VAT

PART I

For many businesses moving to Ireland, especially I.T. companies, a considerable amount of research and planning into our tax regime is usually carried out in advance.  From experience, however, the question these companies rarely ask themselves is “what are the key VAT issues affecting our company if we locate to Ireland?

The current Irish VAT rules are as follows:

• The place of supply for businesses established in the E.U. who provide electronically supplied services to private consumers within the E.U. is the E.U. member state in which the supplier is established.  For example, if an I.T. company established in Ireland supplies digital materials via the market to a private consumer living in France, the place of supply will be Ireland and the Irish business will be liable to charge and account for VAT @ 23%.

• The general rule for B2B transactions is that the place of supply of an electronically supplied service is the E.U. member state in which the business customer is established.  In this situation the customer must account for VAT under the “Reverse Charge Rule.”

• For B2B transactions where the supply of electronically supplied services is made to a Business Customer outside the E.U. there are no VAT implications.

• For businesses established in the E.U. to a non-taxable consumer outside the E.U., the place of supply of electronically supplied services is where that person usually resides or has a permanent address.

• For businesses established outside the E.U. to a private, non-taxable consumer within the E.U., the place of supply of electronically supplied services is where the consumer normally resides.  For example, if a U.S. based business supplies software material via the market to an Irish consumer, then the place of supply will be in Ireland.

What does that mean to the Supplier or I.T. Business/Company?

The supplier of these services will be obliged to register and account for VAT in every E.U. member state in which they have private, non-taxable customers.  There is, however, a “Special Scheme” where non E.U. businesses need only register in one E.U. state.

PART II

When we talk about “electronically supplied services” we mean:

• Website supply, web hosting, distance programme and equipment maintenance.
• Software supply and upgrades.
• Supply of distance teaching.
• Supply of film, games and music.
• Supply of artistic, cultural, political, scientific and sporting as well as entertainment broadcasts and events.
• Supply of images, text and information and making databases available.

There is a more detailed definition of “electronically supplied services” in Article 7 of Council Implementing Regulation of 15^th March 2011 (282/2011/EU).

If a U.S. software company supplies software upgrades to private clients in twenty eight E.U. member states, does that company have to register in every one of those states?

The “Special Scheme” is optional and enables a non E.U. supplier making supplies of electronically supplied services to private, non-taxable individuals within the E.U. choose one E.U. state in which to register and pay VAT in respect of the supplies it makes within and throughout the E.U.

For example, a U.S. business/company supplies web hosting services to private consumers in Ireland, the UK and Germany.  The U.S. business can opt to register for the “Special Scheme” in Ireland which means:

• it charges Irish VAT to its Irish customers.
• it charges UK VAT to its UK customers and
• it charges German VAT to its German customers
• it registers in Ireland using ROS (Revenue Online System).
• it prepares and files a single quarterly VAT Return and pays all the relevant VAT to the Irish VAT authorities.
• The Irish VAT Revenue then distributes the UK VAT to the UK Revenue Authorities and the German VAT to the German Tax Authorities.

The U.S. I.T. business/company is eligible to use this scheme if it is not established in the E.U. and if it is not registered or required to be registered for VAT in any other E.U. member state.

Part III

From 1 January 2015, supplies of telecommunications, broadcasting and electronically supplied services made by EU suppliers to private, non-taxable individuals and non-business customers will be liable to VAT in the customer’s Member State.

The current place of supply/taxation is where the supplier is located, but from 1st January 2015 this will move to the place of consumption or the place where the consumer normally resides or is established.

Suppliers of such services will need to determine where their customers are established or where they usually reside.  They will need to account for VAT at the rate applicable in that Member State.  This is a requirement regardless of the E.U. state in which the Supplier is established or is VAT registered.

As a result of these changes, suppliers may need to register for VAT in every EU Member States in which they have customers. As there are no minimum thresholds for VAT registration, making supplies to a single customer in one Member State will necessitate VAT registration in that country.

With effect from 1^st January 2015, the Mini One Stop Shop (MOSS) will be introduced which means that instead of having to register in each E.U. member state, the supplier will have the option of declaring and paying the VAT due for all the member states in the E.U. state where the business is established via a single electronic declaration which can be filed with the tax authority in the state where the supplier is established.

The MOSS scheme will be similar to the “Special Scheme” which is currently in place for non E.U. suppliers. It will allow for VAT on Business to Consumer supplies made in all or any of the twenty eight E.U. Member States to be reported in one electronic return.

Part IV

What needs to be considered prior to the introduction of the MOSS Scheme on 1^st January 2015 by businesses already established in Ireland or thinking about establishing in Ireland?

• It is essential to examine your contract to establish who exactly is paying you and if your customer is a taxable or non taxable person.  This is particularly important in the context of undisclosed agents / commissionaire structures, etc.

• You must determine where your B2C customers are located.  Your business may require additional contractual provisions and amendments to your systems to include this information.

