Fear that EU move may increase cost of public services
Ireland could be brought to the European Court of Justice in relation to its treatment of public bodies as non-taxable, it emerged today.
The European Commission has warned it will launch a case in Luxembourg if the state’s legislation is not amended within two months.
Spokesperson Valerie Rampi said the Commission understands concerns that prices for public services may rise.
“However, experience has shown that when there is proper competition in a market, prices decline and consumers save money,” she said.
“It is also important to note that some public service activities, including waste management, also qualify for a lower VAT rate of 13.5%.”
The case arises from a complaint by a private-sector operator and specifically refers to off-street car-parking facilities, a spokesperson for the commission said.
Irish public bodies are not deemed to be ‘taxable persons’ under Irish VAT legislation.
Accordingly, when they engage in the supply of goods and services, they neither charge VAT nor are they entitled to deduct the VAT arising on their costs.
Irish VAT legislation provides that only the Minister of Finance may decide that public authorities can register for and charge VAT.
However, EU law states that public bodies should not be exempt from VAT when they engage in the same activities as private operators.
If they were, this would lead to a distortion of competition, meaning private companies would not have a level playing field in the market.
If Ireland considers that other public services fall under the same rules as this particular case, it should also amend the legislation pertaining to them.
If the legislation is not amended, this case will be referred to the European Court of Justice.
A ruling there would then apply to all public services engaging in the same activities as private operators.
Nevertheless, because public authorities are not currently registered for VAT, they cannot claim a deduction for VAT paid by them.
Being registered for VAT means that they would be able to claim ‘input credit’, so the full VAT charge would not be passed on to consumers.
The European Court of Justice ensures that European law is interpreted and applied in the same way in every Member State. It sits in Luxembourg and is composed of 25 judges, one judge from each Member State.
The Irish Waste Management Association (IWMA) welcomed the European Commission’s legal opinion that Ireland’s practice of exempting public bodies from applying VAT to waste services may be illegal.
Director Erik O’Donovan said the decision calls for a level playing pitch for all operators in the waste market.
“Approximately 60% of Ireland’s municipal waste is managed by the private sector,” he said.
“Under current Irish rules, private operators have no choice but to apply VAT to waste services for their customers. Local authorities in direct competition with private operators currently have no such obligation and have a clear competitive advantage.
“The Association has raised the VAT issue with Government for a number of years. In simple terms 40% of the population serviced by the public sector will now have to pay VAT on waste services, like the majority of people who already have to do so in this country.”
