Pearse Doherty (Donegal, Sinn Fein)
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150. To ask the Minister for Finance if the current EU proposal on VAT rates and bands six is compatible with Ireland's existing rates and bands; if not, the way in which it is incompatible; and if he will make a statement on the matter. [5892/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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The European Commission published a proposal on 18 January 2018 which aims to simplify VAT rating. Under existing VAT rating rules, Member States must apply a standard VAT rate of at least 15% and may apply up to two reduced VAT rates of 5% or more to a set list of socially inclined goods and services.  Member States may also retain historic VAT treatment that applied before 1 January 1991, including the application of a zero rate or a rate below 5%. The same parameters apply to standard and reduced VAT rating apply under the new proposal, however, Member States will be in a position to apply reduced rates to the majority of goods and services, and not just to a small list of activities. The proposed new system also allows all Member States the option to apply a zero rate and a rate of less than 5%, and not just those who historically applied such VAT rating. 

Ireland operates a standard VAT rate of 23%, reduced VAT rates of 13.5% and 9%, and historically applies the zero rate and a super-reduced rate of 4.8%.  All of these rates can be maintained under the new proposal.

As mentioned earlier, Member States will not be permitted to apply a reduced VAT rate to all goods and services under the proposal system.  The proposal sets out a list of goods and services that must continue to be applied at the Member State’s standard VAT rate, in order to avoid distortion of competition.  This list includes alcohol, weapons and tobacco, which must always be charged at the standard VAT rate.  These goods are already charged to the standard VAT rate in Ireland. Within these parameters, Member States would be free to set the level of VAT rating so long as the average VAT rate applied across the board is no less than 12%.  The current average VAT rate for all Member States exceeds this level.

The proposal will be discussed at European Council and must be agreed unanimously by all Member States before being adopted.  It is expected that discussions on the proposal will be robust and it is likely that the final agreed text will be the subject of many compromised amendments.