Dáil Éireann díospóireacht -
Thursday, 17 May 2001

Vol. 536 No. 4

Written Answers. - Service Charges.

Breeda Moynihan-Cronin

Ceist:

71 Mrs. B. Moynihan-Cronin asked the Minister for Finance the implications for Ireland of the recent decision of the European Court of Justice regarding the imposition of VAT on service charges; and if he will make a statement on the matter. [14235/01]

Minister for Finance (Mr. McCreevy)

I assume that the Deputy is referring to Case C-404/99, Commission of the European Communities f2>v. French Republic, concerning the exclusion from the taxable amount for the purposes of value added tax of the service charges claimed by certain taxable persons.

We are still studying the judgment, which is binding, and what changes, if any, will be required in Irish procedures on foot of it. A somewhat similar situation applies in Ireland and it is being considered by the Revenue Commissioners.

The Commission argued that the French Republic has failed to fulfil its obligations under Articles 2(1) and 11A(1)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the member states relating to turnover taxes. The Commission, in its application, was solely concerned with service charges, which are paid on a compulsory basis by the customer and the amount of which is deter mined in advance, and not with tips paid spontaneously and without compulsion by the customer to a given employee.

The European Court of Justice found that it is clear that the system of exemption from VAT, allowed by the French tax authorities in the context of an administrative concession which is confirmed by the 1976 instruction, and which derogates from the rules laid down by Articles 2(1) and 11A(1)(a) of the Sixth Directive, does not fall within any of the situations covered by Article 11A(3) of that directive. The court also found that it follows that the service charge element must be included in the taxable amount for VAT purposes attributable to the service provider concerned, and that there are no circumstances in which a supplier may be permitted to exclude such charges from his taxable amount for VAT purposes.

The court concluded that factors advanced by France regarding the historical and political context and the social objective underlying the exemption of service charges from VAT are irrelevant for the purposes of assessing the compatibility of the concession in question with the rules laid down by the Sixth Directive.

Question No. 72 answered with Question No. 8.