Mr. Chad Egan:

I thank the Chair for the opportunity to make my opening statement. I am joined by Ms Davena Lyons, principal officer in the collector general’s office and Ms Leeann Kennedy, Revenue’s Oireachtas committee liaison.

Generally, businesses that are not registered for VAT cannot reclaim the VAT they incur. However, underpinned by legislation which I will refer to as the "refund order", Revenue operates the VAT refund scheme, which allows unregistered farmers to claim VAT refunds for certain expenditure. The objective is to get VAT refunds to qualifying farmers as quickly and efficiently as possible. To explain the background to that, under the VAT refund order, unregistered farmers can claim VAT refunds for the construction, extension, alteration or reconstruction of farm buildings or structures; fencing, draining and reclamation of farmland; and construction and-or installation of qualifying equipment for the purpose of micro-generation of electricity for use in a farm business. Outlay incurred for other purposes, for example, the acquisition of farm machinery or equipment, is not permitted under the order.

The refund order is an historic derogation which has been in place since 1972 and the allowable expenditure has remained almost the same for 50 years, apart from certain items for micro-generation of electricity. For each of the past three years, Revenue received more than 37,000 claims for VAT refunds from unregistered farmers, 96% of which were approved for payment. For the years 2021 to 2023, the value of approved claims under the VAT refund scheme was €85.7 million, €89.3 million and €88 million respectively. Approximately 55% of refunds arising from claims approved in 2023 issued within five days.

Revenue operates the VAT refund scheme on a self-assessment basis, with unregistered farmers submitting claims via Revenue’s online service, either through ROS or MyAccount. To support claims, Revenue encourages that invoices are supplied along with supporting documentation, photos, a detailed description of the works carried out, including the installation of any equipment and any contracts when claims are submitted.

This, in turn, assists Revenue caseworkers in validating such claims. In line with Revenue’s approach to processing claims across other taxes, claims made under the refund order are reviewed by Revenue against risk-based criteria and assessed on their own merits. Claims can be fully approved, partially approved or fully disallowed. Where a claim is subject to review, Revenue may return the claim to the claimant seeking further information. Where the conditions of the refund order are not met, such claims cannot qualify for a refund of the VAT.

Revenue has demonstrated a significant amount of flexibility around the administration of the refund order and gives due consideration to the context and nature of the claims that are made. Revenue has not changed its interpretation of the law on the refund order. Revenue’s risk assessment process has identified ineligible claims on certain types of farm equipment which are outside the scope of the refund order. While farming equipment is not provided for under the order, equipment may be allowed where it is considered a fixture. A fixture is an item that is permanently installed in the farm building and, once installed, cannot be removed without causing significant damage or destruction to the farm building or to the fixture itself. Claims for fixtures must demonstrate the construction, extension, alteration or reconstruction of a farm building. Claims which have been approved for a refund of VAT include water troughs that have been plumbed, meal bins over 10 tonnes in size, cubicle mats that have been bolted to the floor, hydraulic scrapers, drafting gates and new-build milk parlours. However, VAT refund claims for other types of expenditure are not allowed as they do not meet the conditions of the refund order, and these include heat and health monitoring systems and slurry bags.

Revenue is engaging with the farming sector to explain the situation with regard to the law and the claims process. Revenue, together with officials from the Department of Finance, met with the Irish Creamery Milk Suppliers Association, ICMSA, in December 2023 and the Irish Farmers Association in January 2024. A follow-up meeting with the ICMSA was held on 22 April 2024. Revenue is engaging proactively with both representative bodies with a view to providing clarification regarding meal bins, calf feeders, milk tanks, certain cubicle or slat mats, water systems and matters related to multi-year farming construction projects and has invited submissions from the representative bodies in this regard. Once these outstanding matters are finalised, Revenue intends to publish updated guidance which will address any lack of clarity about the operation of the scheme.

The items for which VAT can be reclaimed under the refund order are determined by legislation. Revenue can only refund VAT incurred on the particular business expenditure outlined above in line with EU and Irish VAT law. Revenue cannot interpret the order in such a way as to allow refunds for expenditure which are not specifically provided for in legislation. Under VAT law, it is always open to a farmer to elect to register for VAT in respect of their farming business. All VAT-registered farmers are entitled to claim a deduction for any VAT they incur on inputs used for their business, subject to the normal rules on deductibility. I take this opportunity to draw the committee’s attention to section 851A of the Taxes Consolidation Act 1997 and the obligation to uphold taxpayer confidentiality. Subject to this constraint, we are happy to answer the committee’s questions.