Chartered Tax
Stage 2
Module 7 – Value Added Tax
Presenter Name – Finbarr O’Connell
18th & 19th March 2011
Location – Chartered Accountants House
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
Objectives & Background
•
•
•
•
•
•
•
Research Materials (including legislation)
Importance of VAT
The EU perspective
Core legislation
Revenue
Compliance obligations
Accounting for VAT
Research Materials
• Irish Legislation – Pg 13
• Sections 1-44 (plus Schedules – useful
summary pg xvii)
• E.g. Section 5 pg 65 – (amendments,
case-law, precedents, publications...)
• Regulations – Pg 661 (SI 548 – pg 849)
Research Materials
• EU Directive – Page 1801 (see scope Pg
1816)
• Information Leaflets – Page 1067 (NOT
LAW)
Importance of VAT
•
•
•
•
Impacts on all businesses
Based on transactions, NOT profits
Large part of tax-take
Potentially high-risk
Transactions
• Identify the issue
– What is being supplied?
– Who is supplying it?
– Where is supplier located?
– Where is recipient located?
– What is the VAT treatment and who must
account for VAT?
The EU Perspective
•
•
•
•
Common VAT System
Ireland - 1972
2006 Recast Directive (2006/11/EC)
EU law can be relied on (by taxpayer
only)......but....
The EU Perspective
•
•
Derogations
property
transportation, sports fixtures
Some elements may be optional or give
Member States latitude (e.g. gambling
exemption)
- "shall" V "may" in the text
The EU Perspective
• Who is in the EU (for VAT purposes)?
- Norway? Switzerland? Turkey?
- Cyprus? Malta? Slovenia? (see pg 1599)
• European Court of Justice (ECJ)
- decisions generally binding
Examples of ECJ Influence
•
•
•
•
Toll roads (EU action)
Canteens
Retained deposits
Local authorities (EU action)
Irish Legislation
•
•
•
-
VAT Acts 1972 (as amended)
Including FA 2010
Regulations
SI 548 of 2006 most relevant
Interpretation
• Section 1 VATA 1972 – includes important
definitions such as:
- "business"
- "development" (property transactions)
- "taxable person"
- "goods"
The charge to VAT
•
-
Section 2 VATA 1972
applies to sales and imports/acquisitions
note – "import" V "acquisition"
special rule for 'new' means of transport
The charge to VAT
•
-
New means of transport =
cars < 6 months old or
< 6,000km on the 'clock'
boats/aircraft – different values
The charge to VAT
• Example: Joe lives in Dublin and he is
looking at 4 different cars in Newry, as
follows:
A – 5,000km & 9 months old
B – 7,000km & 4 months old
C – 6,500km & 8 months old
D – 0km & brand new
The charge to VAT
• Irish VAT due if Joe purchases?:
A – Yes – only 5,000km
B – Yes – only 4 months old
C – N0 - 6,500km & 8 months old
D – Yes - 0km & brand new
Note – VRT still due on registration.....
The basic charging conditions
• Supply of 'goods' or 'services'
- vital to know the difference
- VAT treatment can be very different (e.g.
self-supply of goods V self-supply of
services)
- place of supply etc.
The basic charging conditions
• Supply for consideration
- is it linked to the supply?
- e.g. Government grant to buy machine –
taxable?
- donation to street performer – taxable?
- €1m euro court award for defamation taxable?
The basic charging conditions
• In the State – 26 Counties
- Northern Ireland is in UK for VAT
purposes
- International waters are outside the State
The basic charging conditions
• By a taxable person (carrying on a
business = economic activity)
• Acting as such...
- e.g. Joe sells his private car for €100k –
taxable?
- Peter is a car dealer and sells a car for
€10k – taxable?
