The Supreme Court has found that the bread in Subway's heated sandwiches has too much sugar in it to meet the legal definition of being bread.
The court ruled that with a high sugar content, the sandwich could not be deemed a staple food which attracts a zero VAT rate. It rejected arguments by a Subway franchisee that it was not liable for VAT on some 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 sold in Subway sandwiches fell outside the statutory definition of bread intended under the Value-Added Tax Act 1972 to attract a zero VAT rate.
The five-judge court ruled the bread in Subway's heated sandwiches falls outside that statutory definition because it has a sugar content of 10pc 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 2pc 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 0pc 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 Second Schedule of the Act, he held.
The appeal by Bookfinders arose from a 2006 decision by the Revenue Commissioners refusing it 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 9.2pc when, it argued, the rate should have been 0pc.