Let’s Get This Irish Bread (Cake?)

By: Konrad Starostka

Subway, the popular fast-food chain, specializes in creating one of a kind subs.[1] Almost all the breads that Subway offers are baked in the restaurant.[2] In fact, Subway prides itself on its “fresh-baked breads.”[3] However, in a recent decision, the Irish Supreme Court ruled that Subway bread is not bread.[4] If not bread, then what is it? Well, if anything, the Subway bread is actually closer to cake.[5]

The Subway bread case arose from Bookfinders Ltd., a franchisee of Subway, appealing a decision by the court to be exempt from the VAT or value added tax.[6] VAT is a tax that “is payable on sales of goods or services within the territory of the Member States of the EU,” which Ireland is a member.[7] The VAT is paid by “each party in the chain of supply,”[8] “[s]uppliers, manufacturers, distributors, retailers and end consumers.”[9] By contrast, the United States has a sales tax system, which means that only the “[e]nd consumers pay the sales tax on their purchases.”[10]

Bookfinders Ltd. argued that it did not have to pay the VAT and “sought a refund for VAT payments made from the period January/February 2004 to November/December 2005” because of an exception.[11] So, instead of paying the “composite rate of 9.2%,” Bookfinders Ltd. contends it should have paid 0%.[12] Currently, the VAT rate in Ireland is 13.5%, 9%, 4.8%, or 0% depending on the classification.[13] At the time of the inception of the case, Dass Solicitors, the law firm representing Bookfinders Ltd. Subway franchise, pointed out that other fast food restaurants, such as McDonald’s and Quiznos, do not pay the VAT on similar products.[14

Bookfinders Ltd.’s argument does have merit because Ireland’s Value-Added Tax Act addresses exceptions to the VAT.[15] The VAT of 0% applies to “certain goods and services,” including “certain food and drink.”[16] Bread may be liable to the 0% VAT rate, but this “depends on the bread product concerned and the circumstance in which it is supplied.”[17] Specifically, the bread must adhere to the “ingredient definition of bread” to qualify for the 0% VAT rate.[18] The definition can be found in the a Value-Added Tax Consolidation Act of 2010 (VATCA).[19] Bread is defined as “food for human consumption manufactured by baking dough composed exclusively of a mixture of cereal flour” and contain certain ingredients that adhere to specific weight limits.[20] In order for bread to be classified as “bread” and, thus, eligible for the 0% VAT there must be no more than 2% sugar, fat, and bread improver and no more than 10% of dried fruit as “percentage of weight of flour included in the dough.”[21]

Subway has nutrition facts on their website that state the sugar content of their breads, among other things, which range from three to five grams of sugar per six inch loaf, except for the gluten-free bread that has seven grams.[22] In this case regarding Subway’s bread, the Court found that the sugar content was “10% of the weight of the flour included in the dough,” which exceeds the permitted 2%.[23] However, Bookfinders Ltd. took a textualist approach and argued that the use of the word “each” would imply that, not just the sugar, but the other ingredients, fat, bread improver, and dried fruit, would need to be in excess as well.[24] The court, while acknowledging that this argument is based in sound statutory interpretation, was not convinced of this argument and instead responded that the “general reader would nevertheless have little difficulty in understanding what was intended to be captured by the definition and, in particular, the limitations applied to ingredients.”[25] It is obvious that bread is comprised of multiple ingredients, and the whole statute, when read altogether, adheres to “common sense” in the interpretation that that “if one ingredient exceeds the limitation, the resulting product falls outside the definition of ‘bread’ for the purposes of the Act.”[26] As a result, Bookfinders Ltd. lost its appeal and will not be returned the VAT it paid.[27]

This case comes as a surprise because of its counterintuitive and technical definition of bread. A Subway spokesperson even made a statement in response saying that Subway’s bread  “is, of course, bread.”[28] However, this is not the first instance where there has been litigation over whether a certain food is actually that food. In 2008, a London court ruled that Pringles are not potato chips, which allowed for Pringles to avoid paying the 17.5% VAT.[29] In England, a similar case about tax also took place in 1991 and examined the difference between cakes and biscuits because a cake does not require paying the VAT, but a biscuit does.[30] Thus, the Irish Subway sub bread or cake debate is another nuance in the legal field, specifically tax law, that is a product of fine distinctions with gauche results.

#Subway #Ireland #Starostka #Bread #ValueAddedTax #VAT #International #Law #BlogPost

[1] Sandwiches, Subway, https://www.subway.com/en-US/MenuNutrition/Menu/All.

[2] Breads, Toppings, & Extras, Subway, https://www.subway.com/en-US/MenuNutrition/Menu/BreadsAndToppings (last visited Oct. 2, 2020). The Flatbread and Gluten-Free Bread are not baked at the restaurant. Id.

[3] Id.