The supply of goods
•
-
Section 3 VATA 1972
transfer of ownership by agreement
agents (see next slide)
CPOs (usually land)
self-supplies (see slide)
liquidators / receivers
The supply of goods
• Agents
- 'disclosed agent' – buyer knows agent is a
'middle man'
- undisclosed – buyer believes agent owns
the goods
- different VAT treatments
The supply of goods
• Self-supplies
- divert to 'private' use – e.g. retailer
consumes stock
- divert to 'exempt' use – e.g. move
equipment from estate agency business
to mortgage broker business (exempt)
• gifts - €20 limit – or industrial samples
The supply of goods
• Deemed non-supplies
- hire-purchase agreements – initial
handover is VAT event, not legal the
transfer at end
- security in financial arrangements – e.g.
title deeds transferred under mortgage
and handed back by bank at end
The supply of goods
• Deemed non-supplies
- 'transfer of business' assets – see slide
- insurance company disposal if insured
had no recovery – e.g. where goods
acquired as part of settlement claim
Transfer of business relief
•
-
Sections 3(5)(b)(iii) & 5(8)
see Revenue leaflet
share sale V asset sale
is it a 'business'?
consider Revenue approval
VAT recovery on costs
Transfer of business relief
•
-
E.g. Joe sells business for €25m
professional fees = €1.5m, VAT = €315k
if Joe sells shares, no recovery
if company sells assets, full recovery
other tax and commercial considerations
Goods – place of supply
•
-
Section 3(6) VATA 72
where transportation begins (if required)
where located (if no transportation)
where installed (if supply and install)
place of departure (on planes/boats/trains
within EU
Goods – place of supply
•
-
Distance Sales – Section 3(6)(d)
supplies of goods to individuals
each country has own threshold
can elect to register in other country
before reaching threshold – any
advantage?
Place of supply - examples
• French Co sells goods to US Co – goods
remain in UK all the time
• French Co sells goods to US Co – and
delivers them from UK to US
• Ryanair sells item on flight from Dublin to
Brussels
• Irl Co sells goods to UK customer and
delivers goods from Irl to UK premises
Place of supply - examples
• Ir Co sells goods to US Co and delivers
goods to US
• NB – if goods are despatched from
Ireland, then place of supply is Ireland
– may be zero-rated but place of supply is
Ireland
Triangulation
•
-
Simplification measure
3 parties in 3 different EU countries
A sells to B who in turn sells to C
goods delivered from A to C
no need for B to register in C's country
VAT on Property
• "Development" – see Section 1 defn.
- construction, alteration, reconstruction,
extension, demolition of buildings
- other operation which materially alters the
use of the land
- important concept – if no development,
then usually no VAT
VAT on Property
• 'Old rules' – pre 1 July 2008
• 'New rules' – post 1 July 2008
• 'Transitional rules'
- need to know old all three....
VAT on Property
• The 'old system' – pre 1 July 2008
- interest in property of 10 years or more
was a supply of goods (freehold,
leasehold, options included)
- interest in property less than 10 years was
a service – known as a 'short lease'
VAT on property ('old rules')
•
-
VAT on supply of property if:
supply of ten years or more...and...
developed since 1972...and...
vendor had VAT recovery...and...
supply in course of business...and...
EVT satisfied (if lease)
VAT on property ('old rules')
• Section 4(5) – 'connected development'
- anti-avoidance measure
• long leases (10 or more years)
- VAT upfront – 'capitalised value'
- VAT 4A procedure
VAT on property ('old rules')
•
-
Short leases
less than ten years
exempt from VAT
could 'waive exemption'
applied to all short lettings
VAT on property ('old rules')
• Example 1
- John bought a new commercial building in
1990. He paid VAT on the purchase but
did not recover it as he used the building
for VAT-exempt purposes
- VAT on sale? (say sale was 1 Jan 2007)
VAT on property ('old rules')
• Example 2
- John bought a new commercial building in
2000. He paid VAT on the purchase and
let the building to a solicitor for 4 years 9
months
- VAT implications?
VAT on property ('new rules')
• Post 1 July 2008
- no distinction between long and short
leases
- substantial interests in property now
treated the same (freehold equivalent)
- finite VAT life on property
- capital goods scheme (CGS)
VAT on property ('new rules')
•
-
Sales of property – VAT applies if:
property developed
supplied in course of business
it is considered 'new'
• Must understand terms - 'new', 'complete',
'minor development', 'occupied'.
VAT on property ('new rules')
• When is property no longer new?
- 5 years after completion...or...
