Our view on recent updates from Irish Revenue and EU Commission 

Irish Revenue Updates

• eBrief No. 068/19
  Mandatory e-filing notification procedures for new VAT registrations

Mandatory electronic filing of payments and returns using Revenue Online service (ROS) is part of Revenue’s strategy to establish the use of electronic channels as the normal way of conducting tax business. Mandatory e-filing was implemented on a phased basis. This eBrief refers to VAT registered customers. Upon registration for VAT an “Advice of Registration” letter is automatically issued. The contents of that letter are tailored according to the basis of accounting (i.e. invoice basis or monies received basis) for VAT.

• eBrief No. 114/19
  Update to guidelines for VAT Registration

The Guidelines for VAT Registration in the Tax and Duty Manual have been updated to reflect the introduction of the first phase of Two Tier VAT Registration.

From 15th June, customers applying for a VAT registration are asked to specify whether they wish to apply for “domestic-only” or “intra-EU” status. Customers not undertaking any intra-EU trade should apply for “domestic-only” status.

• eBrief, No. 143/19

Revenue recently issued an eBrief, No. 143/19, to announce updates to the VAT Tax and Duty Manual. There have been a number of changes to the VAT Tax and Duty Manual including new chapters on the following:

New Guidance

VAT Deductibility for Holding Companies

Read our detailed article here

New Guidance setting out the VAT treatment of Electronic Publications – This guidance sets out the VAT treatment of electronic publications with effect from 01 January 2019.

Exemption for Certain Activities in the Public Interest – This outlines the Revenue position in respect of the application of the VAT exemption contained in Paragraph 3(1) of Schedule 1 to the VAT Consolidation Act 2010 (which deals with the Independent Group of Persons (IGP’s) following the Court of Justice of the European Union (CJEU) decisions in DNB Bank AS(C-326/15), Aviva (C-605/15) and Commission v Germany (C-616/15). This exemption is commonly known as the cost-sharing exemption.

Letting of Property – This guidance covers the Value Added Tax (VAT) treatment of letting property from 01 July 2008, with the exception of lettings covered by transitional measures for a waiver of exemption. Letting property is a service including leasing and letting. It does not include supplies of freehold equivalent interests. Lettings are exempt from VAT, however you may opt to tax a letting subject to certain conditions. Property transactions should be considered carefully from a VAT perspective.

Rent to buy scheme – This scheme can be described as an attempt by property developers to attract potential purchasers into buying a house. The developer structures the agreement using an initial period of renting with an option to purchase at the end of the letting period. There are many variations of this scheme and the correct VAT treatment can only be established by the facts of each case. This guidance provides information as to how to treat some of the variations of this scheme from a VAT viewpoint.

Transitional measures applying to legacy leases – This guidance deals with the transitional measures applying to legacy leases. These leases along with freehold interests or freehold equivalents held prior to 01 July 2008 are referred to as transitional properties. Legacy leases are interests in property that were treated as a supply of goods under the old Value Added Tax (VAT) on property rules, which is a lease of ten years or longer created prior to 1 July 2008. The term does not include interests that constitute freehold equivalent interests. The lease must have been held by a taxable person on 01 July 2008, and it must form part of the assets of the business at that date. Prior to 01 July 2008, the creation of a legacy lease and, in most cases, its subsequent assignment to another tenant, was chargeable to VAT at the reduced rate as a supply of goods (property).

Transitional properties – freehold or freehold equivalent interests held in properties to 01 July 2008 – This guidance deals with the supply of freehold or freehold equivalent interests in properties that were completed and held at 01 July 2008. These properties are referred to as transitional properties. The VAT treatment of a long lease, that was treated as a supply of goods under the VAT on property rules applying prior to 01 July 2008, is dealt with in Transitional properties – legacy leases guidance. Where a property is sold in connection with a contract to develop the property, the sale is always subject to VAT.

Supply of Property – This guidance deals with the supply of property that was completed on or after 1 July 2008, and the supply of properties that were on hand, but not completed on that date. Supplies of properties that were on hand on 1 July 2008, but were completed prior to that date, are dealt with in ‘freehold interests held prior to 2008’ and ‘transitional properties and legacy leases’.

