Value-added tax revenue has been temporarily flattered to the tune of as much as €350 million over the past two years by technology multinationals running European sales through the State.
Under European Union rule changes introduced in 2015, sales tax due on technology, broadcasting and electronic services throughout the union from customers who are unregistered for VAT can be collected in one member state on behalf of other countries and subsequently distributed.
However, in response to a series of parliamentary questions from Social Democrats TD Róisín Shortall, Minister for Finance Michael Noonan has revealed that the State has so far been able to hold on to €350 million collected in this way.
The UK has been the main loser from the arrangement, followed by Germany, France and Italy, according to the data.
“The apparent underpayment highlighted by the deputy is in fact a transitional feature of the changeover to the new VAT rules,” Mr Noonan said in a response issued in recent days.
“When the scheme to tax technology, broadcasting and electronic services in the place of the consumer was agreed, it was decided to provide that 30 per cent of the monies collected under Moss [mini one-stop shop] would be retained by the member state of the supplier in 2015 and 2016; 15 per cent would be retained in 2017 and 2018, before transitioning to full transfer of funds under Moss from 2019.”
Windfalls
Prior to 2015, sales tax on such services in the EU was payable in the country where the services were supplied, rather than where they were consumed, making Luxembourg, which had the lowest rate at the time, at 15 per cent, the destination of choice for technology companies from Apple to Amazon and Microsoft to have VAT structures.
This led to massive windfalls for the Grand Duchy, which it had fought hard to retain, according to tax industry sources.
Under the revised rules, the provider of the service charges VAT to the unregistered customer at the rate applicable in the consumer’s home country.
The State collected €12.4 billion of VAT last year, up 4 per cent on the year, but 3.4 per cent below forecast.
The amount of VAT on technology, broadcasting and electronic services collected on behalf of other EU countries jumped to €343.7 million in the first quarter of this year, more than double the highest amount of any other three-month period since the new regime came into place, according to Department of Finance data. Some €99 million of this was not remitted to other member states.
For the first two months of the year VAT was running €407 million ahead of the year-earlier period, at €2.8 billion. Figures for the end of March are due to be published next week.
A 7.2 per cent surge in Irish gross domestic product in the fourth quarter was buoyed by a 162 per cent surge in investment, which economists have put largely down to multinational technology companies moving intellectual property to Ireland. Last month, Apple moved its international iTunes business from Luxembourg to Cork, involving a reported transfer of $9 billion (€8.4 billion) of assets.
The surge in intellectual property based in Ireland as multinationals has been taking place amid greater scrutiny of where corporate taxes are collected as the Organisation for Economic Co-operation and Development advances its base-erosion and profit-shifting programme. This has also increased the flow of VAT through the Irish revenue system, according to tax sources.
