What’s in a Title? Subway “Bread” Dominated “Not Bread” for Irish VAT

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A sliced loaf of brown bread, a basket of rolls and 4 types of grains sit on a wooden table.

All Subway heated sandwich bread options have a sugar content that is above the legal 2% of the flour mass. It follows that the roles should be subject to a VAT rate of 13.5%.

"Subway bread is not bread," headlines read after the judgment in Bookfinders Ltd. against The Revenue Commissioners. In a judgment published on September 29, the Irish Supreme Court ruled that the bread sold at Subway could not be classified as "bread" for the purposes of the 1972 VAT Act because it contained too much sugar.

The complainant, Bookfinders Ltd., is a Subway franchisee who has requested a refund of VAT paid in 2004-2005. The contested payments were a compound VAT rate of 9.2% on the sale of bread, tea and coffee. The Bookfinders argued that the tax rate should have been 0% as these goods were staple foods that are exempt from VAT in Ireland. After an Appeals Commissioner confirmed the tax authorities' rejection of a refund, the case was brought to the High Court and, after an unsuccessful appeal, to the Court of Appeal, where it was again dismissed. Eventually the Supreme Court also dismissed the appeal.

The standard Irish VAT rate is 21%, which is set by the 1972 Sales Tax Act. The second appendix to this law provides that staple foods, which include bread, tea and coffee, are not taxed. The law's sixth schedule stipulates that food that has been heated or cooked and served above room temperature will be subject to a reduced VAT rate of 13.5%. In addition, goods calculated at 13.5% according to the sixth appendix are no longer excluded from tax on the basis of the second appendix.

Regarding tea and coffee, the company argued that these products did not fall under the exclusions set out in the Sixth Schedule because, although served warm, they would not be labeled as "cooked" or "heated". This argument was rejected as the Court ruled that serving these drinks hot was sufficient to be subject to the rate set out in the Sixth Schedule. Then the case of sandwiches was considered.

The complainant alleged that the bread used in subway sandwiches is a staple food and is therefore exempt from VAT. Although the sandwiches in question were served warm, they did not fall within the scope of the goods that were taxed at 13.5% under the sixth schedule, as bread is an exception which is taxed at 0% under the sixth schedule.

However, as the court pointed out, the 1972 law distinguishes between staple groceries and "more discretionary indulgences". When it comes to bread, a staple food is only one in which, among other things, the weight of the sugar does not exceed 2% of the weight of the flour.

For underground bread, however, the sugar to flour ratio is almost five times higher than this standard. Therefore, the bread used in the popular sandwiches is not a staple food and cannot be tax-free.

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Finally, the complainant asserted that the different taxation of her "bread" to that of other breads violated the principle of fiscal neutrality, according to which similar goods cannot be treated differently from the point of view of VAT. This argument was rejected because there was no evidence and no comparison was made between Subway's “bread” and other breads. The complainant suggested comparing the submarines with hypothetical heated sandwiches sold in a different point of sale and that the two bread products were identical from the point of view of the average consumer. However, the Court did not accept this as a valid point of reference or as an argument based on "a mere and hypothetical assertion".

All Subway heated sandwich bread options have a sugar content that is above the legal 2% of the flour mass. It follows that the roles should be subject to a VAT rate of 13.5%.