IRELAND WILL BE TOLD next week whether it may be forced to change its VAT laws in a long-running dispute with the European Commission about its interpretation of five-year-old VAT rules.
An advocate-general at the European Court of Justice will issue an opinion next Tuesday in a lengthy disagreement between Dublin and Brussels over whether Ireland is in breach of an EU VAT directive by allowing non-taxable persons to be grouped together with taxable persons.
The European Commission claims that Ireland has failed to comply with its obligations under an EU VAT directive issued in 2006, which outlines a common system of VAT to be applied across every member state.
The directive – which came into effect in January 2007, and which was agreed by the heads of each member state – allows people who have close personal or professional relationships, such as married couples or business partners, to be treated as a single taxable person for VAT purposes.
Ireland has applied this by allowing ‘non-taxable persons’ – such as children or non-working people – to be included in VAT groupings, thereby allowing for a lower individual tax burden for each member – but Brussels believes this illegally gives rights and responsibilities to people outside the tax system.
Papers were originally filed in the case in February 2011, and oral arguments were made in the court in Luxembourg two months ago.
Opinion is not binding, but authoritative
The advocate-general’s opinion, which will be delivered next Tuesday, is not binding and the justices of the court could offer a different ruling.
However, the final rulings tend to be consistent with the opinions offered by the advocates-general, and therefore Tuesday’s events are likely to be seen as a key indication of whether Ireland will be forced to change its laws.
The formal, official ruling is not expected on the matter until well into 2013 – but a ruling against Ireland could require the government to amend domestic VAT laws to end the provision where non-taxable persons can be grouped together for tax persons.
This, in turn, could pose some financial trouble for the State – which is already under pressure to balance the books as the Troika bailout funds begin to run dry.
Four other EU member states – including the UK, Denmark, Finland and the Czech Republic – are supporting Ireland in the dispute, as they operate under similar legal interpretations and could also be compelled to change their laws if Ireland loses its case.