Disclosure of Information to Mortgagees in Possession (MIPs), Asset Receivers and Other Receivers to Enable Them to Meet Their Obligations Under Value-Added Tax Legislation.

1. Introduction

Where an MIP/receiver has insufficient information to definitively decide if the transactions in any of the property over which s/he was appointed would give rise to a VAT charge, then s/he may write to the Revenue District of the borrower setting out the confirmation sought. Where it is possible to do so, the Revenue office will assist the MIP/receiver to enable him/her to meet his/her obligations under the VAT Acts.

The growing number of asset receiverships has led to increased requests for such information. The purpose of this note is to assist in clarifying the type of information which may or may not be released to assist an MIP/receiver to establish the VAT history of a property so that the correct VAT treatment can be applied to its sale.

1.1. Tax arising on sales of properties

The supply of freehold or freehold equivalent interests in “new” properties in the course of an economic activity is subject to VAT. The five and two year rules determine if a property is “new” -

• The first supply of a completed property within five years of its completion is subject to VAT.
• The second and subsequent supply of a property within five years of its completion is subject to VAT if it takes place within two years of occupation.

The notable exception is the sale of residential properties by a developer/builder where the two and five-year rules do not apply. In such cases, the sale by the developer/builder is always taxable. Generally, all sales of “old” property (those outside the period when considered “new”) are exempt from VAT.

When an exempt supply occurs, a Capital Goods Scheme (CGS) adjustment may arise obliging the seller to pay VAT back to Revenue. The CGS Adjustment is based on the VAT deductibility taken on the acquisition or development of the property, reduced Revenue Operational Manual 04-02 by the number of years that have elapsed in the CGS adjustment period for the property. However, a joint option for taxation is allowed in certain circumstances, whereby the vendor and the purchaser can jointly choose to apply VAT to the sale. In such cases, the purchaser is liable to pay the VAT on the reverse charge basis and, because a taxable supply has occurred, there is no CGS adjustment for the vendor. See VAT on Property Guide for further details on these concepts.

1.2. VAT treatment when a Receiver or MIP sells a property

In relation to “forced sales”, the same rules apply. If the sale of the property occurs when the property is “new”, the MIP/receiver will account for VAT on the supply and pay this VAT to Revenue. If the sale occurs outside this period, a CGS adjustment may arise. The tax due under this adjustment (Section 64(6) of the Value-Added Tax Consolidation Act 2010, as amended, refers) is payable by the MIP/receiver. This is because the wording of Section 76(2) of the Act provides that the MIP/receiver is liable to pay the “tax due in relation to that supply”. The tax due in relation to an exempt sale is the amount calculated in accordance with the formula in Section 64(6) of the Act.

2. Information

2.1. Information required by a Receiver or MIP

The most frequently requested information will be:

Whether the debtor was registered for VAT and the effective date of the registration.

• If debtor(s) were registered for VAT as partnership or as co-owners.
• Whether the debtor had a waiver in place and the effective date of the waiver.
• Whether the debtor had claimed a deduction for the acquisition or development of the property and the amount of that deduction.
• Whether the property was acquired VAT-free under transfer of business rules.
• Whether a VAT 4B issued in respect of the acquisition of the lease and the figures therein.

For more detailed information on this topic please refer to Tax Briefing Issue 10, July 2010

Revenue is satisfied that, where this information is available in Revenue records, it may be disclosed to an MIP/receiver to enable him/her to meet his/her obligations under the VAT Acts without breaching Revenue's confidentiality obligations. It is likely that all this information will not be available in Revenue's records in all cases.

While Revenue has a duty of confidentiality to taxpayers, the extent of the duty of confidentiality is that Revenue may not disclose any information relating to a taxpayer or his affairs save for the purposes of the various Taxes Acts. In these circumstances the information is being furnished to enable the MIP/receiver to comply with his/her obligations under the VAT Act and is therefore being disclosed for the purposes of the Act. In any event, when an MIP/receiver is liable for tax on a “forced sale” the MIP/receiver is the taxpayer and any disclosures made to him/her about the tax are not regarded as made to a third party.

Lenders, who have appointed receivers, will have access to significant pieces of information submitted to them in support of loan applications. This is information that may not be on Revenue files and MIP/receivers should be expected to explore this source fully.

2.2. Action to be taken in Districts

Where an MIP/receiver makes a written request to a Revenue District seeking information to enable the determination of any VAT arising in relation to the transaction, the District may supply the following information in writing if it is available from Revenue records:

• Whether the debtor was registered for VAT and the effective date of the registration.
• If debtor(s) were registered for VAT as a partnership.
• Whether the debtor had a waiver in place and the effective date of the waiver.
• Whether the debtor had claimed a deduction for the acquisition or development of the property and the amount of that deduction.
• Whether the property was acquired VAT-free under transfer of business rules.
• Whether a VAT 4B issued and the figures therein.

If this information is not available it may be possible to form an informed opinion by reference to the T2 entry on the return for the period in which the property was acquired or the immediately following period. If this is possible the receiver should be told that you have been unable to verify with certainty but that it is likely that a deduction has been claimed.

If the information requested is not available and it is not possible to make an informed opinion the MIP/receiver should be advised accordingly.

Source: Revenue Commissioners. www.revenue.ie. Copyright Acknowledged.