The Revenue has agreed to refund millions in tax incorrectly levied on employers in relation to staff canteens.

However, they are seeking to place a four-year limit on retrospective claims in a move that has been criticised by tax advisers.

"In our view, there is scope to challenge the application by Revenue of a four-year time limit as the refunds arise due to Revenue incorrectly applying the legislation," said KPMG VAT partner Terry O'Neill.

The refunds follow a judgment by the European Court of Justice last January in a case that centred on the VAT treatment of subsidised sales to staff at in-house canteens. The Irish tax authorities, in common with a number of other EU states, levied VAT on the full cost of providing the service, not the actual amount paid by the customers.

However, the court ruled against the Irish position.

Accountants Deloitte had previously taken a case against the Revenue on the issue in relation to one client. The tax authorities had conceded that case in 2003 but insisted at the time that it would not set a precedent.

Revenue has now agreed to change its rules in relation to assessment of staff canteens for VAT in a move that accountants estimate could cost the State between €10 million and €20 million a year in lost tax receipts.

"The amount involved will be quite considerable," said Deloitte indirect tax partner Aidan Fagan.

The Revenue also confirmed that it would pay interest on refunds due to companies across the State. The case only affects canteens run directly by an employer or by an outside caterer acting as an agent of the employer.