Tuesday, 15 April 2014
Topical Issue Debate
Mountain rescue teams perform an essential job on a voluntary basis. I acknowledge and welcome the funding provided by the State to the 12 teams operating in Ireland. I also welcome the work of the Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, in directing his officials to examine the introduction of a modest capital grant scheme to support the vital work of the teams.
Tourism and physical activity are two areas on which the Government is focusing generally. Both involve the development of outdoor sports and adventure activities which have a hugely positive impact on rural economies. The Department of Transport, Tourism and Sport, the Department of Jobs, Enterprise and Innovation and Fáilte Ireland are working together to encourage more people to visit Ireland by emphasising the adventure tourism activities on offer here, including hill walking, mountaineering, rock climbing, mountain biking and more. The Department of Health's Healthy Ireland strategy, a framework for promoting improved health and well-being, encourages citizens to take up exercise to realise the health benefits of outdoor pursuits. These policies increase the number of people on our hillsides and mountains, which is very welcome. At the same time, however, there is likely to be an increase in the numbers requiring the services of our voluntary mountain rescue teams.
To provide this often life-saving service, mountain rescue teams must be adequately equipped, which can be costly. While we rightly fund the rescue teams from State funds, it does not make sense for the State to charge taxes on the procurement of equipment. VAT has long been a cornerstone of the EU's method of funding its institutions and activities. This can be seen in the original EEC Directive No. 338 of 1977 and subsequent directives governing the administration of VAT in member states. These directives aimed to establish a common system of VAT and a uniform assessment process. The most recent update to VAT law at EU level was Council Directive No. 112, which was introduced in November 2006 and came into operation from January 2007. Under this provision, member states retain overall competency in taxation matters. However, EU rules pertaining to VAT have established a standard 15% rate, with member states permitted to apply one or two reduced rates not lower than 5% on certain products or services. Member states such as Ireland and the United Kingdom have also been permitted to retain reduced rates which were already in force prior to the introduction of various EU directives. Other exemptions from VAT are permitted for socioeconomic reasons and include activities such as hospital and medical care and goods and services linked to welfare, work, education and cultural activities. Significantly for this particular debate, a zero rate of VAT and a VAT refund order apply to vessels for rescue or assistance at sea and on inland waterways, respectively.
The European Commission has commenced a communication process involving the Parliament, Council of Ministers and the European Economic and Social Committee on the future of VAT. The overall aim is to create a simple, more robust and efficient VAT system for the Single Market. In its communication, the Commission calls on member states to make use of the existing options to alleviate the burden of VAT on non-profit organisations and offers to provide guidance on the VAT regime applicable. Mountain rescue teams are the very definition of non-profit organisations, as reflected in the relevant sections of the VAT directive. For example, Article 132, subsection 1(m), refers to "the supply of certain services closely linked to sport or physical education by non-profit-making organisations to persons taking part in sport". Article 131, subsection 1(p), talks about "the supply of transport services for sick or injured persons in vehicles specifically designed for the purpose, by duly authorised bodies". Article 133 further identifies the organisations that may be covered by various provisions of Article 132 and notes that the organisations "must not systematically aim to make a profit" and "must be managed and administered on an essentially voluntary basis".
I am calling on the Minister to extend the exemption from VAT to mountain rescue and lowlands teams in order that they can conduct their vital work in the most efficient and effective way.
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.
I thank the Minister for his reply, which I will need to study in more detail. If it is the case that current provisions of the VAT directive regarding exemptions, some of which I have outlined, are not applicable to mountain rescue teams then the European Commission's communication on VAT represents a prime opportunity to bring about this necessary change. In this regard, the European Commission cannot act alone. While the Parliament has a role to play, more specifically, the Council of Ministers, which in this case is the Council of Finance Ministers, has a central role to play. One of the greatest challenges in terms of law making and the introduction of reforms at EU level is the complexity of the European Union. I fear that while many people in many countries would agree with the exemption of mountain rescue equipment from VAT, with all the wrangling in regard to who is responsible for this, no reforms will be made.
The Minister stated in his reply that should VAT law be amended at EU level to allow mountain rescue equipment to be exempted from VAT, he would consider introducing such a reform here. The issue now is how we make the case for this at European level. I believe that the European Council of Finance Ministers can provide the necessary leadership in this regard. I note and welcome the Minister's reply this week to a parliamentary question tabled by me in which he said: "Where VAT law is amended at EU level to provide that VAT does not apply to mountain rescue equipment or for the introduction of a compensation for VAT incurred on mountain rescue equipment, I will then consider introducing such a reform". I would like to leave here today in the knowledge that the Minister, as a member of the Council of Ministers, will champion this issue and persuade, convince or cajole the other ministers into working with the European Commission and the Parliament into making mountain rescue equipment exempt from VAT. Perhaps the Minister will when responding say whether other countries have put forward similar initiatives to that which I am proposing in respect of mountain equipment.
There has been no discussion on this issue at the Council of Ministers. In my view, when seeking a change such as this in the code, which change is relatively minor, the best approach is to go through the European Parliament. The Deputy has an opportune time now in the context of the European elections, to lobby the candidates for the European Parliament on making this one of the objectives of their campaign. It is not a huge request. If the impetus came from the Parliament, I am sure the change could be made. I will follow if the EU VAT directive is changed.