The Irish courts have ruled that Subway sandwiches cannot be called ‘bread’ over an issue which involves a lot of money for one Subway franchisee.
A Subway franchisee called Bookfinders Ltd had tried to argue that it shouldn’t have to pay VAT because it sells “staple” products, which have a 0% VAT rate in Ireland.
But according to thejournal.ie, the Irish Supreme Court ruled that Subway ‘bread’ contains too much sugar to technically be called bread.
According to Irish law, for bread to be a “staple product” and not therefore pay VAT, the sugar content “shall not exceed 2% of the weight of flour included in the dough”. Subway’s bread has a 10% ratio.
Bookfinders Ltd had submitted a claim to the taxman in December 2006 where the company argued for a refund for VAT payments made over 2004 and 2005. They had paid a rate of 9.2% VAT and argued that the VAT rate should have been 0%.
The court of five judges disagreed with Bookfinders and has upheld the VAT payments.
A similar issue arose in the U.K. in regard to Jaffa Cakes, a favorite national biscuit (or cake, depending on your view). McVitie’s, who make Jaffa Cakes, had argued with the tax man that its product was a cake. As a chocolate-covered cake it was able to pay 0% VAT, but chocolate-covered biscuits are charged at 20% VAT because they are considered a luxury product.
The issue went to court in 1991 and is often used as an interview question for candidates hoping to attend Oxford or Cambridge universities.
There are numerous issues for and against, as reported by inews. Jaffa cakes are always found in the biscuit aisle of supermarkets and not with the cakes. They are also packaged the same as biscuits and are the same size. The court also heard that cakes are eaten generally with a fork whereas Jaffa Cakes are eaten much like biscuits, by hand.
McVitie’s argued that they were cakes because they use the same ingredients as cakes–sugar, flour and eggs, much like a traditional sponge cake. They put forward the case that biscuits tend to be hard and snap in half, but Jaffa Cakes have a softer texture; they are even called cakes.
Crucially, McVitie’s won the argument in the end on the basis that Jaffa Cakes go hard like cake when stale, and not soft like biscuits–they were indeed tax-free cakes.
In Ireland, the taxman also found in favour of McVitie’s because the moisture content is higher than 12%, technically making Jaffa Cakes, a cake.