Sky’s pay-TV business in Ireland is set to take a hit of €9 million next year as its 700,000 customers pay VAT here for the first time instead of in Britain.

In the budget, Minister for Finance Michael Noonan said the exchequer will receive an additional €100 million per year in VAT receipts in both 2015 and 2016 on foot of a European directive which states the tax must be levied where customers live instead instead of where the supplier is based.

It is understood VAT paid by the customers of Sky Ireland, which has set up a new corporate entity in Dublin to handle the change, will constitute the bulk of anticipated payments.

Sky’s Irish subscribers, who previously paid a 20 per cent VAT rate to Britain’s Inland Revenue, will now pay 23 per cent VAT to Ireland’s Revenue Commissioners.

Other companies affected by the change include Amazon and internet security firm Norton, whose Irish customers pay VAT in Luxembourg.

Sky reserves the right in its pay-TV contracts to increase subscription fees “if we are required to increase our prices by law (eg due to a change in VAT).”

Absorbing the cost

It is understood, however, that the company plans to absorb the cost of the increased VAT charge.

The company typically reviews its prices every February, but it is understood there are no plans at present to change that policy.

On the basis that Sky’s annual Irish turnover amounts to €300 million, an increase of 3 percentage points in the VAT on its sales would amount to €9 million in a full year.

The company made no comment on the implications of the VAT change.

In the budget documents, Mr Noonan forecast that the €100 million annual yield from the change in 2015 and 2016 would rise to €125 million in 2017 and 2018, and rise further to more than €150 million per year by 2019.

This projected increase is predicated on the forecast rise in economic growth in coming years .