Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Question 78: To ask the Tánaiste and Minister for Finance the constraints that directives from the European Union put on the ability of this State to make changes to the VAT regime, including the State's ability to make changes to the number of VAT bands and the rates which they are set at. [7693/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The position is that the VAT regime and indeed the rating of all goods and services are subject to the requirements of EU VAT law with which Irish VAT law must comply. Whilst it would not be possible to provide a detailed breakdown of the complex rules and regulations governing VAT, the following summary addresses the specific points raised by the Deputy.

Under the EU 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. This means that since 1 January 1991 no additional goods or services can have the zero VAT rate applied to them. However, it is possible to move existing zero rated items, as appropriate, to either the reduced rate which in Ireland is 13.5% or the standard rate which is 21%. However, once moved, it would not be possible to revert them to the zero rate.

Member States may have up to two reduced VAT rates of not less than 5 per cent for a specified number of goods or services which are set out in Annex III of the EU VAT Directive. The goods and services in Annex III 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 Annex III may be reverted from the standard rate to the reduced rate. Ireland, in common with the vast majority of Member States, only operates one reduced VAT rate.

In addition, Member States have the option of maintaining, at a reduced rate of not less than 12 per cent, any items not listed in Annex III, provided they carried the reduced rate on 1 January 1991. These items are considered to be 'parked' and Ireland's parked rate is the same as our reduced rate of 13.5%. Domestic fuels, restaurant services and labour intensive services are examples of "parked" items.

Member States must apply a standard VAT rate of not less than 15% to goods and services that are not subject to VAT at the zero rate, are not 'parked' and which are not listed in Annex III of the EU VAT Directive.