VAT matters

Receivers and Mortgagees in Possession (MIP): in eBrief 102/15, published on 16th October 2015, Revenue updated its Operational Manual to include guidance on the VAT consequences of receiverships and the appointment of MIPs in scenarios where VAT Transfer of Business relief does not apply. Revenue guidance on the application of VAT Transfer of Business relief is already contained in Revenue’s “Transfer of Business”  VAT Information Leaflet of July 2014. In particular, the new guidance addresses VAT obligations arising for receivers and MIPs with respect to “forced sales” of assets and supplies of services (including lettings) by a receiver/MIP in the course of carrying on the business of the borrower over whose assets the receiver/MIP has been appointed.

 

Finance Bill 2015 VAT proposals: Finance Bill 2015 (“the Bill”) was published on 22 October 2015 and contains a number of  VAT proposals, some of which we have highlighted below. Unless otherwise indicated, the effective date of the below proposed changes is the date of passing of the Finance Bill (which is expected to occur in mid-December 2015). Amendments may be made to the proposals prior to enactment, however.

1. VAT exemption for educational activities: currently the exemption applies to children’s or young people’s education, school or university education, and vocational training and retraining irrespective of the body or organisation providing the service. 

The Bill proposes amending the scope of the Irish VAT exemption applicable to educational activities so that the exemption will apply where the activity is carried out by specified “recognised bodies”. The Bill also contains provision for the Revenue Commissioners to treat education and vocational training services provided by “recognised bodies” as subject to VAT in circumstances where treating the services as VAT exempt would result in a distortion of competition. The proposed provisions specifically apply VAT exemption to private tuition by teachers covering school or university education. The aim of these changes is to bring the parameters of the exemption legislation more in line with EU law. It is worth noting that Irish Revenue have indicated that the proposals will not result in a departure from the current treatment applied by Revenue in practice.

 

2. Extension of VAT reverse charge mechanism in the energy sector: the Bill proposes that with effect from 1 January 2016, the recipient of wholesale supplies of gas and electricity, and of gas or electricity certificates in Ireland will be required to account for  VAT on the supply on a “reverse charge basis”, rather than the supplier. 

 

3. Revenue powers: the Bill proposes extending Revenue’s powers in relation to obtaining information on taxpayers. The proposed provisions empower Revenue to apply to the High Court to seek information from third parties and financial institutions about an unnamed taxpayer or group or class of unnamed taxpayers and to apply for an order compelling third parties and financial institutions to provide such information without putting the taxpayers on notice of the application. In a VAT specific context, the Bill also proposes authorising Revenue to cancel (and publish the cancellation of) a VAT registration number in certain circumstances if it appears necessary for the protection of VAT to the Exchequer.

VAT recovery: in Sveda (C-126/14) the Court of Justice of the European Union (CJEU) considered whether Sveda, a Lithuanian business, was entitled to deduct VAT incurred on costs associated with its construction of a recreational path that would be used by the public free of charge for the first five years post-construction. 90% of the construction costs were funded by a Lithuanian public body. The path was constructed by Sveda with a view to attracting visitors to whom Sveda intended to make VATable supplies of food, drink and souvenirs. The CJEU held that although the path would be used by the public free of charge, it was possible, in principle, for a sufficient link to exist between the VAT incurred on the construction costs and Sveda’s intended economic activities as a whole in order to support VAT recovery. The CJEU left the final decision to the national referring court. It should be noted that Irish VAT law contains specific rules where goods are given away free of charge. However, this case should be of interest to taxpayers that incur expenditure on goods, which are intended for use by the public free of charge but are acquired or produced for the purposes of the taxpayer’s planned VATable economic activities. 

 

Buying and selling virtual currency such as bitcoin: in Hedqvist (C-264/14), the CJEU considered whether the exchange of traditional currency for virtual currency or vice versa, was a supply for consideration and if so, whether the supply fell within the scope of the EU VAT exemption for ‘transactions, including negotiation, concerning currency, bank notes and coins used as legal tender’ as set out in Article 135(1)(e) of the EU VAT Directive. The CJEU held that for VAT purposes, the exchange by an operator of virtual currency such as Bitcoin for traditional currency constitutes a supply for consideration (the consideration being the margin between the purchase and sale prices). Furthermore, the CJEU acknow-ledged that transactions involving virtual currency are financial transactions and that the VAT exemption in Article 135(1)(e) should not be interpreted as involving only traditional (i.e. non-virtual) currencies.

The Organisation for Economic Co-operation and Development (OECD) published its Base Erosion and Profit Shifting (BEPS) Action Plan on 5th October 2015. Amongst measures focused on corporate tax and transfer pricing, this includes recommendations in relation to the application of  VAT and in particular, proposals to counter VAT anti-avoidance in the digital economy.

Ethna Kennon, ACA, Chartered Tax Advisor (CTA) is VAT Director at KPMG.