There is now hope of lower installation charges as other utility providers consider the possibility of levying the lower rate of VAT in light of the Supreme Court ruling in the NTL case, writes Edward Power.
Television and phone connection charges are set to fall after the Supreme Court ruled that cable channel provider NTL was right to levy the lower VAT rate for installations in a test case against the Revenue Commissioners.
The Revenue unsuccessfully argued NTL should have charged the 21 per cent rate levied on products rather than the 13.5 rate for services when linking households to its network.
Connecting to NTL was a service rather than a product and so attracted the lower VAT rate, the Supreme Court found.
The Revenue said it might take several weeks to estimate the potential VAT losses and to determine the judgment's ramifications. The spokesman would not comment on suggestions the loss to the Exchequer could run into millions of euro.
There will be no impact on NTL customers, as it has always charged 13.5 per cent VAT.
However, other utility providers have already raised the possibility of lowering connection fees.
Eircom, which charges 21 per cent VAT on connections, said that it hoped to reduce the cost in the wake of yesterday's judgment.
Sky Television, the State's largest satellite TV provider, which also applies the 21 per cent rate to installations, has indicated it may follow suit, although it was reluctant to comment officially before receiving legal advice on the decision.
However, there is little likelihood of either seeking reimbursement of overpaid VAT as the tax authorities are likely to cite the common law prohibition on "unjust enrichment", pointing out it was consumers rather than the utility providers who were charged surplus VAT.
The Revenue says companies that believe they are entitled to move to the lower VAT rate should consult their local tax inspector.
Eircom was upbeat about the ruling, saying it hoped it could now reduce VAT to customers.
This would see the cost of installation falling to €121.83 from €129.99 and for pre-wired homes, to €20.65 from €24.99. The company would not seek to recoup overpaid VAT, according to a spokesman.
NTL acknowledged it could have faced a huge tax bill had the decision gone against the company.
The case dates from the late 1980s, when NTL, in its previous incarnation as Cablelink, challenged a Revenue Commissioner ruling that it should apply the higher VAT rate.
NTL Ireland's managing director, Mr Graham Sutherland, said the company had always been confident of its stance.
"We felt we were justified from the beginning. We are delighted with this ruling but will need to study it in detail before making any further comment," he said.
Chorus, the other major cable player in the State, charges VAT at the lower rate, as do Bord Gáis and the ESB.
The Commission for Communications Regulation (ComReg), the telecommunications regulator, said the issue lay beyond its remit, as taxation was a matter for Government.
Legal sources told The Irish Times that the cost of connections was likely to fall as a result of the judgment.
"The ruling could have implications for other utility providers. Depending on the type of connection work performed, the lower 13.5 per cent rate may now apply if the utility company can show that a separate fee is charged and the connection involved work on immovable goods," said one VAT expert.
Confusion may arise when the divide between service and product was blurred, he said.
"Difficulties could arise where different VAT rates would apply to the separate elements," according to the expert.
The implications of the judgment may extent beyond the Republic, he added.
"VAT is an EU-wide tax and judgments handed down in the national court of one member- state are often referred to in arguments with the VAT authorities in another member-state," said the source.
"Although rulings of national courts in one member-state are not binding in other member- states, this happened quite recently in Ireland when a ruling by a Danish court on the VAT treatment of staff canteens was sought to be relied upon by Irish business charged VAT under similar legislation,"according to the expert.
