VAT of Food Supplements – New Revenue Policy
by Ciaran Hurley
As published in Retail News, October 16
As published in Retail News, October 16
On the 3rd August 2016, Revenue changed the entry for Food Supplements on their “Index to VAT Rate Decisions” that would have the effect of applying 23% VAT to the vast majority of supplements that are currently on sale in Ireland. Henceforth, only Vitamins, Minerals and Fish Oils can avail of the Zero VAT rate and even these products are liable to 23% VAT if their packaging contains any reference to EU authorised health claims for food substances.
Revenue made this change to their VAT policy for food supplements without any advance notice or consultation with industry. However, it follows a period of almost 5 years during which the VAT treatment of food supplements has been mired in controversy. This resulted from the publication by Revenue of earlier guidance in November 2011 to say that the Zero VAT rate could apply only to food supplements that provided sustenance and which could be regarded as “food” within its “ordinary and everyday” meaning. That guidance emanated from a ruling by the Tax Appeal Commissioners that applied 23% VAT to various sports nutrition products. Revenue interpreted the Appeal Commissioners’ ruling to mean that 23% VAT could apply to many other types of food supplements, but these were never identified in their November 2011 guidance.
It should be emphasised that Revenue’s position followed a period of almost 40 years during which food supplements were generally permitted to be supplied at the Zero VAT rate, on the basis that they were formulated with food ingredients. However, Revenue maintained that the “ingredients only” test was no longer valid, following the ruling by the Appeal Commissioners on sports nutrition products, and that the various purposes for which food supplements were marketed would now be factors in their future VAT treatment.
This led to an extraordinary situation where Revenue advised that all food supplements, apart from Vitamins, Minerals and Fish Oils, should be submitted to the taxpayer’s local Tax District office for individual VAT assessment. Understandably, the industry was concerned that this policy would be unworkable and that it could well lead to a situation where different Tax Districts might issue different VAT rulings for the same types of products. This concern was even raised in Dáil Eireann on a few occasions. However, the Minister for Finance, Michael Noonan, reiterated Revenue policy in his reply to a Dáil Question in October 2014, on the VAT treatment of two Probiotic and Glucosamine supplements, when he said:
“The two supplements mentioned by the Deputy could be a zero-rated food supplement or one liable at the standard rate but there is insufficient information provided to make such a determination. I would suggest that the Deputy provide details of the supplements to which he refers to the Revenue Commissioners who will advise on their correct VAT treatment as appropriate.”
The fact that the products were to be sent for VAT assessment to the respective Tax District offices of the various suppliers soon led to a situation where both Zero and 23% VAT rulings were being issued for competing brands of the same types of food supplements. Given the vast number of food supplements involved, such contradictory rulings had been feared by the industry. Not surprisingly, it also led to a situation where many 23% VAT rulings were challenged on the grounds that they placed the affected products at a competitive disadvantage vis-à-vis their Zero rated counterparts.
Revenue’s response to all of this was to publish new guidance on 3rd August 2016 to apply 23% VAT to food supplements with health claims and to restrict the Zero VAT rate solely to Vitamins, Minerals and Fish Oils provided, of course, that no health claims were made for these products either.
The new guidance says that “Zero rate only applies to Food Supplements…… being vitamins minerals and fish oil products” and that 23% VAT applies to “products that contain vitamins, minerals, food ingredients etc. but whose purpose is other than for sustenance; for example, skin/hair/nail/eye improvement products, detox, antioxidant, immune, digestive, joint support, cholesterol etc. This list is not exhaustive.”
So, the criteria for Zero VAT are now very clear and simple but in one stroke Revenue has placed 23% VAT on almost all food supplements currently on sale.
The issue for Revenue is the various health claims that now commonly feature on food supplement product labels and packaging. These are EU authorised health claims for food substances and a list of over 200 such claims was adopted in 2012. The purpose of the EU health claims is to enable consumers to make more informed choices about their dietary requirements and this is stated in the EU Regulation. However, Revenue takes the view that the presence of a health claim means that the product is no longer being supplied as food and that 23% VAT should apply. Of course, this is the exact opposite to the intended purpose of the claims.
For example, the EU has authorised numerous antioxidant health claims for vitamins and minerals and these frequently appear on the product labels of such products. However, Revenue has decided that an antioxidant health claim removes a vitamin or mineral supplement from the Zero rate VAT bracket.
Needless to say, this latest VAT policy is being vigourously opposed by suppliers who reject Revenue’s claim that it is necessitated by the original Appeal Commissioners’ ruling to apply 23% VAT to various sports nutrition products. Significantly, that ruling has never been published and Revenue did not consult with the industry before the new guidance was published.
In the meantime, Revenue continues to issue 23% VAT rulings for food supplements that have historically enjoyed Zero VAT treatment since 1973. In some cases, VAT assessments have been raised for products that were being supplied at the Zero VAT rate without Revenue agreement. Therefore, suppliers are advised to engage with Revenue if they sell any food supplements that might be affected by the new policy.
