VAT on Property Review

The Tánaiste and Minister for Finance, Brian Cowen TD, in his Budget speech in December 2006 announced a public consultation process in relation to the proposals to simplify and rationalise the rules for applying VAT to commercial property transactions. Please refer to Revenue eBrief 15/2007 to view the details of the proposals.

The Tánaiste issued a Tax Policy Notice on 26 July 2007, in relation to the position for certain property transactions that are under negotiation prior to the publication of Finance Bill 2008. When completed, these transactions may be taxed in accordance with the present rules as if those rules were still in place, subject to the follwoing conditions -

• Negotiations must have started in relation to the granting of a leasehold interest in a newly developed property prior to publication of new measures in the Finance Bill 2008*;
• The prospective tenant must not be entitled to deduct 90% of the VAT charged;
• The development of the property must have started before the publication of the Finance Bill 2008*;
• The transaction must be an arm’s length, commercial, bona fide transaction between unconnected landlord and tenant;
• Full details of the transactions must be notified to Revenue.

If these conditions are met, the landlord may treat the transactions for VAT purposes as if theyhad taken place prior to the enactment of the new rules so, in effect, the new provisions will not apply to those transactions. Dept. of Finance - Full text of the Tax Policy Notice.

*As practitioners will be aware, the Finance Bill is normally published in late January or very early February.

Information required by Revenue Commissioners

In order to avail of these transitional arrangements the landlord should notify Revenue, in writing, prior to the date of passing of the Finance Act 2008, of his or her intention to avail of the transitional arrangements in respect of a specific property transaction and include the following details:

• The name and address of the landlord and tenant and their respective VAT numbers, where they have VAT numbers.
• The address of the property in question.
• Full details of the transaction, e.g. draft letting agreement, building agreement or whatever form of documentation is necessary that illustrates, to the satisfaction of the Revenue Commissioners, how the transaction will be completed between the two parties.
• Confirmation by the tenant that in its most recent complete financial year its entitlement to deduct, as agreed with the Revenue Commissioners, was less than 90% or that the property is to be used for an activity that will give rise to a less than 90% entitlement to deduct VAT.
• A joint confirmation by the landlord and the tenant that the transaction is an arms-length, commercial, bona fide transaction and that the landlord and tenant are unconnected parties.

This information should be furnished to the local Tax Office of the landlord or to Large Cases Division if the landlord normally has his or her tax affairs dealt with by that division. Upon receipt of the documentation, Revenue will acknowledge that it has been received.

Revenue reserve the right to request further information if required.

Further Information

Enquiries or further information may be obtained from your local Revenue District