Public sector - European Commission takes a case against Ireland |
The European Commission is taking a case against Ireland regarding the way it treats its public authorities for VAT purposes. It is taking the case because it regards the State, local authorities and bodies governed by public law as not being liable to register for VAT except in very limited circumstances. The Commission believes that Irish law should provide for a much broader range of circumstances in which the State, local authorities and bodies governed by public law should register for VAT.
The case ( Case C-554/07, see middle of the first column in the Official Journal) was recently heard by the European Court of Justice (ECJ) and a judgment should be issued within 12 months approximately. Based on previous judgments of the ECJ it is our view that the court will hold in favour of the Commission and that Irish law will have to be changed to bring it in line with the ECJ judgment. While this will mean that local authorities and other State bodies will, in certain circumstances, have to charge VAT following the change in the Irish law, it will also have a beneficial effect, as it will result in VAT recovery for those who have to register.
Background to the case
The case stemmed from a complaint about the fact that local authorities do not have to charge VAT on parking fees, whereas private companies do. The complaint brought by the Commission concerns not just the VAT treatment of local authorities regarding car parking but also the VAT rules that apply in general to the State, local authorities and bodies governed by public law.
The EU VAT Directive provides that public authorities are subject to the normal rules of VAT that apply to businesses when they are not acting in their capacity as a public authority. It also provides that normal rules of VAT would apply when they are carrying out their duties as a public authority but that the non-charging of VAT would lead to a significant distortion of competition. The Commission argues that the system in place in Ireland, whereby public authorities and similar bodies are not liable to VAT on their activities unless a specific order has been made to the contrary by the Minister for Finance, does not comply with these requirements.
For further information on this matter please do not hesitate to contact a member of the VAT team.
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