Simon Coveney (Cork South Central, Fine Gael)
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Question 39: To ask the Minister for Finance the tax treatment of sales of digital products that only exist in virtual form which are downloaded directly to hardware; and if he will make a statement on the matter. [18385/10]

Simon Coveney (Cork South Central, Fine Gael)
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Question 40: To ask the Minister for Finance if any international tax agreements apply for the sale of virtual goods by foreign companies to consumers here; and if he will make a statement on the matter. [18386/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 39 and 40 together.

I am advised by the Revenue Commissioners that the sale of virtual goods or digital products by companies may give rise to liabilities to either or both corporation tax and value-added tax (VAT) in the State.

In the case of corporation tax, a company which is resident for tax purposes in the State, or which is carrying on a trade in the State through a branch or agency, is liable to Irish corporation tax on profits derived from the sale by it, or by its branch or agency, of virtual goods or digital products. A company which is not resident in the State for corporation tax purposes, or which is not trading in the State through a branch or agency, has no liability to Irish corporation tax in respect of the sale of such goods or products, even where those goods or products are sold to Irish businesses or consumers.

Insofar as VAT is concerned, the supply of virtual goods or digital products is treated as the supply of a service, specifically an electronic service. Liability to VAT in respect of such services is dependent on whether the company that is supplying the services and the recipient of service is established in Ireland, another EU Member State or outside the EU; and whether the recipient is a business or a private consumer. The various positions are outlined as follows:

Liability to Irish VAT at 21% arises in the case where the company supplying the electronic services is established in Ireland and supplies the services to both businesses and private consumers in the State or to private consumers in other EU Member States. Irish VAT also arises in the case of supplies to Irish businesses by a company established in another Member State or in a country outside the EU, in this case the Irish business must self-account for VAT at 21% on the service under the reverse charge mechanism.

Liability to Irish VAT does not arise in the case of services supplied by an Irish registered business to private consumers resident outside the EU or to businesses located either in another EU Member State or outside the EU. In addition, where a company established in another Member State supplies the services to Irish private consumers, there is no liability to Irish VAT as VAT is accounted in that other Member State at the rate appropriate to that State.

I should note, however, that from 2015 onwards, under EU Council Directive 2008/8/EC, the supply of electronic services by EU registered business to EU consumers will be taxed in the country where the consumer is established and not the country of the supplier as is currently operated as outlined earlier. Suppliers will discharge their VAT obligations using a mini "one stop shop" scheme, which will enable them to fulfil their EU-wide VAT obligations in their home Member State. The VAT revenue from these services will then be transferred from the State of payment to the State where the customer is situated.

As regards the question of whether there are international tax agreements covering the sale of virtual goods by foreign companies to Irish consumers, there are no such agreements. However, EU Council Directive 2002/38/EC of 7 May 2002, which was transposed into Irish law by the Finance Act 2003, provided that where a non-EU business supplies electronically supplied services to a private consumer in any Member State, the place of supply for VAT purposes, and consequently the liability to account for VAT, is the place where the consumer normally resides.

In recognition of the compliance burden and administrative costs for non-EU established businesses to have to register for VAT in every Member State where they provide electronic services to private consumers, a special optional scheme was created which allows the non-EU supplier to choose one Member State in which to register for and pay VAT in respect of supplies to consumers in any Member State. Under this scheme the non-EU registered business continues to charge VAT at the rate applicable in which each consumer resides, however, VAT returns are only made to the Member State of registration, which then re-distributes the VAT receipts to other Member States in accordance with the amounts due as declared by the supplier.