What just happened
The Irish Supreme Court has ruled that Subway bread can not in fact be defined as bread because of its high sugar content.[1]
What does this mean?
The ruling followed an appeal by Bookfinders Ltd, Subway’s Irish franchise, who contended that they were owed a refund for paying a VAT rate for its sandwich loaves. The company had argued that the bread used in Subway sandwiches counted as a staple food and was consequently exempt from VAT.[2]
Subway rolls ruled too sugary to be bread in Eire ((the Republic of) Ireland). Subway was trying NOT to pay tax on its bread.
The Supreme court however, argued that the 1972 VAT Act clearly distinguished between staple foods such as bread, tea, milk and “more discretionary indulgences” such as chocolate, pastries and crisps. The distinguishing factor being that the amount of sugar in bread “shall not exceed 2% of the weight of flour included in the dough”.
Mr Justice O’Donnell was not persuaded by Subway’s appeal, and the decision’s made in the High Court and Court of Appeal, were upheld and the appeal was dismissed. [3] The Court found that because the Subway sandwiches did not contain "bread",[4].
Following the ruling, Subway rolls in Ireland will be subject to a 13.5% rate of VAT.
How does it impact the legal sector?
With regards to how the ruling will affect the rest of the UK, in short, it will not. Firstly, the dispute arose due to an Irish Tax Law only applicable in Ireland, which differs to the laws in England and so the same dispute is not likely to arise under English law. Further, Ireland has its own constitution and while the judgement of an English court may be persuasive in Irelands cases, or ultimately adopted as law where there is lacking precedent in Ireland’s own law, the rulings of Irish courts hold no legal power over England.[5]
So, what does this mean for Subway legally? Well, the court’s decision only defines bread for the purposes of tax, therefore Subway can still refer to their sandwiches loaves as “bread”. Subway themselves have responded to the ruling stating that their bread is still bread.
The company is reviewing the complex tax ruling and may look to appeal the decision, as it claims it is based on an outdated bread exemption set by the Irish government in 1972.
Written by Gabriella Cinotti
Assessing Firms:
Clifford Chance LLP, Slaughter and May, Allen & Overy LLP, Baker McKenzie, Freshfields Bruckhaus Deringer LLP, Hogan Lovells International LLP, Kirkland & Ellis International LLP, Linklaters LLP, Macfarlanes LLP, Travers Smith LLP.
References:
[1] Sam Jones and Helen Sullivan, ‘Subway Bread is not bread, Irish court rules’ (The Guardian, 1 October 2020)
[2] Bookfinders Ltd v The Revenue Commissioners [2020] IESC 60 NISC
[3] Sam Jones and Helen Sullivan, ‘Subway Bread is not bread, Irish court rules’ (The Guardian, 1 October 2020)
[4] Tim Healy ‘Sandwiches in Subway ‘too sugary to meet legal definition of being bread’ (Independent.ie, September 30 2020) <www.independent.ie/irish-news/courts/sandwiches-in-subway-too-sugary-to-meet-legal-definition-of-being-bread-39574778.html> accessed
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.