Our view on recent updates from Irish Revenue and EU Commission
Update to VAT Tax and Duty Manual - Part 3 - Financial Services (Revenue eBrief No. 68/18)
The updated Revenue Tax and Duty Manual outlines Revenue’s position with regards to the classification of a Personal Contract Plans (PCP) as a supply of goods on which VAT would be chargeable on the total price of the supply upon handing over of the vehicle or as a supply of services on which VAT would be chargeable on each instalment.
Based on the CJEU’s findings in the recent HMRC v Mercedes Benz Financial Services UK Limited (C164/16) case, starting from April 2018, Irish Revenue is prepared to accept that similar to a standard hire purchase arrangement, a PCP may be treated as a supply of goods where at the outset of the agreement the only economically rational choice for the customer is to purchase the vehicle at the end of the contract. Purchase can be made either by way of paying the final instalment of the Guaranteed Minimum Future Value (GMFV) to own the vehicle outright or trading in the vehicle and entering into a PCP on a new vehicle.
The Deloitte Indirect Tax team has extensive experience in respect of the VAT treatment applicable to financial services, if you require assistance on this, please contact Richard McDaid.
VAT Deductibility for the Funds Industry (Revenue eBrief No. 68/18)
The updated Revenue Tax and Duty Manual outlines Revenue’s position with regard to the VAT deductibility on certain supplies in the funds industry.
In accordance with the EU VAT directive, Irish VAT legislation provides that, where supplied outside of the EU, the issuing, transferring or dealing in stocks, shares, debentures and other securities are qualifying activities (VAT input tax deductible). In a practical sense for businesses in the funds industry, the transferring of financial assets, for example the sale of non-EU shares, is regarded as a qualifying activity where supplied outside of the EU.
Input VAT is generally deductible on expenses incurred in respect of qualifying activities and not on expenses incurred for exempt activities. Where the VAT incurred relates to both qualifying and exempt activities, the fund is required to carry out an apportionment of the input credit. Calculation of such proportion of non-EU activities could be based on the fund’s Net Asset Value (NAV) or on the quantum of non-EU investors in the fund. Both methods are acceptable to Revenue however please bear in mind that whichever method adopted must be used consistently. Prior to change of a methodology for the apportionment calculation the fund should obtain approval from the local Revenue District.
Please contact Richard McDaid a leading VAT advisor to the Irish Funds industry for any queries.
VAT Deductibility for Life Insurance Companies (Revenue eBrief No. 68/18)
The updated Revenue Tax and Duty Manual also outlines Revenue’s position with regards to the VAT deductibility provisions applicable to various insurance companies, including pure insurance businesses and investment businesses.
In respect of pure insurance businesses carried out by insurance companies, Irish VAT legislation provides that insurance policies supplied to customers located outside the EU are qualifying activities for which VAT recovery is possible. On the contrary, VAT recovery is not available for costs incurred which are directly and exclusively attributable to supplies of insurance policies to EU customers as such supplies are not qualifying activities from a VAT perspective. Where the VAT incurred relates to both qualifying activities and exempt activities, the business is required to carry out an apportionment of the input credit.
In respect of the investment businesses carried out by life insurers, Irish Revenue takes the view that these life insurance policies carry financial risk instead of insurance risk and therefore should be treated as financial products.
Where the company incurs general overhead costs that relates to both investment and insurance activities, it is required to adopt a methodology to determine the appropriate VAT recovery rate. The calculation methodology will need to be used consistently.
The Deloitte Indirect Tax team has extensive experience in dealing with the VAT deductibility issues on various supplies for businesses engaged in the insurance industry. If you require assistance on this, please contact Richard McDaid or Donal Kennedy.
VAT treatment of staff secondments (Revenue eBrief No. 66/18)
The updated Revenue Tax and Duty Manual has now incorporated the existing guidance from Revenue eBrief No. 14/2007 on the VAT treatment of certain provision of staff secondments.
