Revenue authorities have conceded a case that could leave the State facing a bill of more than €60 million.

The action, which concerned the way in which the tax office charged VAT on subsidised office canteens, may also reduce the amount coming into the Exchequer from this area in the future.

The decision by the Revenue not to contest a claim by accountants Deloitte & Touche on behalf of one of its clients is, however, good news for employers.

Employers offering subsidised canteen facilities to staff have, until now, been charged VAT on the full price of the products available before any subsidy is granted. Deloitte argued that VAT should be liable only on the actual price paid, regardless of the subsidy.

The case appeared before an appeals commissioner. Mr Aidan Fagan, indirect tax partner at Deloitte & Touche says this ruled in favour of his company's client and that the Revenue has decided not to appeal that decision.

The Revenue claims the commissioner never issued a ruling. A spokesman said the tax authorities decided to settle the case before any ruling could be made.

However, the Revenue has apparently refused to accept that the case presents a precedent for other firms in the same situation.

"It's very hard to see how they can argue this," said Mr Fagan. "It looks as though they are going to force each company in this situation to go through the process of challenging the tax liability but, presuming that the issue is the same, it is hard to see how the result would not be the same."

Deloitte says that medium-sized manufacturers offering canteen facilities stand to receive around €380,000 in rebates as companies can claim VAT arrears going back six years.

"From the cases we have examined, you could be looking at a total cost to the Exchequer of close to €64 million in rebates," according to Mr Fagan.

The Deloitte case dates back to 2001 and followed the success of a similar case in Denmark, which cost that government around €350 million.

The Irish case was taken after tax experts here noted the similarity between Danish and Irish tax law in this area. They also argued that levying VAT on most canteen subsidies contravened a European Union directive.

At the time, the Revenue was bullish about its prospects of seeing off the case. It is not now prepared to explain why Deloitte's successful action will not open the door to other cases.

The settlement may also force the Government to plan without the prospect of the contested VAT income in the future. While the money at stake is just a fraction of the State's annual VAT take, it would exacerbate the current budget difficulties for Minister for Finance, Mr McCreevy.