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

I would like to clarify that this legislation is an enabling provision only. It provides me, from 1 January 2017, with the power to exclude a particular agricultural sector from the farmers’ flat-rate scheme by way of a ministerial order. It does not exclude any sector from the flat-rate scheme from 1 January 2017; it merely gives me the power to make an order for any exclusion to apply. No agricultural sector will be excluded from the farmers’ flat-rate scheme on 1 January 2017. Before that can happen, the Revenue Commissioners must carry out a review of the sector and they will consider the business structures or models in place and the relationships between the parties involved. If they feel that the application of the flat-rate addition in this sector has resulted in and will continue to lead to over-compensation of VAT to those farmers, they will contact the persons involved and advise them accordingly. If those persons refuse to change the models or structures that give rise to the over-compensation of the flat-rate addition, a report will be forwarded to the Minister for Finance with a recommendation that the flat-rate scheme be withdrawn from the particular sector. In other words, the industry will have an opportunity to restructure its operations to allow it to remain within the scheme.

Any sector where such structures and arrangements have evolved should unwind them now if they wish to continue to operate under the flat-rate scheme. They will have adequate time between now and the completion of any such review to do so. Revenue has indicated to me that it would expect to commence any reviews that might be warranted from the start of the second quarter of 2017. I would urge any sector where there are issues of this nature to start the process of unwinding with immediate effect and to advise Revenue of its plans.

There are indications about the precise nature of the issue. There are indications that certain structures or models have emerged in some sectors which, through a combination of normal VAT deductibility rules and the flat-rate scheme, result in a much higher level of flat-rate addition payments and VAT recovery in the sector than would otherwise be available. While VAT should not be a cost to business, simplification schemes should not result in businesses being over-compensated. Where there is over-compensation of flat-rate farmers and certain sectors for VAT borne on their input costs, this would have implications for VAT neutrality and possible competitiveness within the sector and within the agricultural industry generally.

Deputy McGrath and a number of colleagues have asked that time be provided. There is no Deputy in favour of tax avoidance or tax evasion. The request has been for time. In summary, the position is that the legislation enables me to issue a directive in due course but I can only do so after the advice of the Revenue Commissioners, and they can only advise me after a review. They will not commence any review until the second quarter of 2017. When the report comes back to me, I would not expect to be issuing any order until later in the year, and certainly not rushing it.

My preferred outcome would be that the particular sector involved would move now to change its structure so that we would not be giving back more VAT than we collect because that is what it comes down to.

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