Austin Deasy
Ceist:12 Mr. Deasy asked the Minister for Finance whether he intends to impose VAT on green fees for golf clubs which have open membership and where equal status rules pertain; and if he will make a statement on the matter. [5596/96]
Ceisteanna—Questions. Oral Answers. - Golf Green Fees.
Since 1 January 1996, the green fees of member-owned golf clubs have been subject to VAT, where such turnover exceeds or is likely to exceed the registration threshold of £20,000 per annum. The fully commercial golf clubs have been taxable in respect of all their turnover since 1992.
There is no basis in EU VAT law whereby the fully commercial clubs — which are usually open to all comers — could be made exempt. Nor would there by any justification for doing so, as they are operating in the course of furtherance of business.
Nor is there any basis in EU VAT law whereby, because of open membership or equal status rules, the exemption afforded to the member-related activities could be extended to green fee turnover where such turnover is in direct competition with commercial enterprises. Such treatment could give rise to a tax-based distortion of competition and accordingly, under EU VAT law, would be open to challenge on that basis.
I should perhaps explain to the Deputy that the initiative in relation to the taxation of green fees of member-owned clubs was not taken as a revenue raising measure, but rather on grounds of equity following complaints and a threat of court action from the fully commercial clubs. EU VAT law, with which Irish law must comply, clearly provides that the exemption for nonprofit making clubs cannot apply if the purpose of the activity in question is to obtain additional income by providing services which are in direct competition with those provided by commercial enterprises which are liable to the tax.
I would like to point out that the new measures were very carefully targeted at the area where a distortion of competition had been demonstrated — the green fee type turnover. Membership subscriptions to member-owned clubs remain exempt and bar and restaurant receipts and other such turnover, which were already taxable, are not counted in calculating the £20,000 annual turnover threshold. Deductibility on inputs, denied to member-owned clubs up to now, are available in respect of their taxable activities and this should assist them in the future development of their facilities. Furthermore, all golf clubs in Ireland have the benefit of reduced rating of 12.5 per cent whereas the green fees of their counterparts in the UK, Spain and France attract VAT at the standard rates in those countries of 17.5 per cent, 16 per cent and 20.6 per cent respectively.
Does the Minister agree that that represents a retrograde step bearing in mind that golfing activities here, especially because of our varied weather conditions, are a tremendous attraction to tourists? Would he agree that golf clubs have played a considerable role in attracting tourists and should be given incentives rather than having additional taxation imposed on them? Taking all those factors into account, would the Minister reconsider his decision and abolish this punitive tax since many golf clubs already operate on a financial knife-edge and, with the huge explosion in their numbers over the past five or six years, many find it very difficult to make ends meet? If their income is further reduced their viability will be in doubt. On that basis will the Minister reconsider his decision?
I understand the Deputy's concern. On no other issue since I became Minister for Finance have I received so many representations and so much correspondence as the question of VAT on green fees for member-owned clubs. I repeat in substance the text of my reply in responding to the numerous letters from virtually every Member. This was not introduced by me or the Revenue Commissioners as a revenue generating measure but because of our obligations under EU VAT law. It was brought in on foot of complaints made to the Revenue Commissioners that commercially developed clubs which were responding to the commercial and tourism potential — the point Deputy Deasy made — were finding themselves in direct competition with member-owned clubs which were generating additional revenue by allowing non-members to play on their courses.
I repeat what I have said to other Members and to deputations from the golfing associations. A golf club which typically would have a sports shop, a restaurant and a bar would have tax liabilities and if the member-owned golf club constitutes itself as a company for the purposes of VAT it is then in a position to offset the VAT on many of its inputs against its VAT liabilities. It has been brought to my attention that in some cases the increase in green fees is far in excess of 12.5 per cent and members have been told that the reason for the increase in green fees is VAT. The actual VAT component is only 12.5 per cent.
I am sympathetic to the concerns expressed by Deputies. I repeat that this is not a revenue generating measure. We did not choose to introduce it but are obliged under law to do so to maintain equality and level competition. The alternative was to face court action and in recent years we have seen the cost of such court actions. We would have no prospect of winning such an action if it was to go to court because a case would be taken where the prospect of victory would be maximised — private member-owned clubs have very substantial green fee income, in some cases over £100,000 per annum. This is the reality with which we have to deal. I am very sympathetic to the golf clubs. We have tried to accommodate their needs as best we can while meeting our obligations under law.
Is the Minister aware there are only a handful of commercial golf clubs and very few are making a profit? Most of the open membership clubs are in serious debt. Will the Minister provide some hope that clubs which have a serious debt problem will be exempt from this imposition?
Much as I would like to facilitate the Deputy, Members and the golfing community, I cannot partially administer the VAT law which is applicable across the European Union. It is open to any commercial golf club to bring legal proceedings in the event of there not being a level playing pitch.
I argued this issue at length on the Finance Bill and tabled an amendment that the VAT rate should be reduced to 5 per cent. Is it possible to set the VAT rate at a nominal figure or at zero?
No.
I support Deputy Deasy's assertion. Commercial clubs which are taking in £100,000 in green fees are losing money as this would not pay the cost of building, servicing and maintaining the course.
The Deputy asked if I can set a zero rate of VAT but I do not have that freedom in the application of European Union VAT law or, because of the budgetary implications, the option of setting it at 5 per cent. Because of the interim stage we are at with EU VAT legislation that option is not open to us. There are other options open to the clubs. The Deputy's colleague, Deputy Michael Ahern, as a professional accountant could suggest ways to minimise this cost by being properly incorporated for all their activities. All their supplies which they buy in are subject to VAT and that could be offset against their VAT income so that there would be a gross and a net VAT income. I indicated this repeatedly to the representatives of the golf clubs. There is a sense that we are trying to squeeze some kind of miserable revenue from the golfing fraternity. That is not the case. We have no calculation as to what revenue will be generated from this. It is an obligation under law to which we must adhere. If we do not do it we will face a legal challenge, lose a court case and then be hit retrospectively for damages to commercial clubs going back to 1992. We all know the cost of retrospective damages. Deputies Eric Byrne and Kathleen Lynch can give fair testimony to the cost of retrospective damages for a breach of European law. We are not prepared to go down that road again.
Golf is not a game that I have ever played.
It is a Progressive Democrats game.
I am sure it is very relaxing and perhaps I should take it up. I was lobbied about the proposed increase in green fees, which shows the popularity of the sport.
I am sure the Deputy has a question.
The lobby is almost as powerful as the Dublin taximans' lobby because I too have been inundated with representations.
What is the expected revenue that will accrue to the State from this measure, given that it is not a revenue gathering exercise? How many clubs will be affected? Will the Minister mould a budget to target benefits-in-kind to clubs which will pay additional tax in order to alleviate their plight?
I do not have a precise figure from the Revenue Commissioners because they have no previous experience of this and do not know the thresholds or the revenue profile of the golf clubs. Any figure would be purely speculative. We are talking about a 12.5 per cent yield on golf clubs with a turnover threshold in excess of £20,000. Even if one were to make presumptions about all the golf clubs, the revenue generated would be very small in the context of the total revenue of £12.8 billion which the Revenue Commissioners gather. I am not in a position to do the type of thing the Deputy has asked.