The background to this issue is that VAT legislation does not apply the zero rate of VAT to food supplements but shortly after the introduction of VAT Revenue applied a concessionary zero rating to certain vitamin, mineral and fish oil food supplement products. As the market developed over the years this treatment resulted in the zero rating by Revenue of further similar products, including products other than vitamins, minerals and fish oils, and these rulings were published in Revenue’s VAT rates database. The evolution of the scope of the concessionary treatment of certain types of food supplements was well understood by the industry and by agents representing clients in the food supplements sector, and this is reflected in Revenue’s correspondence with taxpayers involved in this business and their agents, in its discussions with the Irish Health Trade Association (IHTA) and in the content of its VAT rates database.
In the operation of this concessionary treatment, it had become increasingly difficult to maintain an effective distinction between food supplements that could benefit from the zero rate and those that were standard rated, resulting in a situation in which elements in the industry and certain agents aggressively pursued zero rating of all kinds of products, including products claiming to enhance male fertility, promote hair growth, boost tanning, avoid a hangover, build muscle and reduce stress. These businesses consistently challenged Revenue guidance and Revenue decisions on the VAT rating of products giving rise to serious concerns about compliance within the industry and unfair competition between compliant and non-compliant businesses.
The IHTA raised concerns with Revenue about the difficulties in distinguishing between food supplement products which could be zero rated and those which should be standard rated. In response, Revenue undertook a comprehensive review of the VAT treatment of food supplements and engaged an expert to advise on the definition of food for the purposes of the VAT Consolidation Act, 2010. Based on the expert advice and its own legal analysis, Revenue concluded that the status quo was no longer sustainable and engaged with my Department concerning policy options that might be considered in the context of Finance Bill 2018.
I decided not to introduce any legislative changes at that time but as the Deputy may be aware I have committed to putting in place a consultation process to help me identify the policy options in relation to VAT on food supplements and will publish the conclusions in the Tax Strategy Papers later this year. I envisage seeking input from a wide range of interested parties, including from health and nutrition experts, to ensure that any legislative changes I bring forward are evidence based, and I will consult with my colleague the Minister for Health in this regard. Details on the public consultation will be announced shortly.
