Brian Lenihan Jnr (Dublin West, Fianna Fail)

I understand the intention behind the amendment is to delay the introduction of the margin scheme for travel agents for a further two years until 1 January 2012. The margin scheme is provided for in the EU VAT directive and is currently applied in almost all member states. To date, the services provided by our tour operators and travel agents have been exempt from VAT in Ireland. Under the margin scheme, tour operators will account for VAT on the profit realised on the supply of a travel package. In addition, travel agents acting as intermediaries would be liable to VAT on their commission. Under the scheme both tour operators and travel agents will be entitled to deduct or recover VAT incurred on the overheads associated with delivering their services.

The requirement to introduce a margin scheme in Ireland arises from a decision of the appeal commissioners in 2007 which overturned our previous interpretation of the EU VAT directive in this area. From then, outbound tour operators, while remaining exempt from VAT, became entitled to deduct or recover VAT on their business inputs. There is an ongoing Exchequer cost of about €2 million per annum as a result and there is also now a disparity in terms of the VAT treatment in the sector in that some tour operators get deductibility for their inputs in Ireland without corresponding taxation anywhere in the European Union.

In the light of the decision it has become clear that to implement the directive correctly Ireland is obliged to introduce a margin scheme. The scheme regularises VAT treatment across the sector and will apply to tour operators established in Ireland. Under the scheme tour operators account for VAT in Ireland at the standard VAT rate on the profit margin realised on domestic and EU bound travel packages. The introduction of the margin scheme will bring Ireland into line with the majority of the other member states.

The decision to introduce the margin scheme on 1 January 2010 was well signalled and was no surprise to the travel trade. It could be argued that we should introduce the margin scheme well before that date given that the appeal commissioner's decision was made in 2007. Ample time has been given for preparation for the new arrangements. The main tour operator representative bodies are continuing to engage with the Revenue Commissioners in the development of the ground rules to ensure a smooth introduction of the scheme on 1 January next year.

To postpone the margin scheme for a further two years would mean a continuation of the current tax distortion between tour operators and a continuing drain on the Exchequer. Ireland would also become liable for contravention of an EU VAT directive and susceptible to infringement proceedings. The introduction of the scheme is expected to yield about €10 million per annum, mainly from the outbound sector. In the circumstances a deferral of the introduction cannot be accepted and, consequently, I cannot accept the amendment.

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