802. Deputy William Aird asked the Tánaiste and Minister for Finance if his Department has considered the treatment of virtual fencing technology under the Value-Added Tax (Flat-Rate Farmers) Refund Order (details supplied); and if he will make a statement on the matter. [59792/26]

The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law is obliged to comply. In accordance with the EU VAT Directive, farmers can elect whether or not to register for VAT in respect of their farming business, and this affects how VAT incurred on their inputs (such as the purchase of farm equipment) is treated.

Farmers who elect to register for VAT are obliged to account for VAT on their supplies and are entitled to claim a deduction for VAT incurred on inputs used for the purposes of their taxable supplies. Therefore, VAT-registered farmers would be entitled to reclaim the VAT incurred on all equipment used in the operation of their farming business, including VAT on virtual fencing technology, and this should be done through their normal VAT returns.

Alternatively, farmers can remain unregistered for VAT and opt for the Flat-Rate Farmer’s Scheme. This Scheme is a simplification arrangement permitted under the Directive. It is designed to reduce the administrative burden for farmers by allowing unregistered farmers to be compensated on an overall basis for VAT on inputs, while remaining outside the VAT system, thereby avoiding the burdens associated with registration and filing. It allows such farmers to add a percentage charge (known as the “flat-rate addition”) onto the amount they invoice VAT-registered businesses whom they supply with agricultural goods and services, in the course of their farming business. Unlike VAT-registered businesses, unregistered farmers are not entitled to a deduction for VAT incurred on individual inputs used in their farming business; instead, the Flat-rate Scheme permits them to charge and retain the flat-rate addition in order to compensate them, on an overall basis, for the VAT across all their inputs.

There are certain limited situations in which flat-rate farmers are specifically permitted to claim a refund of the VAT incurred by them on particular inputs. The Value-Added Tax (Refund of Tax) (Flat-rate Farmers) Order 2012 (S.I. No. 201/2012) allows for refunds to be claimed on outlay incurred on:

- the construction, extension, alteration or reconstruction of farm buildings or structures;

- the fencing, draining and reclamation of farmland; and

- the construction and/or installation of qualifying equipment for the purpose of micro-generation of electricity for use in a farm business.

I am advised by Revenue that outlay on what is sometimes called ‘virtual fencing’ does not come within the scope of the Refund Order. These systems use special animal collars, GPS technology, and audio sounds or electric signals to deter the collared animals from crossing a virtual line. Such systems are quite different to the physical fencing of farmland, which can be refunded in accordance with the Order.

It would not be compatible with the EU Directive for Ireland to expand the scope of its Refund Order to encompass additional items such as virtual fencing technologies.