Irish Revenue and EU Commission

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Deloitte's view on recent updates from Irish Revenue and EU Commission

Irish Revenue Updates

Since the last edition of Indirect Tax Matters there has been minimal updates published by Irish Revenue from a VAT perspective aside from the provisions introduced in Budget 2019 and Finance Bill 2018, which are covered in a separate article in the current edition of Indirect Tax Matters. The following update was made to the Guide to Excise Licences.

Guide to Excise Licences (Revenue e/Brief No. 173/18)
The Guide to Excise Licences manual has been updated to include two new licence categories, namely “Producer’s Retail On Licence” and “Producer’s Retail Off Licence”. These were both introduced by the Intoxicating Liquor (Breweries and Distilleries) Act 2018.

These licences authorise the sale of intoxicating liquor manufactured on the premises to visitors at breweries and distilleries and similar premises.

The Deloitte Indirect Tax team has extensive experience dealing with Excise issues. For any queries, please contact Ted Holohan.

EU Commission Updates

EU Member States still losing almost €150 billion in revenues according to new figures
In keeping with the EU Commission’s ongoing campaign to tackle VAT fraud in the EU, a new study published in September 2018 revealed that EU countries lost almost €150 billion in VAT revenues in 2016.

In nominal terms, the VAT Gap (which shows the difference between the expected VAT revenue and the amount actually collected) decreased by €10.5 billion to €147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before with significant variations across the Member States. The VAT Gap decreased in 22 Member States with Bulgaria, Cyprus, Latvia and the Netherlands displaying strong performances, with a decrease in each case of more than 5 percentage points in VAT losses. However, the VAT Gap increased in the following six EU Member States: Romania, Finland, the UK, Ireland, Estonia, and France.

While much progress has been achieved in recent years to improve VAT collection and administration at the EU level, there will be increased efforts for Member States to now move forward and agree on the much broader reform to cut down on VAT fraud in the EU's system, as proposed last year by the Commission.

Electronic publications: Council agrees to allow reduced VAT rates
In early October 2018, the EU Council agreed a proposal allowing Member States to apply reduced, super-reduced or zero VAT rates to electronic publications. This proposal will help align VAT rules for electronic and physical publications and is part of the EU’s ongoing efforts to modernise VAT for the digital economy.

Under current EU VAT rules, electronically supplied services are taxed at the standard rate of VAT, whereas publications on a physical support may benefit from non-standard rates.

For physical publications such as books and newspapers, Member States currently have the option of applying a reduced VAT rate with some able to apply super-reduced VAT rates or zero rates. The directive will allow Member States that so wish to apply reduced VAT rates to electronic publications as well. Super-reduced and zero rates will only be allowed for Member States that currently apply them to physical publications.

The new rules will apply temporarily, pending the introduction of a new definitive VAT system. The Commission has issued proposals for the new system, which would allow Member States more flexibility in setting VAT rates.

Paradise Papers: Commission follows up on illegal tax breaks for yachts and aircraft
The EU Commission has increased efforts to tackle tax avoidance in the yacht and aircraft sectors by implementing infringement proceedings on tax breaks (highlighted by last year’s ‘Paradise Papers’ leaks) being applied in Italy and Isle of Man’s pleasure craft industries. These follow previous infringement proceedings launched against Cyprus, Malta and Greece on reduced VAT base for the lease of yachts.

The Paradise Papers revealed widespread VAT evasion in the yacht and aviation sectors, facilitated by national rules that do not comply with EU law. This favourable tax treatment for private boats and aircraft leads to a distortion of competition in the maritime and aviation sectors.

In detail, the infringement procedures launched in early November concern:

  • A reduced VAT base for the lease of yachts offered in the tax law of Italy.
  • Excise duty rules for fuel in motor boats in Italy. Current EU excise duty rules allow Member States not to tax fuel used by a navigation company for commercial purposes. In breach of EU rules, Italy allows chartered pleasure crafts such as yachts to qualify as commercial even when being enjoyed for personal use, which may allow them to benefit from excise duty exemption on fuel used to power its engines.
  • Abusive VAT practices in the Isle of Man with regard to the supplies and leasing of aircraft used for private use.
    Italy and the UK now have two months to respond to the arguments put forward by the Commission regarding VAT on yachts and aircraft, respectively. If they do not act within those two months, the Commission may send a reasoned opinion to their authorities and the Commission may eventually decide to bring the case before the Court of Justice of the EU.

VAT fraud: Council agrees to allow generalised, temporary reversal of liability
On 2 October, the Council agreed a proposal (which was originally issued in December 2016) that will allow temporary derogations from normal VAT rules in order to prevent VAT fraud.

The proposed directive will allow Member States that are worst affected by VAT fraud to temporarily apply a generalised reversal of VAT liability in the form of a reverse charge mechanism which will shift the liability for VAT payments from the supplier to the customer. This mechanism is known as the generalised reverse charge mechanism (GRCM).

Member States will be able to use the GRCM, only for domestic supplies of goods and services above a threshold of €17,500 per transaction. The GRCM will apply until 30 June 2022 and under very strict technical conditions. In particular, if a Member State wishes to apply the GRCM, 25% of the Member State’s VAT gap has to be due to carousel fraud. The GRCM may only be used by a Member State once it meets the eligibility criteria and its request has been authorized by the EU Council.

The reverse charge mechanism can already be applied on a temporary basis, but not in a generalized manner. Under the current rules, it is limited to few sectors. It may only be used by a Member State that has made a specific request and must be authorized to do so by the Council.

The directive will offer a short-term solution for tackling fraud by the most affected Member States, pending ongoing negotiations on a new and definitive VAT system where supplies would be taxed in the country of destination. The Commission has recently tabled the proposals aimed at replacing the current transitional VAT arrangements by a definitive system.

The Deloitte Indirect tax team has considerable expertise on the EU VAT rules and up-to-date knowledge on latest changes in the EU VAT legislation. If you require any assistance on this topic, please contact Donal Kennedy, Alan Kilmartin or Richard McDaid.

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