Argos Case

Amendment to Section 10 of the VAT Act in relation to Credit Notes, Discount and the “Argos” case

Section 102(a) of the Finance Act inserts a new subsection (d) into Section 10(3) of the VAT Act. This relates to circumstances in which a supplier could reduce his or her VAT liability if a discount was given after the issue of a VAT invoice. In such cases the supplier should have issued a proper VAT credit note to the customer, which obliged the customer to reduce his input VAT accordingly. Once this was done there was no loss to the Exchequer from the granting of the discount. However, in some cases, suppliers were giving the discounts, reducing their VAT liability, but failing to issue proper VAT credit notes. In this way, the customer was relieved of the obligation to reduce his or her input VAT even though the supplier had reduced his or her output VAT.

The amended legislation prevents the supplier from getting a reduction in output VAT until he or she issues the proper VAT credit note.

The credit note required under the new provision must comply with Section 17(3)(b) of the VAT Act and the VAT ( Invoices and other Documents) Regulations, 1992.(S.I. No. 275 of 1992).

However, Revenue will allow a certain latitude in the application of Regulation 3(e)(v) of those regulations in the case of a supplier who has a Long Term Agreement (L.T.A.) with a regular customer and gives a discount which covers invoices spanning a period of sales. In these circumstances, it will not be necessary for the cross reference on the credit note to identify each invoice for which the discount is given. A cross reference to the period during which the corresponding invoices issued to the customer will be sufficient.

The “Argos” case

Section 102(c) and (d) give effect to the October 1996 European Court of Justice decision in the Argos case (case no. C 288/94)Argos was engaged in listing its goods in a catalogue and selling them from its showrooms. The goods could be paid for using vouchers issued and sold by Argos. The company sold the vouchers at face value, but in the case of large volume sales the vouchers were often sold at a discount. Typically, discounted vouchers were sold to companies who bought them in bulk to give them to staff as an incentive.

The UK Revenue sought to treat the taxable amount as the face value of vouchers and not the discounted price actually paid. In October 1996 the European Court of Justice found in favour of Argos. It held that the taxable amount for VAT is the sum actually received by Argos and not the face value of the vouchers.

The change in the Irish legislation provides that in circumstances similar to Argos, the amount on which VAT is chargeable is the sum actually received on the sale of the vouchers, regardless of their face value.

Section 102 also re-states the definition of “the open market price” in relation to the supply of any goods or services or the Intra-Community acquisition of goods as “the price, excluding tax, which the goods might reasonably be expected to fetch or which might reasonably be expected to be charged for the services if sold in the open market at the time of the event in question”.

These sections come into effect with the passing of the Finance Act on 10 May 1997