According to Irish VAT legislation, the provision of staff secondments is generally chargeable to Irish VAT at the standard rate. However from 1 January 2007, Revenue can in specific circumstances grant a concession for certain secondments where a non-established company in Ireland provides staff seconded to an Irish-established company or a branch of said company where the companies concerned are connected and members of a corporate group, no VAT is chargeable on emoluments paid to the secondee on which PAYE and PRSI has been paid.
eRCT Bulk Rate Review (Revenue eBrief No. 036/18)
RCT is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction, forestry and meat-processing industries. RCT rates vary among 0%, 20% and 35%. In early April 2018, Revenue has carried out a Bulk Rate Review (BRR) of all live subcontractors in the eRCT system, except those with a rate end date that has not yet passed.
The criteria used for determining the RCT deduction rate mainly includes accuracy of record keeping, tax compliance record of the subcontractor, payment of taxes, interest and penalties and supply of information as requested by Revenue.
Following the automated review, a number of changes to the RCT rates for existing subcontractors were made by Revenue. Both the subcontractors’ concerned and the relevant principals were notified of the new RCT deduction rate applicable.
The Deloitte Indirect Tax team has significant experience in dealing with compliance obligations, Revenue interventions, appeals and submissions with respect to RCT. If you have any questions regarding RCT, please contact Alan Kilmartin.
Update on Publication of Defaulters’ Lists (Revenue eBrief No. 55/18)
In April 2018, Revenue updated the Tax and Duty Manual with regard to the publication of the List of Tax Defaulters. Irish tax legislation provides that Revenue is obliged to publish a List of Tax Defaulters within three months of the end of each quarter.
In this recent update, which includes changes introduced by Finance Act 2016 with effect from 1 January 2017, the term “adjusted specified term” is explained as relating to the total settlement amount less any amount in respect of a qualifying disclosure. The List of Tax Defaulters will now also include those who have not fully paid up the specified sums or the adjusted specified sums which remain unpaid at the end of each quarter in which a settlement agreement is reached.
The threshold amount for publication increased to €35,000 and this stands for the aggregation of tax, interest and penalties in respect of one settlement regardless of when the liability arises. Therefore, a settlement which exceeds the threshold of €35,000 reached after 1 January 2017 will be included in the publication of List of Tax Defaulters.
Given the increased amount of Assurance Checks, Aspect Queries and Profile Interviews raised by Irish Revenue, it is highly recommend that you carry out a VAT health check to diagnose VAT risks as well as to identify potential VAT opportunities. Deloitte VAT team has extensive experience in VAT Compliance health checks, VAT Smart Review and “mock” Revenue audits. For any queries, please contact Alan Kilmartin.
VAT Treatment of Education and Vocational Training (Revenue eBrief No. 64/18)
The Revenue Tax and Duty Manual has been updated to include explanations on the VAT treatment applicable to education and vocational training and retraining services that reflects the amendments made to legislation in Finance Act 2017. This amending legislation reinstates the exemption for vocational education and training provided by non-public sector providers which had been unintentionally called into question by the 2015 amendment to the legislation.
Section 54 of the Finance Act 2015 amended the VAT exemption that applies to education and vocational training. This change was modified by the Finance Act of 2017 to reinstate the exemption for vocational education and training provided by private sector suppliers. In this regard, the updated Tax and Duty Manual updates the definitions of education, private tuition, vocational training and retraining from a VAT perspective. It also explains the VAT treatments of education services, private tuition, vocational training and retraining, conferences etc. In addition, the Manual provides discussions on topics such as activities not regarded as exempt education or vocational training, the approach used to determine the place of supply for education and vocational trainings, VAT treatment of supplies of goods or services incidental to education and research services.
The Deloitte Indirect Tax team has extensive experience dealing with VAT treatment applicable to education services and vocational training. To find out more on this topic, please contact Jim Nolan, Ted Holohan or John Stewart.
VAT Treatment of Solicitors & VAT Treatment of Medical Services (Revenue eBrief No. 64/18)
The updated Revenue Tax and Duty Manual also includes two leaflets with respect to VAT treatment of Solicitors and VAT Treatment of Medical Services. Obsolete and duplicate materials previously contained in these leaflets have now been removed and there has been no material changes in Revenue’s position on the overall VAT treatments of these supplies.
VAT on solicitor fees and medical supplies are always very topical and the Deloitte Indirect Tax team has considerable expertise and extensive experience dealing with VAT treatment applicable to these supplies of goods and services. To find out more on these topics, please contact Alan Kilmartin, Jim Nolan or John Stewart.