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The US chain, which has branches in countries across the world, uses the bread for its popular filled sandwiches.
The court ruled that, due to the high sugar content, the chain's bread rolls could not be deemed a staple food - which attracts a zero VAT rate under the Value-Added Tax Act of 1972.
A Subway franchisee argued it was not liable for VAT on some of its takeaway products like heated filled sandwiches, along with teas and coffees.
However, the five-court judge ruled that the bread falls outside the statutory definition of 'bread' intended under the 1972 act, which states the weight of ingredients such as sugar, fat and bread improver cannot exceed 2 percent of the weight of flour in the dough.
Subway's bread, however, has a sugar content equating to 10 percent of the weight of the flour in the dough.
The appeal stems from a claim submitted to the Revenue Commissioners by Bookfinders Ltd back in December 2006, in which the Subway franchisee sought a refund for VAT payments made between January/February 2004 and November/December 2005.
In the claim, the franchisee claimed it had been paying a rate of 9.2 percent VAT, but should have instead been subjected to zero percent.
The court ruled 'to exclude the bread used by the appellant in their sandwiches from being considered as bread under para. (xii) of the Second Schedule, as the sugar content in the bread exceeded the percentage allowed in the Schedule'.
The court said: "The Schedule excluded bread from the 0% rate where any of a number of specified ingredients exceeded the allowed percentages."
Mr Justice Donal O'Donnell said the clear intention and detailed definition of 'bread', as outlined in the act, was to distinguish between bread as a 'staple' food - which should have a zero VAT rate - and other baked goods made from dough.
The ruling follows another controversy Subway faced in 2014, in which it was forced to start removing the flour whitening agent azodicarbonamide from its baked goods after a petition circulated online.
The ingredient has been banned by the European Union and Australia from use in food products.
LADbible has reached out to Subway for comment.
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