Irish Farmers Association and are in the process of meeting relevant parties in the poultry sector to establish if they plan to unwind any structures and arrangements that are designed or likely to give rise to overcompensation of farmers for the VAT borne on their input costs. If Revenue is not satisfied that any such structures and arrangements will be unwound within an acceptable timeframe they will complete a review of the sector as provided for in Section 86A of the VAT Consolidation Act, 2010 (inserted by Section 47 of Finance Act 2016). I gave a commitment at Report Stage in the Dáil when discussing this provision that I would provide the industry with adequate time to make the necessary changes to their business models and that I did not envisage making a Ministerial Order to exclude any particular sector from the flat-rate scheme until the latter part of 2017. I intend to honour that commitment, but I also want to reiterate my commitment to make such an Order if it proves necessary to do so.
In relation to other agricultural sectors, I am not aware of any evidence that similar structures and contractual arrangements have been put in place. I am advised by Revenue that it is enquiring into business practices in other agricultural sectors for evidence of such business structures and have asked the Irish Farmers Association to advise them if they become aware of any such structures.
