Consumers may face price hikes after ruling

CONSUMERS ALREADY facing additional charges from local authorities could see those rise further after the Government lost a significant case yesterday at the European Court of Justice.

The court ruled that Ireland was unfairly absolving local authorities from charging VAT for services – such as off-street car parking – when private operators were obliged to charge VAT.

However, it went further in stating that Ireland had failed to properly reflect in its national legal code the provision of European directives on VAT.

As a result of the ruling, local authorities and other State and public bodies are going to have to charge VAT on services where they are in competition with private operators. This extends far beyond off-street parking – the cause of the original complaint to the European courts.

Services likely to be affected include waste collection and recycling, and recreation and amenities such as access to public swimming pools.

Any move to introduce water charges could also raise the spectre of consumers having to pay VAT on top of the actual rate.

Another area where local authorities are likely to face issues is in the leasing of publicly owned property, where the current practice of not charging VAT would place them in an stronger position than private landlords.

Niall Campbell, VAT partner and head of global indirect tax services at KPMG Ireland, said: “It is fair to say that, in this case, Ireland lost on all counts.”

He said EU rules laid down very specific guidelines on whether publicly provided services should be chargeable to VAT.

“If the provision of the service creates a distortion of the market vis-à-vis private sector operators, they should be liable to VAT. Services are always liable to VAT if they are seen as outside the remit of a local authority. Then there are a list of services in an annex to the EU directive and services on this list, such as telecoms and electricity, are always liable to VAT no matter what the public or private status of the group providing them is.”

Mr Campbell said the outcome of the ECJ ruling was that the Government would have to introduce new legislation. “They will then have to examine all local authorities and State and public bodies. They will have to review the services they provide and the charges they levy and see what should be subject to VAT.”

Tom Corbett, VAT partner at PricewaterhouseCoopers, said the effect of the judgment was to create a level playing field.

“There is a bit of good news and a bit of bad news in this for local authorities as they themselves will now be able to claim VAT back on certain costs incurred on materials and equipment purchased for services,” he said. “However, it is only over time that the full ramifications of this judgment will become clear.”

The Government also faces substantial costs arising from the case, which has been rumbling through the EU’s legal process since 2006.

There is also the possibility that companies could take legal action against local authorities for the loss to them of VAT that those companies would otherwise have been able to reclaim from the Revenue.