Revenue Tax Briefing

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Revenue Tax Briefing Issue 27, August 1997

Non operation of VAT


Section 2 of the VAT Act imposes a charge to VAT

  • On the supply of goods or services effected within the State for consideration by a taxable person in the course of furtherance of any business carried on
  • On goods imported into the State
  • On the Intra-Community acquisitions of goods etc.

It is recognised that complexities in this legislation, for example transactions involving foreign traders, can give rise to interpretative difficulties. Notwithstanding such difficulties there is an obligation on the parties involved in such transactions to ensure that the legislation is correctly applied.

Practices in the past

In a growing number of significant transactions unilateral or, bilateral decisions have been made not to operate the VAT system on the basis that ‘no loss arises to the Exchequer’. There is of course, no basis in law for this approach and such a claim is not acceptable as a basis for failing to account for VAT. Whereas in the past Revenue has settled ‘no VAT loss of revenue’ cases without insisting on the strict application of the law; that position will not apply to transactions entered into on or after 1 September 1997.

Why a change is required

Revenue’s revised attitude to such cases is essential to ensure that:

  • No loss of VAT to the Exchequer will arise
  • A consistent approach to the operation of the VAT system as guaranteed to all taxpayers in the Charter of Rights is implemented
  • The VAT system is not used to distort competition contrary to the principles contained in the EU Sixth VAT Directive
  • The VAT Audit resource is not diverted from its main function by having to verify the ‘no VAT loss’ claims made in these cases
  • Suppliers and recipient of the goods/services account correctly for VAT on their transactions.

Position from1 September 1997

  • Strict application the VAT Act is required in all transactions entered into on or after 1 September 1997. All suppliers of goods/services will be held responsible for the VAT chargeable.
  • The question of statutory interest will be considered in every case where a VAT undercharge arises. This includes cases where the recipient of goods/services would be entitled to a VAT input credit. Exceptions will, of course, arise where the facts show that a genuine error was made and that a loss of revenue has not occurred.

Cases - Transactions entered before 1 September 1997

Without prejudice to future practice as outlined above the ‘no VAT loss’ cases already identified and under consideration will be settled in line with earlier practice. This means that in cases with pre 1 September 1997 ‘no VAT loss’ transactions Revenue will not seek VAT recovery unless, of course, there was an actual loss of VAT. To ensure all cases in this category are processed in a similar manner and at the earliest date possible practitioners are invited to voluntarily disclose all other cases of this nature to the relevant Audit District Manager as soon as possible, preferably before 1 October 1997.