Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I am pleased to have this opportunity to deal with the question of VAT incurred on the purchase of equipment used by mountain and lowlands rescue teams. I acknowledge the excellent work undertaken by these teams made up of unpaid volunteers, who provide a very important emergency rescue service to the public, often in difficult circumstances, terrain and weather.

It is important to clarify what is referred to in this instance by an exemption from VAT for mountain rescue teams, as this can have a number of meanings in Irish VAT law. As the Deputy has pointed out, that law must comply with the EU VAT directive. An exemption from VAT could refer to supplies of goods or services made by mountain rescue bodies. It could also refer to the supply of goods and services exempt from VAT, or at a zero rate of VAT, to mountain rescue bodies. Finally, it could refer to a compensation mechanism allowing mountain rescue bodies to claim a refund of VAT incurred on their purchases.

In general, exemption from VAT refers to a situation where goods and services are supplied without VAT charged on them but where the supplier of those goods is not entitled to claim any VAT paid on their input costs. The same system applies to bodies and persons who are outside the scope of VAT. Mountain rescue bodies are generally outside the scope of VAT. As such, they do not apply VAT to any supplies they make, such as merchandising, and they cannot claim VAT paid on their purchases. Where a mountain rescue body is registered for tax purposes as a charity, it will be exempt from VAT and the same VAT treatment applies.

The EU VAT directive provides that certain services are exempt from VAT, including medical services, some postal services and financial and insurance services. Other services are specifically exempt from VAT in Ireland for historical reasons, such as transport services and the supply of water. The supply of goods is not normally exempt from VAT. It is not possible, therefore, under EU VAT law, to introduce an exemption from VAT on goods and services received by mountain rescue teams. Any goods and services attracting the zero rate of VAT will also benefit mountain rescue bodies purchasing such goods or services. However, the application of the zero rate can only apply to goods and services which were subject to the zero rate on and from 1 January 1991.

Ireland applies a zero rate to most food, books, oral medicines and children's clothing and footwear. Where mountain rescue teams purchase such goods they will be free of VAT. However, it is not possible under EU VAT law to introduce a zero rate on any goods not subject to the zero rate on and from 1 January 1991.

With regard to the introduction of a compensation mechanism allowing mountain rescue bodies to claim a refund of VAT on their purchases, the Value Added Tax Consolidation Act 2010 allows for the creation of VAT refund orders which provide compensation for VAT incurred by individuals or bodies in specific circumstances. However, while providing a compensation method does not affect VAT being charged according to the EU VAT directive, this is not clear-cut where relief is provided in respect of a particular good or service as it is generally counter to the provision that VAT should be paid by the final consumer of goods and services. It is for this reason that Ireland has not introduced any new VAT refund orders since the I980s. Any changes to VAT refunds since then have been either by EU requirement or minor changes to existing refund orders.

A VAT refund order for the purchase of small sea rescue vessels was introduced in 1985, which provided for repayment of VAT incurred on small craft for rescue at sea and on ancillary equipment. This was extended last year to cover small rescue vessels operating on inland waterways. This followed the introduction of a zero rate of VAT in 1978 on the supply of larger sea rescue vessels, which was specifically provided for under EU VAT law, under Articles 148 and 169 of the recast EU VAT directive. Irish VAT law does not specifically provide a refund of VAT for mountain rescue teams purchasing mountain rescue equipment as the EU VAT directive does not provide for a VAT exemption for such goods. Should VAT law be amended at EU level to allow mountain rescue equipment to be exempt from VAT, or for the introduction of a compensation mechanism for VAT incurred on mountain rescue equipment, I will then consider introducing such a reform, taking into consideration Exchequer implications.

The Deputy will also be aware that mountain rescue organisations receive Exchequer funding from my colleague, the Minister for Transport, Tourism and Sport, with over €1 million paid to mountain rescue teams and management organisations over the past five years.

See this speech in context