Pearse Doherty (Donegal, Sinn Fein)
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68. To ask the Minister for Finance if the current tax rules regarding the importation of vehicles from the North, including the charge of VAT and 10% customs duty, are required under European law; his views on their impact on North-South trade; and if he will make a statement on the matter. [21538/23]

Pearse Doherty (Donegal, Sinn Fein)
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It has been estimated that the price of second-hand cars has risen by 80% since the pandemic. I want to raise the impact of recent changes to the tax treatment of second-hand vehicles coming in from the North and its impact on the all-island car market. Recent changes mean that three charges may now apply to these vehicles, namely, vehicle registration tax, VRT, which we always had, but also now custom duty at 10% and VAT at 23%, which are new charges in many cases. Can the Minister clarify if these changes were required under EU law? What is his view on the impact this is having on the all-Ireland car market when we consider all three charges together?

Michael McGrath (Cork South Central, Fianna Fail)
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Since the UK left the EU Single Market and customs union, from 1 January 2021, the movement of goods from Great Britain into the EU is an importation from a third country and, in accordance with the terms of the withdrawal agreement, such goods must be declared to customs and are liable to customs duty, if applicable, and VAT at import.

However, the EU-UK Trade and Cooperation Agreement eliminated tariff duties for trade between the EU and Great Britain where the relevant rules of origin are met. This means that if vehicles are imported which are of UK origin then a 0% duty applies, whereas duty of 10% applies to vehicles which are not of UK origin.

Under the terms of the protocol on Ireland-Northern Ireland, the movement of goods between Northern Ireland and the EU is effectively regarded as a movement within the EU. However, a particular issue has existed with regard to used cars, known as margin scheme cars, following a significant change that the UK unilaterally made in January 2021, which impacted considerably on the application of the withdrawal agreement and the protocol. The UK asked the Commission for a permanent derogation from the VAT directive to allow it to operate the scheme, but the Commission refused on the basis that the margin scheme cannot be applied on sales in Northern Ireland of second-hand cars imported from any third country, including Great Britain, and would result in opportunities for significant abuse.

To counteract the tax avoidance opportunities this presented, Revenue revised its published guidance in February 2021 indicating that used cars imported from Great Britain into Northern Ireland after 31 December 2020 could only be subsequently imported into the State and re-registered here after they were declared to customs and if customs duty, if applicable, and VAT at import were paid. This ensured that the cars were liable for VAT and duty on the same basis as used cars brought into the State directly from Great Britain. It was made clear that the approach was temporary in nature, pending a resolution to the issue between the UK and the European Commission.

The Ceann Comhairle might bear with me because I am almost finished.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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I have been bearing with everyone else; I might as well bear with the Minister.

Michael McGrath (Cork South Central, Fianna Fail)
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Since 1 May 2023, the UK Government has introduced a new scheme known as the second-hand motor vehicle payment scheme. The new scheme allows car dealers who are VAT registered in Northern Ireland and other member states to reclaim the VAT element of the vehicle cost if the vehicle is purchased in Great Britain and removed or exported from there by the purchaser or by the Great Britain dealer. This means that Irish car dealers will now be in the same position as Northern Irish car dealers when purchasing a qualifying vehicle from Great Britain. In light of the UK’s very recent introduction of the second-hand motor vehicle payment scheme, Revenue is currently considering its impact and I expect updated guidance to be published shortly.

I thank the Ceann Comhairle for his forbearance.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for putting all that on the record. We will look at that. I have read the Revenue guidance in detail. However, there is an impact here. The North has been a big supplier of cars as, indeed, has Britain. The figure we were looking at 2019 was approximately 120,000 but the North, in particular, and, obviously, Border counties, would have had more.

Revenue gives an example of the two additional charges that now apply, that is, customs duty, which would not have applied in the past, and VAT, which would not have applied in the past in certain cases. It has now given an example of a car purchased into the State at €32,000. When customs duty is added, it goes up another €3,250 and with VAT, it goes up another €8,223. Then, VRT has to be paid on top of it. Therefore, before we even look at VRT, the car has gone from €32,000 up to €43,000.

I am aware there have been recent changes in terms of tax law in Britain that will impact on this. However, is the Minister considering any measures with regard to how VRT is now applied to the importation of those cars given that there is a significant increase in other charges, namely, customs duty and VAT?

Michael McGrath (Cork South Central, Fianna Fail)
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As I said in the initial reply, the new scheme that has been produced by the UK Government is very recent. It only came in on 1 May. The Revenue Commissioners are currently examining the second-hand motor vehicle payment scheme. They are considering the impact and they will publish updated guidance shortly. I am not currently considering any particular change to the application of VRT but in light of the introduction of the new scheme in the UK, I will discuss the matter with Revenue to see what we might need to consider here in Ireland.

We are all monitoring the situation but, as I said, there has been a significant increase. The car we could have purchased a number of years ago at €32,000 is now €43,400 just because of taxes. Car prices have also increased because of the pandemic and the shortage of supply.

There are other issues that I will take the opportunity to raise. There is increased frustration among many dealers in respect of the requirements they have to fulfil with Revenue in terms of showing a car was imported from the UK or that it was in the North for a number of years. All of these rules are changing and it is causing serious problems. The Minister talked earlier about businesses needing certainty and I agree entirely. We need more clearly understood guidance for importers of cars from Britain or the North. They are importing cars and thinking they are paying zero rates only to find they have to pay 10%. That means their margin is gone and they have lost out. There are no profits and those dealers have made a loss on the car. We need a better system.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Deputy. It has been a messy period for the motor sector and its trade with the North and Great Britain because of Brexit. When one considers what has transpired since Brexit, including the unilateral changes that were made in January 2021 and the fact that Revenue had to update its guidance in response to the withdrawal agreement, the Northern Ireland protocol and a new scheme from the UK that was introduced last week, there have been too many changes and we need a period of certainty. I will engage with the Revenue Commissioners on the specific issues the Deputy has raised to see if we need to consider any changes.