THE IRISH GOVERNMENT has been handed a significant pre-Budget boost after the European Union’s highest court indicated it was likely to reject a challenge from the European Commission about how Ireland implements a European VAT directive.

The European Commission had initiated action against Ireland, claiming it was in breach of an 2006 directive by allowing non-taxable entities to be grouped together with taxable ones for the purposes of paying VAT.

Ireland groups individual corporate entities and their holding companies together for the purposes of charging VAT, even though holding companies are exempt from VAT because they do not directly engage in trading themselves.

This is because holding companies can hold or command the assets of their subsidiaries, and can therefore be liable if one of its subsidiaries goes bust.

However, the European Commission had claimed that this was in breach of a directive agreed by heads of state in 2006, and implemented in 2007, and had sought an order from the ECJ that Ireland abandon its policy of grouping taxable and non-taxable bodies together.

The case was heard at the court in Luxembourg in September, and a full ruling is not expected until next year – but an advocate-general of the court has issued an opinion on the case in which they find that Ireland is not in breach of the directive.

The opinion, issued yesterday, finds it is “not an anomaly that non‑taxable persons can belong to a VAT group”.

“This is so because any taxable person may be engaged in activities falling within the scope of VAT and activities falling outside of the scope of VAT,” the opinion says.

The opinion is not binding upon the justices of the court when they reach their final ruling, but an advocate-general’s opinion is almost always accepted and concurred with by the judges issuing their final ruling.

Read: Ireland to find out whether Brussels can force change in VAT laws