Richard Bruton (Dublin North Central, Fine Gael)
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Question 275: To ask the Minister for Finance if there are restrictions imposed by the EU VAT code on introducing new exempted activities, new zero rate activities, switching activities between the standard and high rate VAT bands and new VAT bands; and if he will make a statement on the matter. [5122/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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VAT rates are governed by the EU Sixth VAT Directive with which Irish VAT law must comply. Member states may only grant a VAT exemption to activities listed under Article 13 of this directive. Therefore, the introduction of new exempt activities does not arise. In general, these exemptions are transposed by the first Schedule to the VAT Act 1972, as amended.

Under the EU Sixth VAT Directive, member states may retain the zero rates on goods and services which were in place on 1 January 1991, but cannot extend the zero rate to new goods and services. It is possible to move existing zero-rated items to either the reduced rate or the standard rate. However, once moved, it is not possible to revert them to the zero rate.

Member states may apply up to two reduced VAT rates of not less than 5% to supplies of goods and services listed in annexe H of the EU Sixth VAT Directive. Ireland operates a single reduced rate of VAT of 13.5%. The goods and services in annexe H include certain foods, non-oral medicines, supply, construction and alteration of housing provided as part of a social policy, and newspapers and periodicals. Goods and services at the reduced rate may be moved to the standard rate, but only those listed in annexe H may be reverted from the standard rate to the reduced rate.

As regards the VAT rate structure, any changes made by member states must comply with the EU Sixth VAT Directive. Member states have the option of retaining the zero VAT rates which were in force on 1 January 1991 but no new zero VAT rates can be introduced. As a transitional arrangement, member states may maintain, at a reduced rate of not less than 12%, any items not listed in annexe H, provided such items were at a reduced rate on 1 January 1991. These goods and services are considered to be "parked".

In addition, member states may have up to two reduced VAT rates of not less than 5% for a specified number of goods or services which are set out in annexe H of the EU Sixth VAT Directive. Member states may not set the standard VAT rate lower than 15% and there is political agreement that the standard rate applying in each member state may not exceed 25%. Ireland's standard rate of VAT is 21%.

I hope this clarifies the European legislative framework which governs Irish VAT law.