Jim O'Keeffe (Cork South West, Fine Gael)
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Question 171: To ask the Minister for Finance if his attention has been drawn to the problems confronting motor dealers with second hand stock which because of VRT changes and market conditions have been written down substantially in value but still carry a VAT clawback based on the original costs; if he has proposals to change this anomaly; and if he will make a statement on the matter. [10006/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In the case of second-hand cars a special scheme is in place in Ireland, following strong representations from the motor industry, rather than the margin scheme that is operated in most other member states. The special scheme allows motor dealers to claim credit for residual input VAT at the time of purchase which is considered to be included in the cost of acquiring a car from a customer. When the car is subsequently resold, the VAT is chargeable on the full sale price of the car or on the original purchase price paid by the dealer, whichever is the higher, because the dealer has already been granted a credit in relation to the residual input VAT incurred. The special scheme allows dealers the maximum benefit by allowing an immediate deduction of residual VAT at the point of purchase. The VAT credit already allowed on second-hand cars must, despite the industry's view, be seen for what it is — money advanced to dealers by the Exchequer which they are only repaying when they resell the cars.

Although with the changing economic circumstances dealers have found themselves selling traded-in second hand cars at a loss, which is increasingly giving rise to clawbacks of VAT situations for dealers, it is not possible to write off the VAT credit already allowed to the garages on second-hand cars. In this context, the Revenue Commissioners have granted concessionary treatment which allows dealers to postpone payment in respect of the clawbacks over the past number of months until 19 May 2009. I am not opposed to the introduction of a margin scheme for second-hand cars, but not on the basis proposed by the motor industry, which is that the outstanding VAT credit already provided to dealers in relation to their existing stock of second-hand cars would be written off in full.