[4] Bookfinders Ltd. v. The Revenue Commissioners [2020] IESC 1 (Ir.).

[5] For Subway, A Ruling Not So Sweet. Irish Court Says Its Bread Isn’t Bread, NPR (Oct. 1, 2020), https://www.npr.org/2020/10/01/919189045/for-subway-a-ruling-not-so-sweet-irish-court-says-its-bread-isnt-bread; See Emily Heil, Everything is cake, except fondant hate, which is very real, Washington Post (July 16, 2020), https://www.google.com/amp/s/www.washingtonpost.com/news/voraciously/wp/2020/07/16/everything-is-cake-except-fondant-hate-which-is-very-real/%3foutputType=amp.

[6] Sam Jones and Helen Sullivan, Subway bread is not bread, Irish court rules, The Guardian (Oct. 1, 2020), https://www.theguardian.com/world/2020/oct/01/irish-court-rules-subway-bread-is-not-bread.

[7] What is VAT?, Irish Tax and Customs (Apr. 9, 2020), https://www.revenue.ie/en/vat/what-is-vat/index.aspx.

[8] Id.

[9] Carla Yrjanson, What is the Difference Between Sales Tax and VAT?, Thomson Reuters (Oct. 9, 2019), https://tax.thomsonreuters.com/blog/what-is-the-difference-between-sales-tax-and-vat/.

[10] Id.

[11] Bookfinders Ltd. v. The Revenue Commissioners [2020] IESC 1, 7 (Ir.).

[12] Id.

[13] New VAT Rates in Ireland 2020, Money Guide Ireland (Sep. 5, 2020), https://www.moneyguideireland.com/vat-rates-in-ireland-to-increase.html.

[14] Subway wrangle over VAT could be heading to high court, YorkshireLive (July 12, 2013), https://www.examinerlive.co.uk/news/west-yorkshire-news/subway-wrangle-over-vat-could-4982720; see also Subway VAT appeal – Subway loses, Howalder & Co. (Nov. 4, 2010), https://howladerandco.com/subway-vat-appeal-subway-loses/.

[15] Value-Added Tax Act of 1972 (Act No. 22/1972) (Ir.), http://www.irishstatutebook.ie/eli/1972/act/22/enacted/en/print#sec6.

[16] What are VAT rates?, Irish Tax and Customs (Nov. 8, 2019), https://www.revenue.ie/en/vat/vat-rates/what-are-vat-rates/zero-rate-of-value-added-aax-vat.aspx.

[17] Bread and Bakery Products, Irish Tax and Customs (Mar. 27, 2020), https://www.revenue.ie/en/vat/vat-on-goods/food-drinks-and-supplements/bread.aspx.

[18] Id.

[19] Value-Added Tax Consolidation Act of 2010 (Act No. 31/2010) (Ir.), http://www.irishstatutebook.ie/eli/2010/act/31/enacted/en/html.

[20] Id.

[21] Id.

[22] Nutrition Counts, Subway, https://www.subway.com/en-US/MenuNutrition/Nutrition/NutritionGrid (last visited Oct. 4, 2020).

[23] Bookfinders Ltd. v. The Revenue Commissioners [2020] IESC 1, 46 (Ir.); Value-Added Tax Consolidation Act of 2010 (Act No. 31/2010) (Ir.), http://www.irishstatutebook.ie/eli/2010/act/31/enacted/en/html.

[24] Bookfinders Ltd. v. The Revenue Commissioners [2020] IESC 1, 46-47 (Ir.); Value-Added Tax Consolidation Act of 2010 (Act No. 31/2010) (Ir.), http://www.irishstatutebook.ie/eli/2010/act/31/enacted/en/html.

[25] Bookfinders Ltd. v. The Revenue Commissioners [2020] IESC 1, 47 (Ir.)

[26] Id.

[27] Id.

[28] Stefan Sykes, Subway’s Sandwich Bread Isn’t Legally Bread, Irish Court Rules, NBC (Oct. 1,  2020), https://www.nbcnews.com/news/world/subway-s-sandwich-bread-isn-t-legally-bread-irish-court-n1241741.

[29] Ashby Jones, In Big Win for P&G, Pringles Found to be ‘Not Potato Crisps’, The Wall Street Journal (July 7, 2008), https://www.wsj.com/articles/BL-LB-6101.

[30] Sam Jones and Helen Sullivan, Subway Bread is Not Bread, Irish Court Rules, The Guardian (Oct. 1, 2020), https://www.theguardian.com/world/2020/oct/01/irish-court-rules-subway-bread-is-not-bread; Excepted items: Confectionery: The bounds of confectionery, sweets, chocolates, chocolate biscuits, cakes and biscuits: The borderline between cakes and biscuits, Guidance on determining the liability of supplies of food allowed by Group 1, Schedule 8, VATA (1994), https://www.gov.uk/hmrc-internal-manuals/vat-food/vfood6260.