Michael McGrath (Cork South Central, Fianna Fail)
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125. To ask the Minister for Finance the status of the issue of VAT exemptions for charities; and if he will make a statement on the matter. [33760/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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Charities and non-profit groups engaged in non-commercial activity are exempt from VAT under the EU VAT Directive, with which Irish VAT law must comply.  This means they do not charge VAT on the services they provide and cannot recover VAT incurred on goods and services that they purchase.

Following representations made by the Irish Charities Tax Reform Group (ICTR) over a number of years, the former Minister for Finance agreed in 2014 to the formation of a Working Group to examine proposals to reduce the VAT burden on charities. Comprising representatives from the Department of Finance, the Revenue Commissioners and ICTR, the Group met throughout 2015 with the objective of providing options for the Minister of Finance’s deliberation ahead of Budget 2016.

The Report of the VAT on Charities Working Group was published in October 2015 as part of the Budget 2016 documentation, and set out the issues faced by Charities with regard to VAT and the options that could be used to address these issues.  The paper presents two possible options to reduce the VAT burden on charities, 1) the introduction of a Limited Sectorial Scheme similar to that in the UK, whereby a series of VAT refund orders are in place for targeted sectors or activities, and 2) a Danish-style Scheme whereby charities can reclaim VAT as a direct proportion to fundraised income up to a capped limit.

On the basis of the report, the then Minister decided in Budget 2016 not to introduce a VAT refund scheme for charities as the charities sector already benefits from a range of Ministerial Refund Orders and special tax treatment across a number of tax heads.

However, in the context of Budget 2017 Minister Noonan asked his officials to engage again with the Irish Charities Tax Reform Group with a view to reviewing the options published in the Report of the VAT on Charities Working Group. In this context, Department officials re-engaged with the newly formed Charities Institute Ireland (a merger of the ICTR and Fundraising Ireland) and met throughout 2016 and 2017 to discuss further the possible options of providing VAT relief to charities, with a view to reporting back to the Minister before Budget 2018.