- 2 years after occupation if property has
been sold since completion with VAT
charged
- previous supply can't be to connected
party
VAT on property ('new rules')
• Residential property developers
- 2 and 5 year rules don't apply
- first sale of resi units which were built for
sale always subject to VAT
VAT on property ('new rules')
•
-
If property not new = sale is exempt
unless connected build agreement
unless parties 'opt to tax' the sale
if opt to tax, purchaser self-accounts
parties may need to negotiate this point
VAT on property ('new rules')
• Example 3
- Big bank bought a new property in 2009
and paid VAT but could not recover the
VAT. It sold the property on 1 Jan 2011
- is the sale subject to VAT?
- what if sale is 1 Jan 2016?
VAT on property ('new rules')
• Example 4
- Jim the accountant bought a new property
for his practice in 2009 and paid VAT
which he recovered. He sold the property
on 1 Jan 2011
- is the sale subject to VAT?
- what if sale is 1 Jan 2016?
VAT on property ('new rules')
• Example 5
- Bob the builder constructed 100 new
houses to sell in 2010 but he could not
sell them. They remained idle and he
eventually sold the first house in 2017
- is the sale subject to VAT?
- what if the houses were rented first?
VAT on property ('new rules')
•
-
Letting of property
exempt from VAT
landlord can 'opt to tax'
convey this in writing
parties may need to negotiate
'letting by letting' basis
VAT on property ('new rules')
• Option to tax letting disallowed where:
- residential property
- connected parties (unless tenant has 90%
recovery)
- occupant connected to landlord (unless
occupant has 90% recovery)
VAT on property ('new rules')
• Example 6
- Jim purchases and then leases a new
office block to Big Bank (unconnected) for
10 years
- what are Jim's options?
- what if Jim owns Big Bank?
VAT on property ('new rules')
• Example 7
- Jim is constructing a new apartment block
which he hopes to sell to first-time buyers
but he knows he may be forced to let the
units if there are no borrowers
- what is Jim's VAT position?
VAT on property ('transitional')
• Applies to 'interests' held on 1 July 2008
- freehold – if no entitlement to recover,
supply is exempt
- can opt to tax
- if entitlement to recover – new rules apply
VAT on property ('transitional')
• Also applies to 'long' leasehold interests
held on 1 July 2008
- If no entitlement to recover, assignment or
surrender is exempt
- can opt to tax
- if entitlement, assignment or surrender
vatable based on 20 year life – 'document'
VAT on property ('transitional')
•
-
Waiver of exemption
pre 1 July 2008 waivers still apply
properties covered at that date
can be cancelled
12-year rule for connected parties
VAT on property ('transitional')
• Example 8
- Billy the bookie bought a new building on
1 Jan 2008 – he could not recover the
VAT. He is planning to sell the property
on 1 Jan 2012.
- will VAT apply to the sale?
- what if Billy demolished the building and
rebuilt it prior to sale?
VAT on property ('transitional')
• Example 9
- Vinny the butcher took a 20-year lease on
his shop on 1 Jan 2002 and the lease was
subject to VAT. He is surrendering the
lease on 1 Jan 2012 to his landlord
- will VAT apply to the surrender?
VAT on property (CGS)
•
-
Capital Goods Scheme
20 year VAT life
10 years for 'refurbishments'
Annual monitoring of use of property
5% per annum, 10% for refurbishments
VAT on property (CGS)
•
-
Capital goods scheme contd.
'big swing' – 50% points
obligation to keep records
letting with VAT charged is a 'taxable use'
VAT on property (CGS)
• Example 10
- Mary bought a property on 1 Jan 2010 for
her business and reclaimed all of the VAT
(€200k) as she had 100% recovery. After
10 years, her recovery rate dropped to
90%
- what is the impact?
VAT on property (CGS)
• Example 11
- Mary sells the property after 15 years. As
the property is 'old' she does not charge
VAT
- what are the implications for Mary?
- what if she does charge VAT on the sale?
Case Study – BAT Enterprises
•
•
•
•
•
•
Understand the background
Purchase and sale of goods
5 transactions to comment on
Other taxes?
Sale of business
Property held personally
Supplies of services
•
-
Section 5 VATA
'anything other than goods....'
food/drink supply may be service
self-supply (canteens only)
Supplies of services
•
-
Services & Agents
disclosed
undisclosed
important to understand who is supplying
what....
