Tax Briefing Issue 64 carries a series of articles with a heavy emphasis on Value Added Tax matters. A large element of the content has already featured in various Revenue eBriefs.

VAT – 10% Rule

An article sets out the revised 10% rule as applied to VAT on property transactions. The revised rule differs from that previously applying insofar as:

• The €300,000 upper limit has been withdrawn.
• The ‘no essential change in the use to which the property is put’ requirement has been withdrawn.

Demolitions are now included.

The revised approach recognises the practical realities of the property market, in that an upper limit of €300,000 fetches very little in today's terms. Further, it sidesteps what had been one of the more contentious points in the application of the 10% rule – whether or not there had been an essential change in use.

Accountants are reminded that the 10% rule is a Revenue practice which has no basis in legislation. Its application was ruled upon in the case of Forbes v Tobin, where the learned judge placed little store on what he regarded as a rule of thumb.

VAT Registration and the Centime Case

The Centime case concerned an application for input credit by a company which proposed to develop a football stadium. The High Court found that the company need not have actually acquired an interest in the land it proposed to develop before being regarded as a taxable person for VAT purposes. Revenue lost the case (Inspector of Taxes v Centime Ltd. (2005 No. 62R)).

Accordingly, Revenue has revised the criteria it sets for registration for VAT for property transactions in advance of trading.

In brief, Revenue state that the minimum conditions which must be met before registration for VAT in respect of a property transaction is allowable are:

1. The person must declare his/her intention to make a taxable disposal of an interest in the land and
2. That intention must be supported by objective evidence.

VAT Treatment of sales of short-let properties

A third VAT article looks at the sales of short-let properties in the light of the 2005 Finance Act changes, which were largely relieving measures in the area.

It focuses on a type of transaction which apparently is causing Revenue some concern. This is best described by quoting Revenue's own example:

• A property developer partially developed a site in 2004 and ‘let’ it to his building company, while that company was building houses on the site. He did not waive exemption on the ‘rents’ from the letting of the site. Once the building work was completed, the building company handed him back the site and he sold the finished houses to members of the public. The sale of the finished houses is subject to VAT notwithstanding the ‘letting’ to the building company. (Note: The example is used simply to illustrate cases that can arise and is without prejudice as to the actual treatment of any such transaction for VAT purposes)

The rationale apparently is that even though the properties were claimed to have been short-term let and to have fallen out of the VAT net, Revenue consider that they had in actual fact remained as stock in trade of a fully taxable business. On this basis, the further supply of such properties is chargeable to VAT.

Forms 11 and CT1-Property Based Incentive Panel

Anecdotal evidence suggests that the details requested on property based incentives introduced for the 2004 returns was not being completed on a consistent basis. Accountants will recall that the additional information requirement was introduced following criticism by the Comptroller and Auditor General that hard figures on the tax costs of the property incentives were in short supply.

FA04 introduced a special surcharge regime where these details were not completed. TCA97 s1084(1)(ib) provided that the surcharge would not apply if the form was delivered on time, and having been alerted to the details being omitted, matters were remedied without unreasonable delay. This approach is no longer adequate, apparently. According to the Tax Briefing article, “it has been decided that a more vigorous approach to the screening of this page in the forms is required and to return to the customer/practitioner those forms where it is considered that information has been omitted from this page.”

The snag of course here is that if a return is rejected for this reason, it could happen that it mightn't be possible to correct it and resubmit in time to avoid the surcharge which applies for late filing.

Further, the article appears to have been written by the only person in the country who hasn't heard of ROS. We contacted ROS management to obtain clarification on how a ROS return might be sent back. We were advised that “Validation on the ROS return ensures that when a customer completes the return indicating relief from property-based incentives that they will not be allowed to upload the return without first completing the property based incentive panel.” Revenue went on to observe that such validation eliminates the need for additional correspondence with practitioners and is a good example of the benefits of ROS over paper.

So a ROS return won't be sent back. It just won't be accepted in the first place. Furthermore, as the new procedure is to apply to all Forms 11 2005 and CT1 2005 returns received from the date of issue of this Tax Briefing, Revenue are discriminating in their treatment of returns from one category of taxpayer (those who filed prior to August) to another (those who filed after August but are still in compliance with the statutory deadline.