Jackie Cahill (Tipperary, Fianna Fail)
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118. To ask the Minister for Finance if the VAT concession on milk recording can be returned to the pre-January 2020 reduced rate of 4.5% rather than the current 13.5%, given that this would incentivise milk recording for herd health, herd management, fertility and sustainability; and if he will make a statement on the matter. [17171/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the rate of VAT applicable to supplies of goods and services is subject to EU VAT law, with which Irish VAT law must comply. The milk recording service is an agricultural service and the amounts payable by farmers for this service are chargeable to VAT, in the State, at the reduced rate of VAT, currently 13.5%. EU Member States are entitled to apply the reduced rate of VAT to this service in accordance with the provisions of the EU VAT Directive.

In relation to the application of VAT to these services, records held by the Revenue Commissioners show that the reduced rate of VAT has always applied to milk recording services supplied to farmers by the Irish Dairy Records Co-op (IDRC), through their local co-ops. However, in June 1993, the Revenue Commissioners met with the IDRC regarding the VAT payable in respect of these supplies and accepted that the IDRC was under the control of the Minister for Agriculture and acting on his behalf. At the time the agreement was reached, the State was not normally considered to be a taxable person for the purposes of VAT. The services provided by the IDRC did not therefore come within the scope of VAT and payments receivable by the IDRC, on behalf of the Minister, were not chargeable to VAT, as was normally the case in relation to services provided by the State.

Resulting from that meeting, an agreement was reached between Revenue and the IDRC that, of the amount payable by farmers to their local co-op in relation to milk recording, two thirds related to payments collected on behalf of the IDRC (and therefore on behalf of the State) and were not chargeable to VAT. The balance of the payments, being payments in return for separate services, identified as being provided by the co-ops to its members in connection with milk recording, were chargeable to VAT at the reduced rate.

The agreement in place therefore was not that there was a special rate of VAT applicable to milk recording services, but that only a proportion of the milk recording payments (one third) constituted payment for a taxable supply of services. In this regard, taxing one third of the full payment at the reduced rate of VAT is equivalent to taxing the full payment at one third of the correct VAT rate applicable, i.e. one third of the reduced rate of VAT, 13.5% being 4.5%.

Subsequent to the agreement between the IDRC and Revenue, the commercial arrangements for the provision of milk recording services changed and these services were no longer supplied by the State through the IDRC. Revenue was not made aware of those changes at that time. As a consequence of the changes, the full payment for these services became chargeable to VAT at the reduced rate of VAT, being services provided in full by private taxable persons. Revenue engaged with the suppliers of these services and accepted that the correct VAT treatment could be implemented from 1 January 2020. It should be noted that if these services had continued to be supplied by the State the matter of whether or not they would be considered taxable supplies would need to be reviewed in light of changes in VAT legislation, introduced in 2010, regarding the treatment of the State as a taxable person for VAT purposes.

There are no provisions in the VAT directive, which would permit a rate of VAT of 4.5% to apply to milk recording services.

It should also be noted that farmers may register for VAT or be treated as flat-rate farmers for VAT purposes. Farmers who elect to register for VAT have an entitlement to reclaim VAT on costs, including the cost of milk recording services, incurred in relation to their farm business; if they remain unregistered they are entitled to apply a flat-rate addition to their supplies to VAT registered businesses. The flat rate addition compensates farmers at the aggregate level for the VAT borne on input costs, including milk recording costs.