Following the significant changes introduced on 1 January 2015 in relation to the place of supply rules for telecommunications broadcasting and electronically supplied services (TBES) to non-taxable persons (consumers); it appears that 2016 will not have the same degree of systematic changes to VAT. However, Finance Act 2015 was notable for its focus on anti-avoidance provisions, specifically in relation to property transaction between connected parties and supplies of gas/electricity to taxable persons.

Finance Act 2015 sought to provide clarification around the application of the margin scheme to new means of transport. The administration of VAT returns/repayments in the context of VAT supplementary returns and estimated assessments were also addressed.

Finance Act 2015 also focussed on two particular sectors; education and online gambling, in an attempt to provide some clarity and address any perceived disincentives in operating in these sectors.

VAT rates

Firstly, in relation to Budget 2016 there were no changes announced in relation to any of the existing VAT rates, including the 9% rate for the tourism sector and the farmer’s flat rate addition, which remains at 5.2%. Those who have been vocal in their support of the retention of the 9% VAT rate in the tourism sector will see its retention as a victory. There is no doubt that the introduction of the measure has been a success in terms of jobs creation and has provided the tourism sector with a timely boost. It is hoped its retention will lead to further growth within the sector.

Leaders in the construction sector had lobbied for a reduction in the rate of VAT on construction services which it was hoped could have stimulated activity in this labour-intensive industry. This could have led to the creation of long-term sustainable employment in this sector. As it stands, the share of construction employment in Ireland remains below the pre-boom average. There were a number of factors which impacted on this decision but it will no doubt be on the agenda for this year’s budget.

Excise duty

While there was no excise duty increase on alcohol announced in the Budget, the excise duty on 20 cigarettes increased by 50c (including VAT) meaning that the price of the most popular brands is now €10.50. There are no changes in the rate of duty on petrol or diesel. However, there is excise duty relief for microbreweries, with excise duty relief of 50% on the standard Alcohol Products Tax for beers produced in microbreweries which produce not more than 30,000 hectolitres per annum will now be available upfront as well as through a rebate. This will result in a cash flow benefit to such producers and a further stimulant to growth in this growing sector.

Motor tax

The minister also simplified the rates of commercial motor tax by replacing the 20 existing rates with just five rates of commercial motor tax, ranging from €92 to €900 which have been in place since 1 January 2016. The most significant reduction are concentrated on the larger goods vehicles. The maximum rate of commercial motor tax will be €900 per annum, down from €5,195.

VAT and charities

It was announced that the Department of Finance is examining proposals set out in the VAT on Charities Working Group Report, published in October 2015, to reduce the VAT burden on charities. This may take the form of a refund process. Currently most charitable organisations are treated for VAT purposes as not being “in business”. As a result its activities may be deemed to be outside the scope of VAT. Consequently many charity organisations cannot recover VAT incurred on costs which relate to income that is outside the scope of VAT and therefore VAT is an absolute cost to the charities.

Finance Act 2015

Educational activities

In relation to the VAT exemption on educational activities, VAT legislation has been amended to limit the scope of the VAT exemption in an attempt to bring it more in line with the EU VAT Directive. The Act provides an exemption only where the educational service is provided by a recognised body and also sets out a definition of what is a recognised body. The definition narrows the scope to which the exemption applies.

Furthermore the Act also provides measures which allow the Revenue Commissioners to treat certain educational and vocational training services as being subject to VAT, where there is a distortion of competition in treating the service as VAT exempt. It should be noted that Revenue does not believe that the changes will lead to divergence from existing practices.

The VAT exemption will continue to to apply to tuition given privately by teachers which covers school or university education. Educational service providers must now examine whether they fall outside the exemption and if they have an obligation to account for VAT on its supplies which will have implications on pricing structures.

