Dáil Éireann Debate, Tuesday - 22 February 2022
21. Deputy Ged Nash asked the Minister for Finance if an update will be provided on discussions with the European Commission regarding a temporary derogation on the rate of VAT applied on energy and gas usage; if he held discussions with other European Union Finance Ministers regarding the relaxation of such rules as part of a common approach to tackling rising energy prices; and if he will make a statement on the matter. [9481/22]
View answerI am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. The VAT Directive obliges each Member State to have a standard rate of VAT and also allows that a Member State may choose to have no more than two reduced rates of VAT, which may be no less than 5%, and which may be applied to certain goods and services: any of those listed in Annex III of the Directive. Within this framework, Ireland currently applies a standard rate of 23% and two reduced rates of 13.5% and 9%.
As the Deputy will be aware, Article 102 of the VAT Directive provides that, after consultation with the EU VAT Committee, a Member State may choose to apply a reduced rate to the supply of natural gas, electricity, or district heating. The Commission recently indicated that this provision could be used by Member States without the requirement to consult the VAT Committee in advance. The Article 102 provision is not transposed into Irish legislation because Ireland, in line with the VAT Directive and by way of special derogation from the general rule, maintains several “standstill” provisions and derogations that allow us to maintain reduced rates to certain supplies for historical reasons. It is on this basis that Ireland applies its 13.5% reduced rate of VAT to the supply of fuel, gas, oil, and electricity services for both domestic and commercial use. The current 13.5% VAT rate applied to energy products is a ‘parked rate’, governed by Article 118 of the VAT Directive and standstill provisions from 1991 and cannot be reduced below 12%. In the event that Ireland chose to apply a reduced rate to the limited items covered by Article 102, those items could no longer rely on our derogation and those items would have to be returned to the standard rate of VAT in the future.
