Bernard Allen (Cork North Central, Fine Gael)
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Question 194: To ask the Minister for Finance his views on a VAT compensation scheme for Irish charities in view of the VAT compensation scheme introduced in Denmark for registered charities there. [41813/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The position is that charities and non-profit groups engaged in non-commercial activity are exempt from VAT under the EU Sixth VAT Directive, with which Irish VAT law must comply. This means they do not charge VAT on the services they provide and cannot recover VAT incurred on goods and services that they purchase. Essentially only VAT registered businesses which charge VAT are able to recover VAT.

The Irish Charities Tax Reform Group (ICTRG) appears to accept that charities can not be granted VAT refunds through the tax system. However, they are still seeking the introduction of a grant or subsidy in lieu of the VAT charities pay on their business inputs and estimate that this would cost €18 million per annum. In this regard, I am aware that the Danish equivalent to the ICTRG has made proposals to the Danish Finance Ministry. I understand that a very limited scheme has been introduced.

I would add that the 140 bodies represented by the ICTRG already acknowledge that they receive €8.6 million in funding either directly or indirectly from the Exchequer. However, there are currently 7,000 charities registered with the Revenue Commissioners. It is therefore likely that the introduction of a scheme along the lines proposed by the ICTRG would cost the Exchequer significantly more than the €18 million they have estimated. The ICTRG will argue that they represent the largest charities but that is not the case as many educational and sporting organisations are also registered with the Revenue Commissioners as charitable or not-for-profit organisations. Therefore, the introduction of grant in lieu of VAT paid by registered charities would undoubtedly lead to other exempt bodies such as schools, hospitals and sporting, many of which are already registered as charities, seeking to benefit from such a system of refunds. These exempt bodies are already receiving considerable Exchequer funding.

Charities are exempt from Income Tax, DIRT, Stamp duty, Capital taxes and donations to charities are tax relieved. These are of substantial benefit to charities.