Subway bread too sweet for the Irish tax authorities

Franchisees lose Supreme Court appeal as judges rule that bread sold by chain has five times the sugar content allowed in statutory definition

The Supreme Court has rejected arguments by an Irish Subway franchisee that it is not liable for VAT on certain of its takeaway products, including teas, coffees and heated filled sandwiches.

The appeal by Bookfinders Ltd, based in Tuam, Co Galway, included consideration of whether the bread used in Subway sandwiches fell outside the statutory definition of bread intended under the Vat Act 1972 to attract a zero VAT rate.

The five-judge court ruled the bread falls outside that statutory definition because it has a sugar content of 10 per cent of the weight of the flour included in the dough.


The Act provides the weight of ingredients such as sugar, fat and bread improver shall not exceed 2 per cent of the weight of flour in the dough.


The clear intention of the detailed definition of “bread” in the Act was to distinguish between bread as a “staple” food, which should be zero per cent rated, and certain other baked goods made from dough, Mr Justice Donal O’Donnell said.

Because the Subway heated sandwiches, such as a hot meatball sandwich, did not contain “bread” as defined, it could not be said to be “food” for the purpose of the Act, he held.

The appeal by Bookfinders, whose trade is 70-80 per cent takeaway, arose from a 2006 decision by Revenue refusing the company a refund for VAT payments made between early 2004 and late 2005.

Bookfinders claimed a refund on grounds it was subject to VAT at a composite rate of 9.2 per cent when, it argued, the rate should have been zero percent.

After an appeal commissioner upheld the Revenue refusal, the company went to the High Court. It lost there, and also lost on appeal to the Court of Appeal, but the Supreme Court agreed to hear a further appeal because the issues concerning construction of the 1972 Act.


The case centred on two paragraphs in two schedules to the Act concerning exceptions from the 21 per cent VAT rate for certain goods and services, with the effect those would be charged at VAT rates of either 13.5 per cent or zero per cent. Bookfinders alleged much of its turnover should be charged at zero per cent.

Mr Justice O’Donnell, in a judgment on Tuesday, dismissed the appeal. While describing some of the arguments advanced on behalf of Bookfinders as “ingenious”, he agreed with the appeal commissioner that hot drinks, including tea and coffee, and sandwiches fell under the sixth schedule of the 1972 Act and were thus taxable at 13.5 per cent. He rejected claims that tea and coffee which were prepared hot fell under the zero percent rate and that only cold tea and coffee, which had been heated, fell under the 13.5 per cent rate.

It was “entirely understandable” the legislature would wish to zero-rate teas and coffees when sold in a retail setting but apply the intermediate rate of VAT in the context of, for example, takeaway foods.

The Appeal Commissioner also correctly held Subway heated sandwiches were not subject to the zero per cent rate, he ruled.

Based on those and other findings, the appeal was dismissed.

Mary Carolan

Mary Carolan

Mary Carolan is the Legal Affairs Correspondent of the Irish Times