Dan Boyle (Cork South Central, Green Party)
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Question 110: To ask the Minister for Finance his views on the Danish system of refunding VAT paid by charities. [10148/07]

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 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 respect of the bodies they represent. However, given that Exchequer funding is made available to very many charitable organisations this is in effect already happening.

The 140 bodies represented by the Irish Charities Tax Reform Group already acknowledge that they receive some €9 million in funding either directly or indirectly from the Exchequer. However, there are approximately 7,000 charities registered with the Revenue Commissioners. It is therefore likely that the introduction of a scheme along the lines proposed by the Irish Charities Tax Reform Group would cost the Exchequer significantly more than the €18 million estimate put forward by the group in respect of the bodies they represent.

I understand that the only EU Member State to introduce a scheme providing partial compensation for a limited number of charities for VAT incurred on input costs is Denmark. To be eligible under the Danish scheme charities must already be approved bodies under the Danish equivalent of our tax relief on donations scheme. My Department understands that some 750 charities in Denmark could benefit as a result. In comparison, over 1,900 organisations have to date been approved under the Irish donations relief scheme. It also understands that under the Danish scheme educational institutions are not eligible for compensation.

It is likely, therefore, the introduction of any grant system in lieu of VAT paid by registered charities in Ireland would undoubtedly lead to other exempt bodies such as schools, hospitals and sporting organisations, 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.

The tax code already treats charities in a favourable manner. The tax code currently provides exemption for charities from Income Tax, Corporation Tax, Capital Gains Tax, Deposit Interest Retention Tax, Capital Acquisitions Tax, Stamp Duty, Probate Tax, Dividend Withholding Tax and the uniform scheme of tax relief for donations. While no overall definitive figures are available on the cost to the Exchequer of charitable tax exemption status, Revenue estimated in 2005 that the cost of the various tax exemptions and tax reliefs, including the tax relief on donations scheme, in place for bodies conferred with charitable status could be as high as €190m annually.

In addition to tax exemptions and reliefs, charities, voluntary and community groups, sporting bodies benefit significantly from grants schemes administered by a number of Government Departments. Finally, even if funds were available for grant-aiding charities and other voluntary groups, I am not sure that the most appropriate use of the funds would be to relieve them of the VAT paid on inputs as opposed to grant-aiding their activities using other criteria.