Dominic Hannigan (Meath East, Labour)
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163. To ask the Minister for Finance if he will consider a change to the VAT regime for travel agents based in Ireland who are offering hotel packages online in locations outside of Ireland to enable them to compete with travel agents who operate in countries with low or no VAT rates for hotel accommodation in order that they can compete on an equal footing with travel agents who do not have to legally charge VAT on their offers and are at a competitive advantage because of same; and if he will make a statement on the matter. [1688/14]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that provisions covering the Travel Agents Margin Scheme are contained in Section 88 of the VAT Consolidation Act 2010. This scheme, which is provided for in Articles 306 to 310 of the EU VAT Directive, with which Irish VAT law must comply, was introduced with effect from 1 January 2010. Detailed discussions with the travel industry were carried out prior to the introduction of the scheme. The scheme deals with the activities carried on by travel agents who act in the capacity of a principal when supplying certain travel services such as transport, accommodation, etc, which they have bought in from third parties for onward supply to travellers.

Travel agents covered by the scheme are liable to VAT on their supply of certain services, not in respect of the consideration they receive for such services but in respect of the travel agents margin on those services. The nature of the scheme means that the travel agent only has an obligation to account for VAT on the margin in the country where he is established. VAT rates are not harmonised across EU Member States so the rate at which the margin is chargeable to VAT may vary from country to country. In Ireland, the margin apportioned to travel activities located in the EU is liable at the standard rate, currently 23%. Where the travel activities are located in non-EU destinations, such supplies are subject to the zero rate of VAT.

The EU VAT Directive provides that Member States that had been applying a zero rate or a reduced rate to certain goods or services on 1 January 1991 may continue to apply those rates after that date but not to extend their scope. In general, each Member State defined in its national legislation the goods and services to which rates lower than the standard rate applied. There is no legislative basis for Ireland to apply a reduced rate to travel activities located in the EU. Changes to the EU-wide travel agents scheme can only be made following agreement with all Member States.