CKH Fiscal Services provides specialist advice in navigating the VAT minefield surrounding food supplements. We have staff with many years’ experience of working at senior level in Revenue, in the areas of VAT rates for food. Our clients range from small manufacturers to some of the largest food distributors in Ireland today.
Revenue made this change to their VAT policy for food supplements without any advance notice or consultation with industry. However, it follows a period of almost 5 years during which the VAT treatment of food supplements has been mired in controversy. This resulted from the publication by Revenue of earlier guidance in November 2011 to say that the Zero VAT rate could apply only to food supplements that provided sustenance and which could be regarded as “food” within its “ordinary and everyday” meaning. That guidance emanated from a ruling by the Tax Appeal Commissioners that applied 23% VAT to various sports nutrition products. Revenue interpreted the Appeal Commissioners’ ruling to mean that 23% VAT could apply to many other types of food supplements, but these were never identified in their November 2011 guidance.
It should be emphasised that Revenue’s position followed a period of almost 40 years during which food supplements were generally permitted to be supplied at the Zero VAT rate, on the basis that they were formulated with food ingredients. However, Revenue maintained that the “ingredients only” test was no longer valid, following the ruling by the Appeal Commissioners on sports nutrition products, and that the various purposes for which food supplements were marketed would now be factors in their future VAT treatment.
This led to an extraordinary situation where Revenue advised that all food supplements, apart from Vitamins, Minerals and Fish Oils, should be submitted to the taxpayer’s local Tax District office for individual VAT assessment. Understandably, the industry was concerned that this policy would be unworkable and that it could well lead to a situation where different Tax Districts might issue different VAT rulings for the same types of products. This concern was even raised in Dáil Eireann on a few occasions. However, the Minister for Finance, Michael Noonan, reiterated Revenue policy in his reply to a Dáil Question in October 2014, on the VAT treatment of two Probiotic and Glucosamine supplements, when he said:
“The two supplements mentioned by the Deputy could be a zero-rated food supplement or one liable at the standard rate but there is insufficient information provided to make such a determination. I would suggest that the Deputy provide details of the supplements to which he refers to the Revenue Commissioners who will advise on their correct VAT treatment as appropriate.”
The fact that the products were to be sent for VAT assessment to the respective Tax District offices of the various suppliers soon led to a situation where both Zero and 23% VAT rulings were being issued for competing brands of the same types of food supplements. Given the vast number of food supplements involved, such contradictory rulings had been feared by the industry. Not surprisingly, it also led to a situation where many 23% VAT rulings were challenged on the grounds that they placed the affected products at a competitive disadvantage vis-à-vis their Zero rated counterparts.
Revenue’s response to all of this was to publish new guidance on 3rd August 2016 to apply 23% VAT to food supplements with health claims and to restrict the Zero VAT rate solely to Vitamins, Minerals and Fish Oils provided, of course, that no health claims were made for these products either.
The new guidance says that “Zero rate only applies to Food Supplements…… being vitamins minerals and fish oil products” and that 23% VAT applies to “products that contain vitamins, minerals, food ingredients etc. but whose purpose is other than for sustenance; for example, skin/hair/nail/eye improvement products, detox, antioxidant, immune, digestive, joint support, cholesterol etc. This list is not exhaustive.”
So, the criteria for Zero VAT are now very clear and simple but in one stroke Revenue has placed 23% VAT on almost all food supplements currently on sale.
The issue for Revenue is the various health claims that now commonly feature on food supplement product labels and packaging. These are EU authorised health claims for food substances and a list of over 200 such claims was adopted in 2012. The purpose of the EU health claims is to enable consumers to make more informed choices about their dietary requirements and this is stated in the EU Regulation. However, Revenue takes the view that the presence of a health claim means that the product is no longer being supplied as food and that 23% VAT should apply. Of course, this is the exact opposite to the intended purpose of the claims.
For example, the EU has authorised numerous antioxidant health claims for vitamins and minerals and these frequently appear on the product labels of such products. However, Revenue has decided that an antioxidant health claim removes a vitamin or mineral supplement from the Zero rate VAT bracket.
Needless to say, this latest VAT policy is being vigourously opposed by suppliers who reject Revenue’s claim that it is necessitated by the original Appeal Commissioners’ ruling to apply 23% VAT to various sports nutrition products. Significantly, that ruling has never been published and Revenue did not consult with the industry before the new guidance was published.
In the meantime, Revenue continues to issue 23% VAT rulings for food supplements that have historically enjoyed Zero VAT treatment since 1973. In some cases, VAT assessments have been raised for products that were being supplied at the Zero VAT rate without Revenue agreement. Therefore, suppliers are advised to engage with Revenue if they sell any food supplements that might be affected by the new policy.
CKH Fiscal Services provides specialist advice in navigating the VAT minefield surrounding food supplements. We have staff with many years’ experience of working at senior level in Revenue, in the areas of VAT rates for food. Our clients range from small manufacturers to some of the largest food distributors in Ireland today.