Services – place of supply
•
-
Business to consumer – "B2C"
basic rule – where supplier established
what is a consumer?
what is an establishment?
Services – place of supply
• Business to business – "B2B"
- basic rule – where customer is
established
- establishment most closely associated
with the supply
Services – place of supply
• Exceptions to basic rules:
- services relating to property
- e.g. Ernie (Estate Agent) sells a house in
Paris for a client – his fee is subject to
VAT in France.
Services – place of supply
• Exceptions to basic rules:
- passenger transport services
- e.g. Bus Eireann transports people from
Munich to Dusseldorf – German VAT
applies (may be exempt but may not be)
Services – place of supply
• Exceptions continued:
- work on moveable goods for consumer
- e.g. John sends his ipod to Madrid to be
repaired – Spanish VAT
- artistic, sporting, entertainment etc
- e.g. Tiger Woods plays in a tournament in
Dublin and gets a fee – Irish VAT
Services – place of supply
• Exceptions continued:
- restaurant/catering
- e.g. catering service supplied by Dundalk
company in Newry – UK VAT
- e.g. catering service on board flight from
Cork to Vienna (while the plane is over
Germany!) – Irish VAT
Services – place of supply
• Exceptions continued:
- short-term hire of means of transport
- e.g. pick-up car in Spain for 4-week EU
driving holiday – Spanish VAT
- note 'short-term' definitions
- agents / intermediaries
Services – place of supply
• Use & Enjoyment Provisions
- electronically supplied services
- e.g. Orange inc in the US supplies music
via download to Peter in Galway – Irish
VAT
- goods used in the State
- e.g. Irl Co leases goods to Australian Co
but the goods remain in Irl – Irish VAT
Services – place of supply
• Use & Enjoyment Provisions contd.
- means of transport used outside the EU
- e.g. Leaseco in IFSC leases plane to Aer
Lingus – plane is used only in US – no
Irish VAT
- telecomms / financial & intermediary
services used in the State
Services - place of supply
• "Fourth Schedule Services"
- refers to services in Section 5(5D)
- such services supplied to consumers
outside EU are not subject to VAT in
Ireland
- important to know which services are
covered
Services – sale of business
•
-
Section 5(8)
transfer of business relief
intellectual property, goodwill, patents
taxi license....
Accountable persons
•
-
Section 8
supplies over thresholds
intra-community acquisitions
promoters
services received
'principals' (construction industry)
Accountable persons
•
-
Section 8 contd.
landowners (mobile traders)
local authorities (certain activities)
NAMA
greenhouse gas allowances
new means of transport
Accountable persons
•
-
Section 8 contd.
non-established traders
distance sales
farmers
Accountable persons
•
-
Section 8 – VAT groups
established in the State
closely bound
revenue approval required
single group 'remitter'
Accountable persons
•
-
Section 8 – VAT groups contd.
ignore transactions within
but...property transactions...
'joint and several' liability
Accountable persons
•
-
Section 8 – Intending Traders.
registration before trading
'Rompelman' case
statement of intent
other tax consequences
VAT recovery
•
-
Section 12
100% 'taxable' = 100% recovery
zero 'taxable' = Zero recovery
mixed bag?
methods of apportionment
VAT recovery
• Section 12 contd.
- non-deductible items
e.g. food, drink, entertainment
- 'qualifying activities'
e.g. transportation outside State
e.g. FS outside the EU
Case Study 2 – Dry Run Ltd
•
-
Prepare a letter to Sarah:
personal expenditure
qualifying conference
foreign VAT (EU States)
goods from UK
Dry Run Ltd contd.
• Other issues
- 'qualifying vehicle'
• Sub-lease
- exempt?
- opt to tax?
Amount on which VAT is charged
•
-
Section 10
generally 'consideration'
including taxes, charges, costs etc
'self-supplies' - cost
Amount on which VAT is charged
• Market Value
- connected parties
- non-monetary consideration (e.g. barter
transactions)
Amount on which VAT is charged
• Market Value
- e.g. Peter sells a commercial property to
his wife for €100 plus VAT even though
the value is €100,000. She uses the
property for an exempt purpose....
Amount on which VAT is charged
• Market Value
- e.g. XYZ Ltd has full VAT recovery. Big
Bank plc has no VAT recovery. Both
purchased new buildings in 2007 for
€10m plus VAT and occupied them since.
