Willie Penrose (Longford-Westmeath, Labour)
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Question 115: To ask the Minister for Finance if he has received correspondence (details supplied) from the County Managers Association in relation to concerns of local authorities in relation to VAT changes in the Finance Bill; if, in this context, he has given consideration to the propositions made therein; and if he will make a statement on the matter. [17572/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have received correspondence from the County Managers Association which deals with a number of matters in relation to the application of VAT to services provided by public bodies including local authorities. The European Court of Justice ruled, in the case C-544/07 against Ireland on 16 July 2009, that Ireland should amend its VAT legislation to provide that State and public bodies are in general subject to VAT. This case goes back to 2004 when infringement proceedings were taken by the European Commission against Ireland. Given the time that has passed since the Court's Judgement, and since the commencement of the case, it is imperative that the VAT implementation takes place as soon as possible.

1 July 2010 was chosen as the date of implementation of VAT in order to allow time to process the relevant legislation and for State and public bodies, including local authorities, to prepare for the change to their administrative systems. Indeed, since the Judgement issued the European Commission have corresponded with us on a number of occasions seeking updates on our progress in its implementation and we have informed them of the recent enactment of the Finance Act 2010. In these circumstances any deferral of the implementation date is not at this stage realistically feasible.

Under the EU VAT Directive, treating local authorities and State bodies as not-for-profit organisations is not possible. The Directive provides distinct and separate regulation for not-for-profit bodies and State bodies, including local authorities. It is not possible to exempt from VAT any activity of a State body, including a local authority, or indeed any other business, simply because it is not making a profit.

The Revenue Commissioners are proceeding with implementing the new regime and liaising where possible with local authorities to ensure transition to the new VAT arrangements. While it is accepted that there may be initial teething problems, it is expected, as in the case of all tax legislation, that the State and public bodies comply with the new VAT rules from 1 July 2010.