Employers may receive a VAT windfall at the expense of the State in a dispute over canteen facilities.
Accountant Deloitte & Touche is taking a case against the Revenue claiming it has wrongly charged VAT on certain canteen subsidies.
The action follows a similar case in Denmark where the government was forced to concede a €350 million (£275 million) shortfall in its tax take on VAT after a court ruled that charging VAT on such subsidies was contrary to local law.
Irish tax experts say the law in Ireland is similar and, in any case, levying VAT on most canteen subsidies contravenes an EU directive. If proved, the directive would preclude the Minister for Finance, Mr McCreevy, from amending Irish law to secure such VAT payments in future.
Mr Aidan Fagan, indirect tax partner at Deloitte & Touche, believes the law only allows the Government to charge VAT on the actual price paid by the customer for canteen products while the Revenue charges VAT on the "actual cost of production", a measure that takes into account any subsidy provided by the employer to reduce prices.
A spokesman for the employers' group IBEC said anything that reduced the cost of employment was welcome.
But the Revenue insists it has nothing to fear from the action. "We are confident we can rebut any claims in this regard," said a spokesman. Mr Fagan said it was difficult to gauge how much money was at stake as it depended on the precise nature of the contract between the employer and the canteen service provider.
"For a medium-sized manufacturer, this may amount to £300,000 in arrears, as companies will be able to claim back VAT paid in the past six years.
"From the cases we have examined, you could be looking at a total cost to Government of around £50 million in rebates.
"More importantly, the Government will have to plan without such money coming in for the future, which will amount to a considerable sum."
While the money at stake is just a fraction of the Government's annual VAT tax take, it could provide relief to companies looking to trim costs in the current economic downturn.