• It is important to examine the impact of the different VAT rates in each E.U. member state on your margins.  This may require revising your pricing structure.

• What are the invoicing rules in other member states?

• What about compliance issues in individual E.U. member states?

• Are there any occasions in which you need to register in an individual member state?

PART V

One of the biggest problems envisaged with the MOSS systems is identifying the location of the customer.

It is essential for suppliers to correctly identify the customer’s location/permanent address/usual residence so they can charge the correct VAT rate applicable in that member state.

For most telecommunication, broadcasting and electronically supplied services, it will be obvious where the customer resides. The decision about the place of supply of those services should be supported by two pieces of non-contradictory evidence including credit card details and a billing address for example.

It is anticipated that there will be situations where the consumer’s location is less obvious.  As a result, the following rules have been compiled between the Member States to help businesses ascertain the place of supply in B2C TBE transactions.

According to the Irish Revenue website:

• ^{“If the service is provided at a telephone box, a telephone kiosk, a Wi-Fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided. Note: this rule applies to the initial service only (i.e. the connection to the telecom or internet service) and not to any over-the-top services delivered using the connection (e.g. downloading of games onto a laptop at a Wi-Fi hotspot);}
•  ^{If the service is supplied on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the country of departure for the journey;}
•  ^{If the service is supplied through an individual customer’s telephone landline, the consumer location will be the place where the landline is located;}
•  ^{If the service is supplied through a mobile phone, the consumer location will be identified by the country code of the SIM card;}
•  ^{If a broadcasting service is supplied through a decoder without the use of a fixed land line, the consumer location will be where the decoder is located or the postal address where the viewing card is sent.”}

In situations where the consumer advises you that he/she resides in a different location than previously thought, the supplier can change the place of supply but only if the consumer can produce three pieces of non-contradictory evidence to support that change of place of supply.

The evidence to be used in deciding the place of supply may vary depending on the industry but the most usual types of proof include the customer’s billing address, the address on his/her bank accounts, the IP address, etc.

Finance Act 2013 saw a number of changes to the VAT regime in Ireland.  The main changes are as follows:

1. The threshold for Accounting for VAT on the money’s received basis has been increased from €1m to €1.25m with effect from 1^st May 2013.

2. The flat rate addition for unregistered farmers was reduced from 5.2% to 4.8% with effect from 1^st January 2013.

3. From 1^st January 2013 the services threshold for VAT registration (i.e. if the turnover from the provision of services exceeds €37,500 there is an obligation to register for VAT) applies to the provision of sporting facilities and physical education facilities by public bodies.  This means that public authorities will not be obliged to register for VAT unless they exceed the threshold amount of €37,500 but they can elect to register for VAT if they so choose.

4. Existing VAT legislation in relation to vouchers with a redeemable value provides that VAT arises at the time the voucher is supplied and not when the voucher is redeemed.  Anti Avoidance legislation was introduced in the 2013 Finance Act which confines this special rule to situations where vouchers are supplied to businesses that are established in the state.  For vouchers sold to businesses outside Ireland for onward supply they are not taxable on sale but when the redemption of the voucher takes place.

5. The Finance Act brought in a number of changes with regard to receivers and liquidators in the context of supplies of services.

a)      New provisions were introduced to clarify that a receiver or liquidator who supplies taxable services in the course of either carrying on a business or winding up a business is liable for VAT on those services and/or rents.

b)      The liquidator and/or receiver is obliged to register for VAT, file VAT Returns and make the relevant payment of VAT in relation to the taxable supply.

c)      Where an immovable good is sold by a receiver or liquidator and where a joint option to tax the sale is exercised thereby making the purchaser accountable for VAT on a reverse charge basis, then subject to the normal deductibility rules, the purchaser is entitled to deduct the VAT incurred.

d)      Provisions were introduced transferring the obligations of the capital good owner to the receiver for the duration of the receivership including maintaining the capital good record, calculating any adjustment in deductibility resulting from the change in use of the capital good, remittance of tax, etc. and for the reversion of those obligations to the capital good owner at the end of the period of receivership.  There is also provision for the apportionment of VAT liabilities or input credit entitlements where receivership or possession commences or ends during a capital goods scheme interval.

In the recent High Court case of Ryanair Ltd v Revenue Commissioners [2013] EHC 195, Laffoy J held that Ryanair was not entitled to a VAT deduction on the professional fees incurred in connection with its bid to acquire the share capital of Aer Lingus.

Revenue Commissioners refused Ryanair’s refund claim following an unsuccessful bid to acquire the entire share capital of Aer Lingus because the VAT on professional fees was not part of the general costs of its business as transport operator i.e. it did not form an integral part of its overall economic activity and had no connection with its general business.  The matter was appealed to the Circuit Court which upheld Revenue’s decision.  The High Court held that the Circuit Court Judge was correct in law.