Value Added Tax Consolidation Act 2010 section 41

Two-thirds rule

Section 41 sets out the "two-thirds rule", which determines whether a combined supply of goods and services is taxed as a supply of goods rather than a supply of services.

• Where the VAT-exclusive cost of movable goods (other than food and drink) supplied under a service agreement exceeds two-thirds of the total VAT-exclusive consideration (excluding transport costs), the entire consideration is treated as a supply of goods and taxed at the rate appropriate to those goods.
• Where goods of different VAT rate categories are involved, the total consideration is apportioned in proportion to the value of each category, and each portion is taxed at the appropriate rate.
• The two-thirds rule also applies to agreements involving immovable goods, including construction and maintenance services relating to property.
• The two-thirds rule does not apply where a subcontractor's services to a principal contractor are subject to the reverse charge mechanism under section 16(3) (construction services, from 1 September 2008) or section 16(5) (construction services between connected persons, from 1 May 2012).