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FINANCE (No. 2) BILL 2008 

VAT ISSUES 

With this year’s Budget being brought forward as it was, the 2009 Finance Act will become law much earlier in the year than would usually be the case. To facilitate that, the Minister for Finance has today introduced the Bill that will eventually metamorphose into that Act. It is unlikely to become a thing of beauty.

The VAT changes which are introduced in Sections 62-71 of the Bill appear innocuous enough, but the seasoned Finance Bill reader will have gone in deeper looking for the mucky stuff and will have found oodles of it in the Fifth Schedule relating to penalties and Revenue Audit issues and also in the Sixth Schedule to the Bill where there is a myriad of technical adjustments – primarily tidying up the new VAT on Property legislation which was brought in Finance Act 2008 and became effective on 1 July of this year.

So, what are the key changes?

Freehold Equivalent Interest

Amendment

Lettings of immovable goods are exempt from VAT unless the landlord opts to apply VAT to the rent. Very long leases are treated as if they were freehold interests and taxed accordingly. These are called “Freehold Equivalent Interests”. Section 3 of the VAT Act deems such an interest to arise when a person transfers in substance the right to dispose of the goods as owner or otherwise. That definition was previously qualified by the requirement that the acquirer of the interest paid at least 50% of the OMV of the property within 5 years of the commencement of the agreement.

Implications

The Bill seeks to remove that qualification thereby removing guidance as to what a “transfer in substance of the right to dispose” actually means. It is to be expected that Revenue will publish some assistance in interpreting the phrase. Until then, it is open to debate.

Anti-avoidance Property Measures

Amendment

Sections 64 and 65 of the Bill introduce a couple of anti-avoidance measures in relation to the new property rules. These centre around a landlord occupying a property under a lease and leaseback arrangement and the connected persons rules being circumvented by the use of a VAT group. These provisions are effective from the date of passing of the Act.


Travel Agents Margin Scheme

Amendment

VAT wise people in Ireland (and Denmark apparently) would often be heard sniggering and cocking a snook at their EU neighbours when the subject of TOMS was mentioned in public. TOMS – that’s the Tour Operators Margin Scheme to you – has been in place for many years in all EU Member States except Denmark and Ireland. It applies VAT on the profit margin earned by tour operators. In Ireland tour operators and travel agents have always been exempt from VAT.

Implications

A recent appeal decision allows for tour operators to recover VAT on overheads although the same principle does not necessarily apply to travel agents. Needless to say, the Revenue could not countenance a group of business people recovering VAT on inputs without applying severe pain. So, from 1 January 2010, tour operators AND travel agents acting as principals (if an agent can be a principal) will become liable to VAT under a margin scheme.

It is reassuring to note, however, that Ireland will continue to be different. While, elsewhere, the scheme is generally called the Tour Operators Margin Scheme, ours will be called the Travel Agents Margin Scheme. Really, when you think about it, Lisbon never stood a chance!

VAT Rate Change 

Amendment

By now, the dogs in the street know that the standard rate of VAT will increase from 21% to 21.5% on 1 December. The Bill reminds us of this. We remind you that this change takes place in 11 days time. You might wish to refer back to our previous notes in relation to the practical consequences which this change will have. 

Unjust Enrichment

Amendment

Section 68 of the Bill seeks to amend Section 20 of the VAT Act which deals with VAT repayments. Revenue are strengthening the Unjust Enrichment provisions to try, as far as they can, to ensure that anybody who has overpaid VAT can never, ever, ever, get it back. There is probably enough ECJ case law in existence to ensure that Revenue will not succeed but they are certainly going to make it as difficult as possible for people to recover overpaid tax.

The Little Nugget

Amendment

Every Bill has one. Regular readers of The Update may recall the writer’s minor apoplexy when good old healthy smoothies got smashed in last year’s Bill and became liable to VAT at the top rate.

This year, Readers, the hatchet is out for that vilest of disgusting Irish habits – the cup of tea. And to make sure the more sophisticated palate does not benefit, the cup of coffee is to be hammered too. 

Tea and coffee, in the future, will only be zero rated where they are supplied in “non-drinkable form”. This, in the writer’s experience, could well apply to many pubs and restaurants in Dublin.

But, if you like your Latte to Go, or your Tea on the Run, 13.5% please. 

VAT Technical 

Amendment

Schedule 6 to the Bill includes some five pages of tweaks and corrections to the VAT and Property rules in place since 1 July. 

I do not propose to list them here, but they are all more of the tidying up variety than fundamental changes. One exception to this though is the statutory extension of the 90% relief to situations where a landlord is connected to the occupier of the property or where the landlord and tenant become connected. In both cases if the occupier or tenant has at least 90% VAT recovery in respect of the letting, then the landlord can opt to tax the letting.

Revenue Audit and Penalties

Amendment

This is a snorter!

The Revenue Audit Code of Practice is largely being legislated in FA 2009.

The system of Civil Penalties is coming out of the “practice manual” and into the law. The three categories of default are redefined and new procedures come into play. Revenue can notify the taxpayer of the appropriate level of penalty which (they believe) should be paid. The taxpayer may appeal to the District Court, the Circuit Court or the High Court – whichever is appropriate. The Appeal Commissioners have been side-stepped.

This is an area which will cause widespread confusion for practitioners. The writer understands that Revenue is working on a new Code of Practice. Except, of course, it will not be a Code of Practice – it will be their interpretation of the law.

Dermot O’Brien & Associates will be running a series of seminars in the New Year on the new Revenue Audit era which will shortly be upon us. We will be in touch in due course.

Summary

In conclusion, at a time when no business has any money, and no bank will give a business money, losses accumulate and redundancies pile up leading to ever more repossessions and emigration, it is reassuring that Revenue are gearing up to make things difficult for people. 

If any of the proposed amendments are likely to affect you or any of your clients, now is the time to make representations to the appropriate quarter. 

If any significant amendments arise at any stage prior to enactment, we will let you know.

Kind regards, 


Dermot O’Brien
20th November 2008

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