Betting and exchange services

The Act extends the VAT exemption for online betting and betting exchange services where such services are provided to customers in Ireland from non-resident suppliers. The extensions means that supplies of the betting and betting exchange services to customers in Ireland and abroad are treated in the same fashion. The measure allows for a more even handed approach in the VAT treatment of established and non-established betting service providers and removes any perceived disincentives for service providers in locating in Ireland. How the Revenue will police compliance by non-established service providers is not clear.

Anti-avoidance measures

A number of anti-avoidance measures were also introduced in the Act.

The reverse charge mechanism has been extended to certain domestic supplies of wholesale gas/electricity and gas/electricity certificates to taxable persons. The supplies are currently chargeable at the reduced rate of VAT. The obligation for the recipient to self-account for VAT on the supplies should remove the potential threat of missing trader fraud.

The Act also highlights that the Revenue Commissioners have the power to publish details of cancelled VAT registration numbers where they consider it essential for the protection of revenue. The aim of the measure is to combat any potential fraudulent use of a VAT number to receive free supplies. Revenue also reserves the power to directly notify suppliers in relation to a VAT number cancellation.

The Act also provides anti-avoidance measures in relation to VATable supplies of incomplete property between connected parties. Where the VAT deducted on the acquisition or development exceeds the VAT accounted for on the sale of an incomplete property between connected parties, VAT will be clawed back on transfer. Vendors will therefore need to be mindful when disposing of an incomplete property to a connected party that there is a potential VAT exposure based on the required calculation.

The Act provides clarity with respect to the Margin Scheme for Second Hand Goods. In relation to the Margin Scheme for Second Hand Goods the Act confirms that a cross-border supply within the EU of new means of transport (as defined by Revenue) does not come within the scope of the VAT margin scheme for second hand goods.

Measures have also been included in the Act which confirm that amended and supplementary VAT returns are subject to the same provisions regarding the imposition of penalties as the corresponding original VAT return.

Additional measures have been included in the Act which puts an obligation on the taxpayer to apply for a VAT refund, where a refund of VAT is due following payment of an estimated assessment issued by the Revenue Commissioners.

INTRASTAT Threshold

Other significant changes to VAT compliance outside of the Finance Act 2015, is the increase in the arrivals threshold for the detailed INTRASTAT. Revenue confirmed that the annual obligation to make the more detailed monthly return is €500,000 for arrivals with effect from January 2016. The dispatches threshold is unchanged at €635,000. The VIES and INTRASTAT Traders Manual has been updated to reflect this change.

Transfer of Business Relief

After a period of consultation with the Taxes Administration Liaison Committee (“TALC”) Revenue published the updated Transfer of Business (“TOB”) leaflet on 30 November 2015. The updated leaflet provided much needed clarification around the entitlement to input credits where a transaction comes under the TOB provisions.

Revenue highlights in the recently published leaflet that there may be an entitlement to a VAT deduction on associated disposal costs where the services disposed under the TOB provisions represent general overhead costs of a VATable business being transferred. This follows the Court of Justice of European Union (CJEU) judgement in the Abbey National plc case where it was held that the transferor has entitlement to recover VAT on the associated costs with reference to its VAT recovery position on overheads

The leaflet also addresses the uncertainty around whether certain property transaction can be treated as coming under the TOB provisions. The scope of property transactions that come under TOB were broadened in the previous version of the leaflet (published in July 2014). The July 2014 TOB leaflet applied the TOB provisions to the disposal of a property to an accountable person that are let or have been let on a continuous basis in the past. The updated leaflet expands the scope of the provisions further and explicitly applies the TOB provisions for the disposal, to an accountable person, of a vacant property which was used for business in the past and has the required quality and attributable to be used for a similar business.

Conclusion

It is important that tax practitioners are cognisant of the above changes and the effect they will have on the VAT treatment in the areas concerned.

Jarlath O’Keefe is Head of Indirect Tax with Grant Thornton.

Email: jaralth.okeefe@ie.gt.com

T (direct) + 353 (0)1 680 5817

Lorcan O’Rourke is VAT Manager with Grant Thornton

Email: Lorcan.ORourke@ie.gt.com

T (direct) + 353 (0)1 436 6477