Seán Ryan (Dublin North, Labour)
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Question 321: To ask the Minister for Finance the reason that a VAT rate of 21% applies to a magazine (details supplied) since 1 January 2006 when prior to this date it was zero rated. [10401/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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There were no changes to VAT rates in the 2006 budget. Periodical publications such as magazines and newspapers are generally liable to VAT at the reduced rate of 13.5%. On the other hand, part-works, that is, component parts of large works that are published over a limited and pre-determined period and which include a related binder supplied free of charge, are treated differently for VAT. Such part works are not regarded as periodical, but rather are treated as a book or booklet and attract a zero rate of VAT.

Section 11(3) of the Value-Added Tax Act 1972 provides a special rule, commonly referred to as the package rule, for the VAT treatment of goods that are packaged for sale as a unit. To guard against abuse of the VAT system, such packaged goods are made liable to VAT by reference to the highest rate appropriate to any of the goods in the package, which can be the 21% if goods, such as toys, make-up, etc, are supplied with a magazine or newspaper. However, excluded from the package rule are goods the total VAT-exclusive value of which does not exceed 50% of the total VAT-exclusive price of the package or 40 cent, whichever is the lesser.

Moreover, the rule is not applied in the case of goods which are genuinely supplied free as part of the sale of a package. For example, a newspaper that is sold with a free CD remains liable to VAT at the 13.5% rate and does not fall into the 21% rate. Also, in certain limited circumstances, Revenue has agreed to set aside the package rule and accept an apportionment of the total price of the packaged goods by reference to the individual goods that make up the package and have permitted traders to account for VAT at the appropriate rate for each of the individual goods.

During 2005, as part of its normal operations, Revenue had dealings with a number of suppliers of magazines and, in the context of giving guidance on the practical application of the rules and regularising the VAT treatment of certain magazines, etc., agreed an approach with the suppliers which was to be used with effect from 1 January 2006. In the light of the issues now raised, Revenue will contact the suppliers in question to ascertain the precise circumstances under which the supplies in question were made with a view to providing any further guidance necessary on the correct application of VAT law.

The Finance Bill 2006 contains proposals for replacing the current rules in this regard with different methods of arriving at the correct VAT liability on the supply of goods or services that are sold in conjunction with each other for a single price. Under the proposed new rules, when a separate good, for example, a toy, CD, etc. is supplied with a magazine, the relative value of each element of the supply will be taken into account in determining the VAT liability. The Revenue Commissioners will be issuing new guidelines on the practical application of the new rules in due course.