Revenue Tax Briefing

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Revenue Tax Briefing Issue 51, January 2003

TRANSFER OF A BUSINESS VAT

VAT treatment of certain matters arising after the Transfer of a Business in accordance with Section 3(5)(b)(iii) VAT Act 1972

Revenue has recently reviewed the VAT treatment of certain matters arising after the transfer of a business, specifically regarding the matters of credit notes, costs incurred fulfilling outstanding obligations, e.g., warranties, and bad debts.

Credit notes

Where the transferor of the business issues an invoice to a customer and, subsequent to the transfer of the business, the goods were proved to be faulty and returned (or where a discount or rebate was due to the customer against the price originally charged for the goods), then technically speaking, the transferor would be obliged to issue a credit note in respect of this transaction in accordance with Sections 10(3)(d) and 17(3)(b) VAT Act 1972, together with regulation 8 VAT Regulations, 1979.

However, on a concessional basis and on condition that the transferor had no tax liabilities outstanding in respect of the business or part thereof which had been transferred in accordance with Section 3(5)(b)(iii) VAT Act 1972, Revenue would be prepared to allow the transferee, rather than the transferor, to issue a credit note in respect of the transaction in question.

Costs incurred fulfilling outstanding obligations, e.g., warranties

Where the transferor of the business supplies goods issued under warranty and, subsequent to the transfer of the business, the customer returned the goods to the transferee for repair/replacement, again technically speaking, the transferee would not be entitled to recover VAT incurred on expenditure relating to the fulfilment of the warranty on the basis that this expenditure would not relate to any taxable supplies made by the transferee.

However, on a concessional basis and on condition that the transferor had no tax liabilities outstanding in respect of the business or part thereof which had been transferred in accordance with Section 3(5)(b)(iii) VAT Act 1972, Revenue would be prepared to allow the transferee to claim input credit in respect of expenditure incurred by him/her in relation to the fulfilment of the warranties issued by the transferor.

Bad debts

Where, as part of the transfer of the business in accordance with Section 3(5)(b)(iii) VAT Act 1972, the transferor of the business transferred debts which, subsequent to the transfer, were determined to be ‘bad debts’ (i.e., wholly irrecoverable debts), then technically speaking, an adjustment in respect of the VAT already accounted for by the transferor in respect of these bad debts remains a matter for the transferor. Revenue would not be prepared to consider allowing the transferee to make any adjustment to his/her VAT liability in respect of these debts.

Further queries

Any further queries on these matters should be addressed to the local Inspector of Taxes.