They agree to swap premises in 2011 and
no cash changes hands.....VAT?
Rates of VAT
•
-
Section 11 & Schedules
21% - 'catch-all'
13.5% - Schedule 3
4.8% - livestock
0% - Schedule 2
Exempt – Schedule 1 (Section 6)
Rates of VAT
• Section 11
- composite V multiple supply
- Cablelink case – Supreme court
- 'two-thirds' rule – important to remember
- vital to be able to determine if supplying
goods or services or both!!
VAT due and payable
•
-
Section 19 – earliest of:
when invoice raised
when invoice should have been raised
payment (if cash-receipts basis - see
below)
VAT due and payable
•
-
NB to know when a supply is made
goods – usually on handover
services – when complete
what about ongoing?
VAT due and payable
•
-
Cash-receipts basis – Section 14
2 ways to qualify
t/o < €1m
90% sales to unregistered persons
very useful for cash-flow
VAT compliance matters
• Section 17 – Invoices
- certain information must be included
- regulation 9, 2006
• Tax registration
- TR1, TR2
- don't underestimate importance
VAT compliance matters
•
-
Accounting for VAT
standard bi-monthly returns
annual (direct debit)
every 6 months (liability < €3k)
every 4 months (liability €3k - €14k)
monthly – constant repayment
VAT compliance matters
• Completing the VAT Return
- output VAT – regular sales & variety of
other potential amounts
- input VAT – reclaimable VAT
• Annual Return of Trading Details
VAT compliance matters
•
-
Record keeping – Section 16
6 years
original documents
property transactions
VAT compliance matters
•
-
Expression of doubt – Section 19B
lodged with return
no interest or penalties if vat deemed due
genuine cases only
VAT compliance matters
•
-
VAT Returns & risk management:
who is responsible?
systems in place?
letters of engagement?
Revenue Commissioners
• Local Districts
• Large Cases Division (LCD)
• Revenue Technical Service
Revenue Powers
•
•
•
•
•
Inspection of records
Collect tax
Impose penalties
Make regulations
Make determinations
Revenue Powers
•
•
•
•
Power to publish
'tax defaulters list'
Inspect & value premises
Request security
Seize goods
Revenue & Anti-avoidance
• EU case-law
- Halifax doctrine
- 'abuse of law'
• Section 811 etc
- limited success for Revenue
- new disclosure requirements FA 2010
Accounting for VAT
• Accounting package
• VAT on all sales?
- different rates?
- customer location?
Accounting for VAT
• VAT on invoices or cash-receipts?
• Full VAT recovery?
- is VAT a cost?
- or partial cost?
Accounting for VAT
• Reconciliation to Financial Statements
- see example in manual
• Foreign VAT incurred
- International reclaim
- EU & non-EU
Professional and ethical skills
• Research issues
- the EU dimension
- full working knowledge of transactions
• Communication skills
- clarity of role
- Restricted client?
Sample Paper 1
•
•
•
•
Pharma Ireland Ltd
Disaster Insurance
Tim Turner
Sean Smith
Sample Paper 2
• The Trotters
• Legislative Questions
– Question 2
– Question 7
– Question 8
Case Study 3 – Kate Thompson
•
•
•
•
•
VAT rate for services
Exports
Transfer of business
VAT Group
Lease
Module Round Up
• Identify the issue
– What is being supplied?
– Who is supplying it?
– Where is supplier located?
– Where is recipient located?
– What is the VAT treatment and who must
account for VAT?
Module Round Up
• Be familiar with the legislation and where
to find things
• Information Leaflets can help but these
are not the law
Module Round Up
• Basic Charging Section – is the supply
subject to VAT?
• Section 3 – Goods
• Section 4, 4B, 4C – Property
• Section 5 – Services
• Section 8 – Accountable Persons
• Section 10 – Amount of VAT
Module Round Up
•
•
•
•
•
Section 12 – Input Tax
Section 12E – Capital Goods Scheme
Section 14, – Cash-receipts basis
Sections 16,17 – Records & Invoices
Section 19 – Tax due and payable
Module Round Up
• Revenue Powers
• Engaging with Clients & Procedures
• Reviewing Systems