In this article, David Duffy discusses recent Irish VAT developments, including the VAT measures proposed in Finance Bill 2021 (as initiated).

Finance Bill 2021 (as initiated)

Non-refundable deposits

The Finance Bill includes proposed legislative changes to the VAT treatment of non-refundable deposits retained by businesses in the event of a customer cancellation. The changes are due to take effect from 1 January 2022. Currently, Irish VAT law permits a business which retains a non-refundable deposit received from a customer to reclaim the VAT which it previously accounted for on receipt of the deposit, where the intended supply of goods or services does not place. This could include, for example, a deposit received by a hotel or restaurant for a booking which was subsequently cancelled. These measures were introduced into Irish law following a Court of Justice of the European Union (CJEU) judgment in 2007 confirming that in certain circumstances VAT was not due on a retained hotel booking deposit where the customer cancelled the booking (Société thermale d’Eugénie-Les-Bains- C-277/05). More recently, however, the CJEU reached a different conclusion in another case where it was held that airfares charged to customers who did not show up to avail of their flight were nonetheless chargeable to VAT (Air France–KLM and Hop!-Brit Air SAS C-250/14 and C-289/14). The Court held in the latter case that the customer had received the right to access the flight even if they did not show up to avail of the flight and the supply was therefore within the scope of VAT. In addition, the CJEU has also recently held that charges to customers for the early termination of their mobile phone contract were subject to VAT (MEO C-295/17 and Vodafone C-43/19).

This change is therefore intended to reflect this more recent caselaw. Businesses who ordinarily charge non-refundable deposits or other forms of cancellation charges to customers should review their VAT treatment of these charges. While the caselaw and forthcoming legislative change confirms that the scope for treating penalty and cancellation payments as not subject to VAT is limited, each case should be assessed on its particular fact pattern.

VAT groups

The Finance Bill includes a number of technical amendments to the VAT grouping provisions. Proposed changes include the requirement that at least one member of a VAT group must be an accountable person and that the cancellation of a VAT group can take effect from a date earlier than the date of issue of the Revenue cancellation notice. The Bill also includes provisions requiring a group remitter to notify Revenue if there are significant changes to the financial, economic and organisational links between the VAT group members, if a VAT group member is no longer established in the State or if the requirement that at least one person in the VAT group is an accountable person is no longer met. Notification must be made within 30 days of the end of the VAT period in which the change occurred. The Bill also provides for penalties for non-compliance with this notification requirement.

Other measures

The Finance Bill also includes the following measures related to VAT:

• Provisions to put on a legislative footing various Covid-19 support measures in the form of zero-rating or exemption for certain goods and services closely connected with combatting the pandemic. This includes goods and services supplied to the European Commission or an agency or body set up under EU law in the execution of tasks conferred on it by EU law in order to respond to the Covid-19 pandemic, except where the goods or services are for onward supplied for consideration. The zero-rate of VAT applicable to Covid-19 vaccines and services closely linked to those vaccines, as well as Covid-19 in vitro diagnostic medical devices and services closely linked to those devices is extended to 31 December 2022.
• Confirmation of the announcement in the Budget that the flat rate addition payable to farmers who are not registered for VAT will decrease from 5.6 percent to 5.5 percent with effect from 1 January 2022.
• Amendments have been proposed to the tax penalty and publication regimes which are relevant to VAT including a new section 116A to the VAT Consolidation Act 2010 to replace the existing section 116 VAT Consolidation Act 2010.
• A provision is also included for Revenue to clawback any VAT repaid under a Ministerial refund order where subsequent to making the repayment, they have reasonable grounds to believe the claimant was not entitled to all or part of that refund.

Revenue e-Briefs

Revenue e-Brief No. 198/21, issued on 26 October 2021, concerns the Charities VAT Compensation Scheme, which was introduced in 2018. It updates the existing guidance on the operation of the scheme noting, in particular, that a maximum claim amount of €1 million has been introduced in respect of VAT refund claims submitted under the scheme from January 2022. This change has been made as a result of a review undertaken by the Department of Finance, Revenue and charity representative groups with the aim of ensuring that no single VAT refund claim disproportionately draws on the scheme in favour of any one charity (the total annual amount available under the scheme is capped at €5 million).