2. Interpretation – general

Summary

This section provides for the interpretation of terms and expressions used in the Act. The various definitions apply unless the context requires otherwise – as provided for by section 20 of the Interpretation Act 2005. The Interpretation Act 2005 also contains general rules for the construction of statutes, which apply also to this Act.

Details

(1) Most of the definitions are in subsection (1), and many are self-explanatory. The following may be noted:

The term business is given a meaning that reflects the definition of economic activity in the VAT Directive. It includes normal trading activities, mining and agricultural activities, professional activities and activities involving the exploitation of intellectual property.

The term community, subject to subsection (4A), has the same meaning as it has in Articles 5 to 8 of the VAT Directive, and cognate references shall be construed accordingly.

Goods include both movable and immovable objects, both new and used. It does not include what are called, in legal terms, things in action – for example, postage stamps, share certificates and money that is legal tender in any country. Second-hand goods are defined for the purpose of the margin scheme in section 87.

Goods threshold (currently €75,000) and services threshold (currently €37,500) are also defined for the purpose of the Act. VAT registration is obligatory where turnover exceeds, or is likely to exceed, these amounts in any 12-month period. Persons may elect to register when their turnover is below these thresholds – see section 6. Note that other thresholds also exist for different purposes:

• Persons must register for VAT when the value of their intra-Community acquisitions exceeds a threshold of €41,000 in a 12-month period. See section 9 for details.
• Businesses making distance sales (mail order, etc.) of goods to private customers in Ireland must register when their turnover exceeds €35,000 in a calendar year. See section 30 for details.

A taxable person means a person who independently carries on a business – in the EU (including Ireland) or elsewhere. This definition includes a person who engages in activities that are exempt from VAT. It also includes flat-rate-farmers. The term independently is defined separately in the context of taxable person, and excludes a person who is employed. This mirrors the equivalent term used in the VAT Directive. Taxable goods and taxable services are supplies that are not exempt from value-added tax.

A public body is defined as a Department of State, a local authority or a body established by statute.

A number of terms – ancillary supply, composite supply, individual supply, multiple supply and principal supply – are defined for the purposes of the rules in section 47 concerning the VAT treatment of goods and services that are sold together.

• A multiple supply is one where each of the items being sold together for one consideration is capable of being supplied independently in its own right. In such cases, each part of the supply is an individual supply, which is physically and economically dissociable from the other parts of the multiple supply. VAT applies to each of the individual supplies at the rate that would apply if they were sold separately.
• A composite supply is one where there is a principal supply together with one or more ancillary supplies, which are not physically and economically dissociable. An ancillary supply forms part of a composite supply and is only supplied in the context of a principal supply. In this case, VAT is chargeable at the rate applicable to the principal supply.

Exempt activities means a supply of goods or of services in respect of which, in accordance with section 52, a liability to tax does not arise. The term also includes certain supplies of immovable property on which value-added tax is not chargeable. (See Part 11 for property rules.) Exempt activities are those listed in Schedule 1. Exempted activities may be distinguished from activities liable at the zero rate in that, while no liability to tax arises in either case, a right to deduction of prior-stage tax exists only in the case of activities liable at the zero rate.

The term stock-in-trade includes goods held for resale, materials incorporated in work-in-progress or held for incorporation in the manufacture of finished goods for resale, and consumable materials such as timber, paint and glass in decorating, etc. businesses. Persons who become liable for VAT can claim credit for VAT suffered on the stock-in-trade held at the start of the first taxable period – see deductibility rules in Chapter 1 of Part 8.

A number of terms – assignment, capital goods, completed, development, freehold equivalent interest, joint option for taxation, landlord’s option to tax and surrender – are defined for the purposes of the VAT rules on immovable goods. The definition of immovable goods reflects the definition of ‘immovable property’ as applied in the EU VAT Directive and as provided for in Article 13b of Regulation 282/2011/EU.

• An assignment of a leasehold interest in immovable property occurs where a lessee disposes (except by way of sub-lease) of a lease to a person other than the person who has the reversionary interest.
• Capital goods are immovable goods (or any parts thereof) that have been developed for VAT purposes. The special rules about capital goods and deductibility are in Chapter 2 of Part 8.
• Completed is defined for the purposes of immovable goods in section 94 and means those goods that are developed to such a state that they can be used for the purposes for which they were designed and the utility services required for those purposes have been connected.
• Development has the same meaning as in section 639 of the Taxes Consolidation Act 1997 in relation to the charge of income tax on profits from developing land. It includes all construction, demolition, extension, alteration or reconstruction work in relation to a building and all engineering work relating to land which is designed to change materially the use to which the land is to be put. The term does not include repairs or decoration of buildings or the levelling or drainage of land for agricultural purposes.
• Freehold equivalent interest means an interest in immovable goods other than a freehold interest the transfer of which constitutes a supply of goods for VAT purposes.
• Joint option for taxation is where the supplier and the taxable person to whom the supply (which would otherwise be exempt) is made enter an agreement in writing to opt to have tax chargeable on that supply. (See section 94.)
• Landlord’s option to tax means an option made by a landlord to tax a letting as provided for in section 97.
• Surrenders arising on interests created prior to 1 July 2008 are taxable if the lessee was entitled to deductibility on the acquisition or development of the property that is the subject of the lease. A surrender of a leasehold interest in immovable property occurs in the following circumstances:
  • Where a lease is surrendered to the person who has the reversionary interest in that lease;
  • On the abandonment of a lease by a lessee;
  • On recovery of the property by ejectment or forfeiture;
  • On the failure of a lessee to exercise an option to extend a lease. However, where an interest in property is created on or after 1 July 2008 and the lessee fails to exercise an option to extend the term of the lease, the resulting early return of the interest to the landlord does not constitute a surrender for VAT purposes.

