Mr. McCreevy: Worse still, from an Exchequer viewpoint, VAT chargeable in one member state to a business in another country may be claimed back by the customer. The basic rule governing these so-called eighth directive refunds is that, in this example, the customer is entitled to deduct the VAT charged. It is governed by the deductibility rule in the supplier's country. Our curbs on deductibility could be circumvented, with resultant distortion in trade, loss of business to Irish car lessors and loss of revenue to the Exchequer...
Mr. McCreevy: This does not apply to tourists but the Deputy's summations are otherwise correct. In the case in question people in Belgium leased cars from the Netherlands. The deductibility rule under the eighth directive is that the VAT charged on a foreign import is allowed. Most countries, including Ireland, do not allow the VAT charged on car leasing to be reclaimed. However, the European Court of Justice decision allowed that.
If that were to be extended it would mean that Irish companies, rather than leasing cars in Ireland, would lease them from the Netherlands, for example, where deductibility is allowed. Apart from causing a loss of business to Irish car leasing companies, there would also be a loss to the Exchequer because the company would be entitled to claim back the VAT against sales under the ARO judgment. Therefore, there would be a double loss. In addition, we would also have to pay £75 million or £80 million in VAT because under the eighth directive the business person would be allowed to reclaim the VAT on those sales against his VAT.