Subway has faced its share of lawsuits challenging the legitimacy of its flagship sandwich. The result of many of these lawsuits is that the curtain is peeled back on some of the company's business secrets. For example, one lawsuit revealed that the Subway Footlong is not really an entire foot long. Now, in another blow to the struggling company's reputation, the Irish Supreme Court has ruled that the bread for Subway sandwiches cannot legally be considered to be bread because of its content. While some may find humor in the decision, one party that would not find it funny is Subway since the company is already struggling with a flagging corporate reputation.
 

A Subway Franchisee Was Trying to Get Out of Tax on Subway Sandwiches

Here, the context of the case was not a lawsuit filed by disgruntled consumers. Instead, a Subway franchisee was trying to qualify for a tax break that was given to those who sell staple foods. The franchisee was trying to argue that Subway's bread is a staple food. However, the Irish Supreme Court's ruling resulted in an unpleasant headline for the company.

Like many European countries, Ireland charges a value added tax. It adds this tax to nearly every purchase made in the country. It is like a sales tax, only the amount charged is even greater. The country has certain exemptions from the tax. One is for foods that are considered to be staples. This includes things like bread, milk and flour. The government does not want to make like more difficult for families who are trying to put food on the table.

Like any enterprising businessperson, an Irish Subway franchisee was trying to be creative in getting a tax refund from the government. After paying the VAT to the government for the years 2004-2005, the franchisee sought a tax refund for certain menu items, claiming that they were staples and exempt from the VAT. Their claim for a refund was denied, and it sparked a long-running legal battle.

The case went all the way up to the Irish Supreme Court, and it issued a ruling that sent the Subway PR department into overdrive. The court looked at the actual contents of subway bread and found that it did not meet the legal definition of bread. In order to qualify for tax-free status, bread cannot contain more than 2% of the weight of the flour. Subway's bread fails by a wide margin to make it under that limitation. Subway's flour consists of 10% sugar. As a result, Subway's sandwiches do not legally contain bread.

In Ireland, any type of bread product that has more than 2% sugar in the flour would be considered a cake or other baked pastry. This means that the Irish Supreme Court apparently believes that Subway sandwiches are served on cake as opposed to bread. This would undercut Subway's premise that their sandwiches are healthier alternatives to fast food. The ruling also means that Subway's franchisees will need to continue paying taxes in Ireland.
 

This Is Not the First Controversy Involving Subway's Famed Bread

Subway's bread has been the subject of multiple controversies in the past. As mentioned above, the company was sued because its subs that were sold as footlongs were really 11 inches. In addition, Subway has had to change the composition of its bread in response to serious concerns. For example, Subway needed to remove a certain chemical in its bread that was also found in yoga mats.

For its part, Subway continues to maintain that its bread really is bread. Without addressing the facts discussed by the Irish Supreme Court, the company says that it has been baking bread fresh in its stores for three decades and customers keep coming back for more. However, Subway has been struggling with health-conscious customers in recently years and has had to close 1,000 stores in the United States. This ruling, even though it was in an overseas court, will not help the company's reputation with American consumers and will further take the bloom off of Subway's rose.

The Irish Supreme Court ruling may spark a renewed focus on Subway from American class action lawyers who like to file lawsuits when ingredients are not as described in advertising or on the label. Subway is a favorite target of these lawyers, and they may be ready to come at Subway for another round.