On 16 July 2009 the European Court of Justice ruled in case C-544/07 against Ireland, that Ireland should amend its VAT legislation to provide that services provided by State and public bodies, including local authorities, are in general subject to VAT. The Finance Act 2010 provided that such services will become taxable from 1 July 2010.
With regard to the definition of not-for-profit activity under VAT legislation, under the EU VAT Directive, treating local authorities and State bodies as not-for-profit organisations is not possible. The Directive provides distinct and separate regulation for not-for-profit bodies and State bodies, including local authorities. It is not possible to exempt from VAT any activity of a State body, including a local authority, or indeed any other business, simply because it is not making a profit.
Nonetheless, provision was made in the Finance Act that VAT on the supply of sports and community-type facilities by public bodies will come into effect not on 1 July but by Ministerial order. This will allow for a more complete examination of the issues, including an analysis of how the new rules might best be implemented. In practical terms this means that, for the present, the supply by local authorities of football pitches, swimming pools, halls etc to local clubs and societies will not be subject to VAT.