Significant VAT Implications for Ireland as EU Verdict May See Rise in State and Local Charges 16 July 2009

In a decision that will have a significant impact across a range of sectors, the European Court of Justice (ECJ) ruled on Thursday 16 July 2009 against Ireland in a VAT case taken by the European Commission.

Following a complaint made by a private car park operator, the European Commission took legal proceedings against Ireland in relation to the VAT treatment of State entities. In a very clear decision, the ECJ has ruled that Ireland failed to implement EU VAT legislation correctly by failing to treat certain activities of State entities as being subject to VAT. In particular, where a State entity is in competition with a private sector operator or where it engages in activities outside of its State function, the Court ruled that it should be subject to VAT.

Commenting on today’s ruling, KPMG’s Global Head of Indirect Tax, Niall Campbell said, “The decision will impact on a range of sectors and entities, both private and State sector. Examples include car parking, waste management, leisure facilities and property letting. Irish law will have to be amended, which is likely to occur in the next Finance Bill.”

Campbell continued, “The changes to be introduced will eliminate the competitive advantage previously enjoyed by certain State entities and will be welcomed by private operators. However, it could also mean increases in costs for consumers/businesses as they may now be required to pay VAT on charges to State entities, including local authorities (such as car parking at 21.5%, waste disposal at 13.5%).”

Campbell concluded, “All interested parties (State entities, private competitors, consumers, Department of Finance & Revenue) will now need to carefully consider how any retrospective effects are dealt with.”

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