Updated Guidance

Supply of garden sheds and similar pre-fabricated structures – This guidance outlines the circumstances where the reduced rate of VAT can apply to the supply of structures such as garden sheds and similar pre-fabricated structures. Note Revenue guidance on RCT also states these supplies can, depending on the supply chain, be subject to RCT provisions.

Hire purchase transactions – This guidance sets out the VAT treatment of hire purchase transactions and also contains general information in relation to bad debt relief. Per Finance Act 2007, finance houses are entitled to bad debt relief in respect of hire purchase transactions. Finance houses involved in hire purchase transactions are accountable persons in respect of the supply of the underlying goods concerned and on the subsequent sale of such goods if repossessed by them. A finance house must issue a VAT invoice in respect of a supply of goods under a hire purchase agreement where the supply is to an accountable person. However, if the hire purchase document contains all the details required by regulation for a VAT invoice, then that document will be accepted as a VAT invoice.

Printing and printed matter – This guidance sets out the VAT treatment of printing and printed matter and the scope of each of the four rates of VAT (zero rate, second reduced rate, reduced rate and standard rate) in relation to same. This guide does not deal with the VAT treatment of electronic publications.

• eBrief, No. 155/19

Authorisation to Use Customs Simplified Procedures for placement of goods under a customs procedure - This is currently a Work in Progress and when complete will provide guidance on simplified procedures based on ‘The Union Customs Code’ (UCC). The UCC affects the method by which declarations are received in Revenue, in that the systems must be fully automated, and to this end a new import system is currently being developed with an expected roll out of November 2020. We will issue more detailed information when more details are known.

EU Commission updates

The Commission refers Germany to the CJEU for its failure to apply EU rules on VAT for farmers

The Commission has decided to refer Germany to the Court of Justice of the EU for not applying the EU VAT scheme for farmers correctly.

Under current EU rules, Member States can apply a flat-rate VAT scheme which allows farmers to charge their customers a standard flat rate amount on their agricultural products and services. In turn, those farmers cannot recover any VAT they have already paid to their suppliers. The scheme is supposed to be used by farmers who are likely to experience administrative difficulties when following normal VAT rules or the simplified rules provided for small companies.

However, Germany applies the flat-rate scheme by default to all farmers, including owners of large farms, regardless of whether they encounter such administrative difficulties. The only farmers who cannot benefit from the scheme are commercial livestock breeders. In addition, according to figures from the German Supreme Audit Institution (Bundesrechnungshof), German farmers to whom the flat-rate scheme applies are also being overcompensated for the VAT they have paid. This is not allowed under EU rules and the Commission claims that it generates major distortions of competition in the internal market, in particular in favour of big farmers who do not encounter difficulties with the normal VAT arrangements.

https://ec.europa.eu/commission/presscorner/detail/en/ip_19_4264

The Commission takes further steps to end illegal tax breaks in the Italian and Cypriot yacht industries

The Commission has decided to send reasoned opinions to Italy and Cyprus for not levying the correct amount of VAT on the leasing of yachts. Current EU VAT rules allow tax exemptions for services when the effective use and enjoyment of the product is outside the EU. Cyprus and Italy have established VAT rules where the larger the boat, the less the lease is estimated to take place in EU waters. However, a general flat-rate reduction is not allowed under EU rules unless there is proof of where the service is actually used.

At the same time, the Commission has decided to refer Italy to the Court of Justice for the EU for its failure to address an illegal system of exemptions for fuel used to power chartered yachts in EU waters. In breach of EU rules, Italy allows chartered pleasure crafts, such as yachts, to qualify as 'commercial' even if they are for personal use. This then allows them to qualify for a fuel tax exemption which is contrary to EU rules.

If Cyprus and Italy do not act within the next month on these reasoned opinions, the Commission may decide to bring the cases before the Court of Justice of the EU.

https://ec.europa.eu/commission/presscorner/detail/en/ip_19_4265

The Commission requests that Poland amend its VAT rules for cash processing services

The Commission has sent a letter of formal notice to Poland for exempting various cash processing services from VAT, for example escorting of cash, preparing cash supplies for cash machines, storage of cash and extraction of excess cash. EU rules do not allow VAT exemption for these services. If Poland does not act within the next month, the Commission may send a reasoned opinion to the Polish authorities.

https://ec.europa.eu/commission/presscorner/detail/en/inf_19_4251 (bottom of page)