The long-running dispute dates back to 2008, when the European Commission raised concerns with Irish authorities about the system whereby non-taxable entities are grouped together with taxable ones for the purposes of paying VAT. The commission argued that Ireland had failed to fulfil its obligations under articles 9 and 11 of the 2006 EU directive which deals with the common system of value added tax.

Under Irish law, where two or more entities are “closely bound by financial, economic and organisational links”, the Revenue Commissioner can deem them to be a single taxable person. Ireland groups holding companies, which are not eligible for VAT as they are non-trading, together with their subsidiary trading companies, when calculating VAT.

While the commission maintained that it was only possible for taxable persons, ie those who are subject to VAT, to be grouped together in this way, Irish legislation allows for non-taxable persons to be included in a group.Ireland, which was supported by Britain, Finland, Denmark and the Czech Republic in the case, maintained the national provisions at issue were compatible with the VAT directive. The case, which was brought in 2011, was heard last September.

Yesterday the EU’s highest court ruled against the commission, arguing that article 11 cannot be interpreted as saying that non-taxable persons cannot be included in a tax group. It ordered the commission to pay Ireland’s costs.