Richard Bruton (Dublin North Central, Fine Gael)
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Question 71: To ask the Minister for Finance his plans to make changes in tax practice that would result in tips being subject to VAT; the reason for this tax on a gift; and if he will make a statement on the matter. [32719/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am advised by the Revenue Commissioners that tips and gratuities, which are discretionary and not included on the customer's bill as part of the amount legally obliged to be paid by the customer, have always been, and will continue to be, outside the scope of VAT. Revenue operated a concession for a number of years, whereby service charges in hotels and restaurants were not regarded as part of the amount subject to VAT provided those charges were distributed in full to staff. Unlike tips and gratuities, service charges are mandatory in nature and are part of the amount that customers are legally obliged to pay for the service.

In a European Court of Justice Case involving the EU Commission and France, the Court ruled that any amount that a supplier (restaurant, hotel, etc.) is entitled to receive for services supplied to customers forms part of the taxable amount for VAT. Revenue initiated discussions in August 2007 with hotel and restaurant trade representative bodies on the necessity of withdrawing the concession on service charges in the light of the Court's decision. In order to allow the sector reasonable time to make the necessary changes to systems and prepare staff for the change, Revenue announced in April 2008 that the concession on service charges would be withdrawn with effect from 1 September 2008. As on and from that date, taxable persons are obliged to account for VAT on the total consideration receivable, including service charges. However, as already stated, discretionary tips and gratuities continue to be outside the scope of VAT.