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

VAT is a tax on consumption and is applied to supplies being made by a person and not to supplies received by him or her. In this context, it is not possible under EU VAT law, with which Irish VAT law must comply, to introduce VAT exemptions based on services received or on the basis of the recipient of a service, nor is it possible to allow for zero rating of such supplies.

Non-profit groups engaged in non-commercial activity are exempt from VAT under the EU VAT directive. This means that they do not register for VAT and cannot recover VAT incurred on goods and services that they purchase. This non-entitlement to VAT deductibility is a general feature of VAT exemptions. There is no provision in European or Irish VAT law to allow a zero rating or exemption for supplies of this nature. However, there is a specific VAT refund order that provides for VAT incurred on the purchase or importation of new medical instruments and appliances, excluding means of transport, which is purchased through voluntary donations, and may be refunded to hospitals or donors, as appropriate, subject to conditions. In addition, there are a number of other VAT refund orders that provide for refunds of VAT in certain circumstances, such as where the VAT is incurred on aids or appliances for persons with a specified degree of disablement.

A working group was established last year, comprising representatives from my Department, the Revenue Commissioners and the Irish charities taxation reform group, to examine options available to reduce the VAT burden on charities. The report from the group is available on the budget 2016 website. On the basis of that report, I decided at the time not to introduce a VAT refund scheme for charities as the charities sector already benefits from a range of ministerial refund orders and special tax treatment across a number of tax heads. Requests for new ministerial refund orders have been consistently refused since the 1980s primarily to maintain the integrity of the VAT system.

Additional information not given on the floor of the House.

However, A Programme for a Partnership Government recognises the difficulties faced by community groups and charities in relation to VAT rates on certain products such as defibrillators and commits to raising the issue at EU level. The European Commission's action plan on VAT was adopted on 7 April 2016 and contains a proposal to look at VAT rate policy across the EU in 2017. The action plan's proposal on rates may offer member states more flexibility in the future in determining VAT rates applicable to goods and services. This forum will provide an opportunity to discuss VAT rates applicable to goods and services. However, the Deputy will be aware that any proposed changes to the current EU VAT directive would require unanimous agreement from all member states.

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