42. Taxable amount for certain supplies

Summary

This section covers a number of different situations in relation to establishing the taxable amount for supplies. The section covers self-supplies of goods and services in subsection (1), transfer of business goods abroad and into Ireland in subsection (2) and services received from abroad in subsection (3). Special hire-purchase rules (subsection (4)) and the taxable amount for excisable products (subsection (5)) are also covered.

Details

(1) Subsection (1) provides for the taxable amount in the case of self-supplies liable to tax. In the case of goods used within a business for a non-taxable activity, goods withdrawn from the business, and supplies of services carried out free of charge by the taxable person for private or non-business use under section 27, the consideration on which tax is chargeable is the cost, excluding tax, of acquiring or producing the goods or of providing the service.

The amount on which tax is chargeable in relation to a supply of services diverted by a business to a non-deductible business use under section 27(1)(c) is the open market price.

The ruling in the ECJ case of Finanzamt Munchen III v. Gerhard Mohsche confirmed that where goods and services forming part of the assets of a business are diverted to a non-business use, the taxation of those goods and services as a “self-supply” must be confined to correcting the right to deduct which has been exercised. Accordingly, only goods and services that benefited from the right to deduct may be taxed. By contrast, goods and services that were not taxed and therefore were not the subject of a deduction cannot be taxed at this stage either. This ruling confirms that for the purposes of determining “cost” to the supplier only items that have benefited from the right to deduct VAT should be included. Items that are either not taxable or exempt should be excluded from the calculation.

(2)(a) The amount on which tax is chargeable in relation to goods transferred by a person from his/her business in Ireland to another Member State for the purposes of his/her business is the cost of the goods to the person making the supply, or the cost price of similar goods in the State if there is no cost.

(2)(b) Also, if there is an intra-Community acquisition in the State following a supply in another Member State in similar circumstances (i.e. goods transferred by a person from his/her business in another Member State for the purposes of his/her business in Ireland), tax is chargeable on the cost of the goods to the person making the supply.

(Also see section 23, supply following an intra-Community acquisition.)

(3) Subsection (3) specifies that in the case of received services bought in from abroad for business purposes, the recipient who is taxable under the reverse-charge rule is to be taxable by reference to the cost to him or her of acquiring the service.

(4) Subsection (4) is an anti-avoidance measure. It applies in cases where a trader supplies goods on hire-purchase directly to a customer without going through a finance house. This subsection prevents the trader from artificially reducing the cost of the goods. The amount subject to VAT in the transaction cannot be understated in order to inflate the cost of the tax-exempt hire purchase charge.

In effect, this subsection provides that the open market price of the goods or the total amount receivable by the person in respect of the supply of the goods, whichever is the greater, is subject to tax. The supplier will have to isolate in his/her records the supply of taxable goods from the supply of the exempt financial service.

(5) Subsection (5) provides that in the case of a supply in a bonded warehouse of goods liable to excise duty (other than alcohol products) to an unregistered person, the consideration will be increased for tax purposes by a notional amount of duty equal to the amount which would be payable if the goods were withdrawn from the warehouse and charged with duty at that time. Sales of alcohol products in bond are dealt with in section 92.

Relevant Date: Finance Act 2020