As the Deputy is aware, I took the first available opportunity in budget 2004 to deal with an unacceptable interpretation of the VAT law in this area. Developers have attempted to avoid VAT by artificial means by attempting to put themselves in a position where they are not entitled to take a deduction for VAT incurred on the development of a site and thereby claimed that they did not have to charge VAT on the sale of such sites. This is an abuse of VAT law as there are few cases, if any, where a developer is not entitled to a deduction for VAT suffered on the development of residential sites.
On budget night, it was then indicated that the potential loss of VAT in respect of one case could amount to €18 million. However, I am now informed by the Revenue Commissioners that while it is not possible to establish with any certainty the total amount of tax that would have been paid but for this particular VAT scheme the €18 million figure identified in one case is now significantly less. To date the particular interpretation of VAT law has been found to be in use in a total of 20 cases but a countrywide investigation is ongoing in relation to other cases in which there are indications that the scheme may have been used. Revenue continue to contest the validity of the scheme with a view to recouping any VAT not correctly accounted for.
I am informed that the Revenue Commissioners first became aware of the use of such an interpretation in a number of cases last summer. The Revenue Commissioners had previously encountered isolated similar instances of efforts by taxpayers to take sites out of the VAT net. These had been challenged successfully in most instances on a case by case basis. The Revenue Commissioners are devoting considerable resources to identifying the incidence of the scheme and pursuing the correct VAT liability.