EU tax ruling to hit Irish firms

ORGANISATIONS that set up companies or take other measures to recoup VAT are acting illegally, the European Court of Justice has found.

The ruling - which now becomes part of EU tax law - has serious implications for all companies, including Irish ones, employers’ organisation IBEC confirmed.

In Britain, health insurers BUPA, the University of Huddersfield and Halifax plc all applied for VAT refunds on transactions they would not normally have been able to recoup tax on.

Three companies within the Halifax group needed to build call centres in Northern Ireland. They applied for a tax refund on the basis they had supplied works to Halifax. Their application was rejected by the British authorities on the basis that a transaction entered into with the sole purpose of tax avoidance could not constitute a supply of works for taxation purposes.

The University of Huddersfield set up a trust scheme to recover VAT on refurbishments, but the British authorities said it was a tax avoidance measure.

The British authorities also decided BUPA made arrangements regarding the supply of drugs to their private hospitals solely to avoid paying VAT. The European court has backed this.

It ruled that when interpreting the Sixth VAT Directive, schemes to reduce VAT liability can be an abusive practice and are not eligible.