Transfer of business
Revenue eBrief No. 150/18 provides a link to the updated VAT Tax and Duty Manual (TDM) in respect of VAT transfer of business (TOB) relief. This updates the previous guidance dated December 2017. The new guidance applies to asset transfers from 31 July 2018 onwards. However, where there was a binding contract in place before 31 July 2018 in respect of a transaction, previous guidance will apply to that transaction.
The guidance includes examples of transactions which Revenue consider qualify for TOB relief. This includes detailed comments on the circumstances in which a sale of property can qualify for TOB relief. The guidance states that the sale of a property which is subject to an existing letting agreement, an agreement to lease, or a licence to occupy qualifies for TOB relief, provided the buyer is an accountable person. However, the sale of vacant property or the sale of a let property to the tenant would generally not qualify for TOB relief, unless those sales are accompanied by other assets which together with the property constitute a business. The guidance also sets out the VAT deductibility position on costs in relation to a transfer of business and comments on the application of the relief in scenarios where multiple assets and businesses are transferring.
Compulsory Purchase Orders
Revenue has updated the VAT on Property Guide (available through the Revenue website) to include comments on the VAT treatment of compulsory purchase orders (“CPOs”) of land. The guidance states that where a supply of property takes place on foot of a compulsory purchase order, Revenue will not, in general, consider the supply to be subject to VAT solely by virtue of development work carried out by the acquiring body under its statutory powers, after the notice to treat has issued.
VAT Treatment of Payment Processing Service
The CJEU judgment in DPAS Limited (C-5/17) concerns the VAT treatment of certain payment related services. This is the latest in a number of CJEU cases which have considered the scope of the VAT exemption for transactions concerning payments. This is a complex area and each scenario should be considered on a case by case basis.
This judgment held that DPAS’s service to dental patients of facilitating their direct debit payments to their dentist did not constitute a VAT exempt financial transaction. Therefore, VAT was applicable on this service.
The CJEU had previously determined in AXA UK (C‑175/09) that similar services provided to dentists should be regarded as debt collection which is a VATable activity. However, DPAS sought to argue that its services were different to those in AXA UK as DPAS contractually provided its services to the patients who made the payments rather than the dentists who received the payments.
However, the CJEU considered that DPAS’s arrangement did not meet the conditions for VAT exemption. In reaching its judgment, the CJEU considered it significant that DPAS was not responsible for the failure or cancellation of a payment as a result of the direct debit as this was ultimately the responsibility of the relevant party’s banks.
Change of Use
In the case of Gmina Ryjewo (C-140/17), a Polish local authority constructed a property that was initially used for activities which were outside the scope of VAT. On that basis, the local authority did not recover VAT on the construction of the building. Four years later (i.e. still within the period for the adjustment of input tax in Poland), the authority began to use part of the building for VATable activities and sought to reclaim a portion of input VAT previously disallowed.
The Polish tax authorities denied this VAT recovery on the ground that the authority had constructed the property for an outside the scope of VAT activity. However, the CJEU found in the local authority’s favour. In Ireland, we have provisions known as the capital goods scheme, which can result in additional VAT recovery or VAT clawbacks on property-related costs where the level of VATable activity in a property changes over a period of time, typically 20 years.
The UK Government issued a number of papers on 23 August 2018 on the potential impact of a “no deal” Brexit scenario, two of which deal with the potential VAT implications for UK businesses. While the Brexit landscape continues to evolve and at this point is far from certain, the papers set out the likely VAT implications if there is no deal between the EU and the UK.
The first paper entitled “Trading with the EU if there’s no Brexit deal” states that UK businesses would in those circumstances have to apply the same customs and excise rules to goods moving between the UK and the remaining EU countries as currently apply in cases where goods move between the UK and a non-EU country. Customs declarations would be required when goods enter or leave the UK. The paper assumes that the remaining EU countries would also apply customs and excise rules and requirements to trade with the UK, as is currently the case with other non-EU countries.
The second paper entitled “VAT for businesses if there’s no Brexit deal” states that the UK’s VAT regime would mirror the current VAT system as closely as possible. However, some specific changes would be required to deal with the fact that the UK would not be part of the EU. For example, the movement of goods in and out of the UK from the EU would be regarded as imports and exports. To help reduce the potential cash flow implications, the UK Government may introduce a postponed accounting system for UK businesses for import VAT. This would allow UK businesses to account for import VAT when filing their VAT returns rather than at the time of import.
The papers focus on the position from a UK perspective, however, similar VAT implications could arise for Irish businesses trading with the UK in the event of a no-deal Brexit.
If you would like to discuss this further, please contact David Duffy or any member of the KPMG’s VAT team.
This article originally appeared in the October 2018 edition of Accountancy Ireland and is reproduced here with their kind permission.