The changes will mean that thousands of employees will be forced to pay value-added tax at 13.5% on service charges that are already included on the bill when presented to the customers. The government has assured however, that tips received by these workers on a voluntary basis by customers will remain untaxed.

Announced by the Irish Revenue Commission in May, the new regime is due to come into effect on 1st September, 2008.

The Revenue says that the change has been forced on it in the light of a judgment by the European Court of Justice against the French government in 2001, which ruled that the service charge concession was in breach of the European Union VAT Directive.

The move has been attacked by the trade union Siptu (the Services, Industrial, Professional and Technical Union) for unfairly penalising these workers, which tend to be among the lowest paid in Ireland. It has also called on the Revenue to look at a fairer solution to the problem.

The Irish Hotels Federation has, however, predicted that the change in tax treatment of services charges will leave the hospitality industry largely unaffected.