David Duffy discusses recent Irish and EU VAT developments.
Irish VAT updates
VAT rate decrease
As most readers already know, the standard rate of Irish VAT has been reduced from 23% to 21% for the period from 1 September 2020 to 28 February 2021. We expect that most businesses will already have made the necessary changes to their systems and processes to apply the new rate to affected transactions from 1 September 2020 onwards. However, when preparing your September/October VAT return in November, it may be helpful to check that the new rate has been correctly applied. Some of the points to check may include:
- Has the new VAT rate been correctly applied to your sales? The tax point and corresponding VAT rate for your sales may differ depending on whether the sale was to another business or consumer, whether you operate the invoice or cash-receipts basis of accounting for VAT, and whether a payment was received in advance of the supply. The Revenue Tax and Duty Manual on changes in rates of VAT, available on the Revenue website, provides further guidance on how to apply these rules.
- Has the appropriate VAT rate been applied to purchase invoices received in the period?
- Has the appropriate VAT rate been applied to credit notes issued or received during the period? In general, the VAT rate applied to the credit note should match the VAT rate applied to the invoice to which the credit note relates.
- Does VAT charged at the new rate correctly map to the appropriate general ledger accounts and is it correctly captured in your VAT reports for the period?
Extension of COVID-19 reliefs
Revenue has confirmed an extension of a number of temporary, indirect tax reliefs introduced earlier this year to help combat COVID-19. These reliefs were originally due to expire on 31 July 2020, but have now been extended until 31 October 2020, subject to further review. The temporary reliefs include:
- The zero-rate of VAT applies to personal protective equipment (PPE), thermometers, medical ventilators, hand sanitiser, and oxygen when supplied to the HSE, hospitals, nursing homes, care homes and GP practices for use in providing COVID-19-related healthcare services.
- Relief from import VAT and customs duties applies to the import of medical goods to combat COVID-19 by or on behalf of State organisations, disaster relief agencies and other organisations approved by Revenue, and which are provided free of charge for these purposes.
- No VAT clawback will arise for the owner of a property used to provide emergency accommodation to the State, HSE or other State agencies in order to combat COVID-19.
EU VAT updates
Deferral of VAT e-commerce rules
The EU has recently agreed to defer the introduction of significant changes to the EU VAT rules for e-commerce transactions from 1 January 2021 to 1 July 2021. The deferral was in response to potential challenges of meeting the
1 January 2021 deadline for tax authorities and businesses as a result of COVID-19.
While this deferral gives businesses more time to prepare, it is important for businesses that will be impacted by the changes to begin their preparations. Businesses which will be most affected include retailers with online stores, online platforms and marketplaces which facilitate sales of goods to consumers, and postal and logistics operators which handle imports of goods on behalf of retailers or consumers. A brief summary of the changes coming into effect on 1 July 2021 is set out below.
The current domestic VAT registration thresholds for cross-border business to consumer (B2C) sales of goods in each EU member state will be abolished. As a result, a retailer selling goods to consumers in other EU member states will be obliged to charge VAT at the appropriate rate in the member state to which the goods are shipped regardless of their value, subject to a very limited exception where the value of sales to consumers across all EU member states is less than €10,000 per year. The VAT payable to tax authorities in other member states on these sales can be remitted through a quarterly One Stop Shop (OSS) registration rather than requiring an overseas VAT registration.
VAT will apply to all goods imported into the EU, at the appropriate rate in the EU country of import, regardless of their value. This is as a result of the abolition of the import VAT relief for low-value consignments with a value of up to €22. This is likely to significantly increase the volume of packages imported on which VAT must be paid. To help facilitate the payment of VAT, the retailer or, in certain cases, the online marketplace facilitating the sale can charge the VAT at the time of sale and pay this VAT to the tax authority in the country of import through a new Import One Stop Shop (IOSS). This return would be filed, and related VAT paid, on a monthly basis. However, this will only apply to imported consignments with a value of up to €150. Packages above that value will be subject to import VAT and customs duty in the normal way at the time of import.
An online marketplace that facilitates sales of goods to consumers will be deemed to have purchased and resold those goods in two scenarios: first, the goods are imported from outside of the EU in a consignment of up to €150; or second, the goods are sold within the EU by a retailer established outside of the EU. This will bring additional VAT collection and reporting obligations for these platforms.
Additional VAT record-keeping requirements will apply to platforms and marketplaces which facilitate other supplies of goods and services to consumers within the EU.
VAT on property adjustment
In the HF case (C-374/19) the Court of Justice of the European Union (CJEU) ruled that a VAT clawback was payable by a German retirement home operator where it ceased to carry out taxable supplies in a cafeteria attaching to the main retirement home building.
The operator constructed the cafeteria and fully recovered VAT on the construction costs as its intention was to sell food and beverages to visitors. This activity would be subject to VAT. It was subsequently determined that there had been approximately 10% use of the café for VAT exempt supplies to residents of the retirement home, which resulted in a partial adjustment of the VAT reclaimed. This was not in dispute.
However, subsequent to that initial adjustment, the taxable activity of sales of food and drinks to visitors ceased entirely. The only remaining use was in respect of the VAT exempt supplies to the residents, albeit there was no absolute increase in their use of the building. The question was, therefore, whether this triggered a further adjustment of VAT.
The taxpayer had sought to rely on earlier court judgments which support the position that where VAT is reclaimed based on an intended taxable activity but that activity does not subsequently take place, the taxpayer’s right to VAT recovery is retained. However, the CJEU distinguished this case from the others because the intended taxable activity had commenced but ceased and the property was now only being used for VAT exempt activities.
Ireland has adopted similar rules (referred to as the capital goods scheme) which can result in a clawback or uplift in VAT recovery where the proportion of taxable/exempt activity in building changes. This typically needs to be monitored over a period of up to 20 years. It is, therefore, important to carefully consider any changes in use of a building as this could have significant VAT consequences.
David Duffy FCA, AITI Chartered Tax Advisor, is an Indirect Tax Partner at KPMG.
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