| VAT and canteens - relief for Irish companies |
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| The decision in a case taken by KPMG in Denmark suggests that many Irish companies have overpaid VAT on the operation of staff canteens. The case suggests that Irish rules on the VAT treatment of canteens are not in compliance with EU law and that Irish companies should therefore be entitled to a refund of VAT overpaid in the past. |
The treatment of staff canteens in Ireland operated by an employer on a subsidised basis is that the employer must account for VAT on the full cost of operating the canteen (i.e. the receipts together with the ‘subsidy’). Alternatively, where the canteen is operated for the employer by a third party catering company, Irish Revenue allow the employers VAT liability to be dealt with by denying VAT recovery on costs associated with the operation of the canteen, including capital costs. Where an employer operates a large subsidised staff canteen, the net impact of Irish legislation is that the employer has to bear a significant VAT cost.
Denmark operated a similar VAT system for staff canteens. However, a Danish client of KPMG challenged this system before a tribunal in Denmark on the basis that it was contrary to European law. The tribunal agreed with the employer and held that there was no basis in law for levying VAT on an employer on anything more than the receipts which he obtained from the canteen.
Appeal dropped
The initial reaction of the Danish Revenue was to appeal the case to the European Court of Justice (ECJ), which is the final arbiter of all EU VAT cases. However, the Danish authorities did not pursue the case, most likely based on an opinion of the European Commission which supported the decision of the Danish tribunal.
Although it would have been better from an Irish perspective for a clear ruling to be issued by the ECJ on the matter, the decision of the Danish tribunal and subsequent acceptance of the position by the Danish authorities does provide sufficient justification to Irish employers wishing to overturn the equivalent Irish legislation.
It should be noted that the Danish judgement does not relate to situations where meals are provided to employees free of charge nor does it relate to a situation where an employer makes a payment to a third party contractor in return for which the third party contractor operates the canteen.
The result in the Danish case raises the possibility that Irish employers who have paid significant amounts of VAT to the Revenue in the past may be entitled to seek recovery of VAT paid to Revenue going back up to 6 years. In addition, the case should ensure that the cost of operating a subsidised canteen in the future is reduced.
Repay VAT
As subsidised canteens are very common in Ireland, it is likely that a large number of claims for VAT overpaid in the past will be lodged by employers with the Irish Revenue. While there has been no formal reaction from the Irish Revenue in relation to the implications of this case for Ireland, initial informal reactions suggest that Revenue will seek to defend against any claims made as a result of the Danish case. Although this is an understandable initial reaction in view of the potential loss to the Exchequer, time will tell whether Revenue will be forced to accept the decision and provide relief for Irish employers. |
Niall Campbell is Tax Partner in KPMG and Head of KPMG’s Indirect Taxes Division.
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| Article appeared in the January 2002 issue.
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