Ms Josephine Feehily:

The Chapter under consideration today reviews the processes that the Revenue Commissioners have in place to manage the risks associated with intra-Community trade. VAT is a consumption tax levied on the value added at each stage of production and distribution. As businesses are able to reclaim any VAT they pay on goods or services, it is the final consumer who ultimately pays it.

In the context of trade between EU member states, VAT is generally collected in the member state where the goods or services are consumed, in line with the rates in that country. This differs from purely domestic transactions, where the supplier charges VAT and is responsible for paying it over to Revenue.

The Irish VAT system operates in the context of an EU-wide legal framework of rules and directives in which the VAT risks arising from intra-Community trade are recognised and continue to be addressed, including by the Irish Presidency of the EU. As pointed out in the Chapter, it was intended that the current system, which was introduced in 1993, would be transitional and eventually replaced by the so-called definitive system in due course. Given the lack of consensus among member states on EU Commission proposals, however, this did not happen. Driven by the overriding need for trade to proceed freely between states in a single market, to enable controls at the EU's internal borders to be abolished and to allow taxes to be collected in the member states where consumption took place, the current system was adopted.

Within the parameters of EU rules, Revenue endeavours to operate the current system in a manner that protects VAT yield while being conscious of the administrative burden it places on compliant businesses. VAT is a self-assessed tax and traders are subject to Revenue's normal compliance and audit activities that apply to all such taxes, as well as those that apply specifically to EU trade.