VAT should not be applied to tolls on State-owned motorways, the European Court of Justice has ruled.
The court made an unexpected decision against a claim that VAT should be imposed on tolls. It is good news for motorists who will avoid increases, which would have been up to 60c on the M50.
The European Court of Justice ruling ends a long-running dispute between the Revenue Commissioners, which believes VAT should apply to tolls on State-owned motorways; and Transport Infrastructure Ireland (TII) and the Department of Transport, which believe it should not.
At the heart of the dispute is the interpretation of European VAT laws and how they apply to public authorities, such as TII, when they provide services which may be in competition with private operators.
In its judgment on Thursday the European Court of Justice said the M50 and Dublin Port Tunnel operated by TII are not in direct competition with motorways operated by private operators and nor was the there a realistic chance that a private operator would seek to build a competing route to the M50.
“A body governed by public law which carries on an activity consisting in providing access to a road on payment of a toll may not be regarded as competing with private operators who collect tolls on other toll roads pursuant to an agreement with a public law body concerned under national statutory provisions.”
As a consequence, according to the European Court of Justice, VAT should not apply on tolls on these roads.
Surprise
The ruling is a surprise as an initial opinion issued by the European Court of Justice’s advocate general in late 2016 had found VAT should apply on these routes. It is rare for the European Court of Justice’s ruling to diverge from that of the advocate general.
The origins of the disagreement stem from May 2010 when the Revenue directed the TII's predecessor, the National Roads Authority, to impose VAT on State-owned motorway tolls. This decision was immediately appealed by the Department and the NRA.
The matter was considered by the Revenue Appeals Commissioner who forwarded it to the European Court of Justice for a decision. The issue will now return to the appeals commissioner.
Following the Revenue direction in 2010 the NRA (now TII) calculated the VAT owed on existing tolls rates and paid it to Revenue from existing toll revenue.
Absorbing cost
However, the tolls did not rise by 23 per cent at the time, meaning the roads body has effectively been absorbing the cost of the VAT pending the conclusion of the appeals process .
As a result, a toll receipt from the M50 or Port Tunnel contains a VAT element.
This VAT element will be removed from 2018. While the tolls may increase next year, this will be only to reflect a rise in inflation.
As a result the NRA/TII has been paying roughly €17 million or around, around €70 million to date, to absorb the VAT costs of existing tolls. It is unclear if the VAT already paid by TII will be reimbursed.
No additional exchequer funds were provided to the TII/NRA to cover the cost of paying the VAT which means the cash used has effectively been taken from the authority’s roads budget.
A spokesman for the TII welcomed the decision saying it offered clarity.
The European Court of Justice ruling is good news for motorists as it removes the possibility of an increase in tolls.
Had VAT at 23 per cent been imposed on the existing M50 toll the fee for a driver with a tag account would have risen from €2.10 to €2.50, while a driver with a video account would see their €2.60 charge rise to €3.20 per journey.