The definition for telecommunications services is derived from Article 24(2) of the VAT Directive. In general, the services concerned are those that consist of making available the means of telecommunication (e.g. standard connection; subscription and installation transfer charges; provision of access to a network; the right to use a network of special lines; provision of access to global information networks etc.). Added value services, for which the customer pays a separate charge in addition to the telecommunications service access charge (for example, entertainment services), are not included in the definition.

Telephone card means a card (or a means other than money) that confers a right to access a telecommunications service and a right to receive other goods and services in certain circumstances. The definition provides that the customer pays for the telecommunications/other goods and services upfront. This effectively means that the telephone card is treated for tax purposes under the rules for vouchers – see sections 43 and 43A.

An electronically supplied service is defined for the purposes of the special scheme for electronic services in section 91 and is derived from the indicative list of services provided for in Annex II of the VAT Directive. In general, the services concerned are those that are delivered over the Internet (or similar network) and are heavily dependent on information technology for their supply. These services include digitised products generally (such as software/upgrades of software), websites and services automatically generated from a computer (via the network) in response to specific data input by the customer. Services, other than those specifically mentioned in Annex II, which are automated and dependent on the Internet or an electronic network for their provision, are also included.

New means of transport means land vehicles, vessels and aircraft that meet certain defined criteria. The details are summarised in Table 1.1. The intra-Community acquisitions (ICAs) threshold, below which persons are not obliged to register for VAT in respect of their ICAs of goods, does not apply to new means of transport – see Part 2.

Table 1.1: Definition of ‘new means of transport’

The VAT Directive means Council Directive No. 2006/112/EC of 28 November 2006 on the common system of value-added tax. This is a recast (with new provisions) of Council Directive 77/388/EEC (the “6^th Directive”) and is the main body of EU legislation on VAT.

(2) Subsection (2) provides for the interpretation of the term ‘moneys received’ in relation to VAT. The term includes any sums

• (2)(a) lodged or credited to a person’s account in a bank, building society or other financial concern,
• (2)(b) disposed of by way of set-off under an agreement (for example, received by another person (e.g. a solicitor) on behalf of a trader, or set off by a trader against an amount due in respect of another transaction,
• (2)(c) paid to Revenue by a third party to the person’s account, under Revenue’s powers of attachment, or
• (2)(d) deducted as Professional Services Withholding Tax (PSWT) or Relevant Contracts Tax (RCT).

The effect of this interpretation is to provide that, where a VAT-registered person accounts for tax on the moneys received basis (see section 80), liability will not be avoided if sums are lodged to the person’s account under paragraph (a), or if they cease to be due to him or her under paragraphs (b) to (d). The moneys are deemed to have been received on the date of the lodgement or on the date the debt ceased to be due because of the offset, etc.

(3) Subsection (3) implements Article 15(1) of the VAT Directive by deeming supplies of electricity, gas, heat or cooling energy, and so on to be supplies of goods for VAT purposes, and not supplies of services. See section 31 for the place of supply rule for gas, electricity and cooling energy.

(4) Subsection (4) provides that a reference in the Act to the ‘territory of a Member State’ means territory as defined in the VAT Directive and subject to subsection (4A), references to Member States and cognate references shall be construed accordingly. Certain EU territories are treated as outside the Community and others are treated as within the Community for VAT purposes. The position is summarised in Table 1.2.

Table 1.2: Definition of Territory of a Member State

Where a territory is treated as outside the Community for VAT purposes, movements of goods to/from that territory are treated as exports/imports. Where a territory is treated as part of the Community for VAT purposes, then movements of goods to/from the territory are treated as intra-Community supplies and intra-Community acquisitions. The term ‘Community’ is also aligned with that used in the VAT Directive and is defined in subsection (1).

(4A) Subsection (4A) provides that, in this Act, each reference to (a) Community, and (b) Member State, shall apply as if the reference included a reference to Northern Ireland, save where the reference occurs in a provision specified in Part 1 of Schedule 9, and in the case of a provision specified in Part 2 of Schedule 9, in so far as the provision applies to services.

This subsection was inserted as a consequence of the Northern Ireland Protocol to the Withdrawal Agreement, which, following the departure of the United Kingdom from the European Union, means that EU VAT law will apply “to and in” Northern Ireland from the end of the UK transition period (23:00 on 31/12/2020) with regards to goods, but not with regards to services.

Northern Ireland is included in the definitions of “Member State” and “European Union” where those references relate to transactions in goods, but not with regards to transactions in services. This means that the definition of “Member State” and “Community” in a VAT context will differ depending on the nature of the transaction under consideration.

Subsection (4A) ensures that transactions involving Northern Ireland are defined correctly having regard to the Northern Ireland Protocol. As a result of subsection (4A), specific sections of the act are included or excluded from the application of the revised meaning of “Member State” and “Community” in the amended section 2, depending upon the type of transaction that the sections refer to.

(5) Subsection (5) provides that references to the Value-Added Tax Acts in other legislation are to be construed as references to the VAT Consolidation Act 2010 and other Acts to be read with it.

Relevant Date: Finance Act 2020