David Duffy discusses recent Irish and EU VAT developments.
Irish VAT updates
VAT payment deferrals
In response to the economic impact of COVID-19, Revenue announced that interest would not apply to late payments by SMEs of their January/February 2020, March/April 2020 and May/June 2020 VAT liabilities. SMEs in this context are defined as businesses with a turnover of less than €3 million and which are not dealt with by either Revenue’s Large Cases Division or Medium Enterprises Division.
Businesses that do not meet the definition of an SME but are experiencing VAT payment difficulties are advised to contact Revenue and these issues will be dealt with on a case-by-case basis. Revenue also advised that all taxpayers should continue to file VAT returns within the normal deadlines.
Where key personnel are unavailable to prepare the VAT returns due to COVID-19, businesses should file on a ‘best estimates’ basis and any subsequent amendments can be completed on a self-correction basis without penalty.
Furthermore, on 2 May 2020, a scheme was announced to allow businesses that have availed of VAT and PAYE deferrals during the COVID-19 crisis to defer or “warehouse” the payment of those outstanding liabilities for a period of 12 months without accruing any interest. A lower than normal interest rate on late payment of tax (3% per annum instead of 10% per annum) will then apply until the warehoused tax liability has been repaid. Further details of this scheme are available on the Revenue website and legislation will be enacted in due course.
Temporary relief from VAT and duty on PPE
On 8 April 2020, Revenue announced that the 0% rate of Irish VAT and customs duties would apply to Irish imports (from outside the EU) of personal protective equipment (PPE) and other goods used to combat COVID-19. This relief applies to imports in the period from 30 January 2020 to 31 July 2020. Revenue also confirmed in eBrief 63/20, issued on 17 April, that the 0% rate of Irish VAT concessionally applies to domestic and intra-EU acquisitions of similar goods in the period from 9 April 2020 to 31 July 2020. These reliefs are subject to certain conditions, which are summarised below.
For imports from outside the EU, the goods must be imported by, or on behalf of, State organisations, disaster relief agencies, or other organisations (including private operators) approved by Revenue. The goods must be intended for free-of-charge distribution or be made available free-of-charge to those affected by, at risk from, or involved in combating COVID-19. Furthermore, the importer must have both an EORI number and be pre-authorised by Revenue for the relief. In addition, import declarations must include the relevant customs codes in the appropriate SAD boxes. Where VAT and customs duties have already been paid but the relevant conditions for relief are met, a refund of such amounts can be claimed. Application forms to avail of the relief and to seek a refund of VAT or customs duty previously paid are available on Revenue’s website.
For domestic supplies and intra-EU acquisitions, the 0% VAT rate temporarily applies to PPE, thermometers, ventilators, hand sanitiser and oxygen supplied to the HSE, hospitals, nursing homes and other healthcare facilities for use in the delivery of COVID-19-related healthcare services to patients. The sale of these products in other circumstances will continue to attract the VAT rate that would typically apply.
VAT grouping
In eBrief 053/20, Revenue issued guidance in respect of VAT groups. The guidance primarily outlines the requirements and implications of VAT grouping and includes examples, which show how the rules apply in certain circumstances. Businesses that are considering forming or breaking a VAT group should review the guidelines to ensure that the appropriate procedures are followed.
The guidance includes a section on the territorial scope of Irish VAT groups and confirms that, where an entity that is established or has a fixed establishment in Ireland joins an Irish VAT group, it is the entire entity, including any overseas branches, that is considered to join the Irish VAT group. Consequently, charges from a foreign establishment of an Irish VAT group member to other members of that Irish VAT group are disregarded for Irish VAT purposes. This has been the Revenue position for some time, but it is helpful to have it reconfirmed – particularly for the financial services and insurance sectors.
ROS enhancements
In eBrief 58/20, Revenue announced several VAT-related enhancements to Revenue’s Online Service (ROS). Taxpayers now have the option to add a second VAT agent. To add the second VAT agent, taxpayers will need to complete an Agent Link form in the usual manner. Also, the Revenue Record (Registration Details) on ROS now indicates the VAT basis of accounting (i.e. the cash receipts or invoice basis) adopted by a given taxpayer.
EU VAT updates
VAT treatment of staff secondments
The Court of Justice of the EU (CJEU) concluded in the San Domenico Vetraria (SDV) case (C-94/19) that the secondment of staff by a parent company to its subsidiary in return for a payment equal to the parent company’s cost (but excluding any profit margin) is a supply of services within the scope of VAT. The case highlights that VAT can arise on cross-charges for staff time and this should be carefully considered, particularly in cases where there may be no or partial VAT recovery in the recipient entity.
In analysing the case, the CJEU re-stated that VAT arises on a supply of goods or services effected for consideration within the territory of an EU member state by a taxable person. A supply effected for consideration requires a legal relationship between the supplier and recipient, and reciprocal performance, meaning that the payment received by the provider of the service is in return for the service supplied to the recipient.
In the present case, the CJEU was satisfied that there was a legal relationship between the parent and subsidiary and that there was a payment in return for the service provided. Consequently, where the Italian court, which had referred the case to the CJEU, established based on the facts that the amounts invoiced by the parent company were a condition for the secondment and that the subsidiary paid those amounts only in return for the secondment, VAT would apply to the secondment. The CJEU confirmed that the fact that the payment did not include a profit margin did not impact the VAT analysis, as it has been previously held that a supply for VAT purposes can take place where services are supplied at or below cost.
David Duffy FCA, AITI Chartered Tax Advisor, is an Indirect Tax Partner at KPMG.
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