Various VAT measures have recently been introduced regarding insolvent businesses. The Finance Act clarifies that where control over the business is taken by another person (such as a liquidator or a receiver), that person will become liable to pay any VAT collected on the supply of goods and services by the company during the insolvency process. Previously, the Irish VAT Act mentioned only supplies of goods in this context. The Act also contains provisions whereby receivers (and mortgagees-in-possession) will now assume the rights and obligations of the company in relation to assets that are subject to the “Capital Goods Scheme”.
A number of technical amendments have also been made regarding the VAT exemption for fund management services. In addition, the wording of the provisions relating to VAT recovery for certain funds has been updated to bring Irish VAT legislation into line with the EU VAT Directive.
Finally, there were a number of miscellaneous VAT amendments introduced such as:
- Amendments to the Irish VAT Act to implement the European VAT Invoicing Directive which came into effect from 1 January 2013.
- Provisions to limit specific rules applying to sales of vouchers to resellers. The treatment of applying VAT at the time of sale of the voucher should now only apply to domestic sales.
- The threshold for using the cash receipts basis of accounting for VAT was increased from 1 million to 1.25 million Euros (EUR) per annum with effect from 1 May 2013. This is a measure designed to support the SME sector.
Commission vs. Ireland
Two cases have been decided by the CJEU:
- The first case (C-108/11) dealt with the reduced VAT rate of 4.8 percent that Ireland applies to the supply of horses and greyhounds. The CJEU has held that the application of this rate was incompatible with Ireland’s obligations under Article 110 of the EU VAT Directive.
- Ireland was relying on the “standstill” provisions of Article 110 of the VAT Directive to adopt a VAT rate lower than the minimum 5 percent. Article 110 allows reduced VAT rates lower than 5 percent where (1) the reduced rate is granted for a “clearly defined social reason” and (2) the rate is for the benefit of the final consumer. The Court held that Ireland had not proved that either of these two conditions were met. As a result of this case, Ireland will be required to introduce amendments to VAT legislation but at the time of going to print no such amendments have been announced.
- The second case (C-85/11) dealt with Ireland’s VAT grouping rules and the ability to include certain non-taxable persons (such as pure holding companies) in a VAT group. The CJEU dismissed the Commissions’ case and held that non-taxable persons are not specifically excluded under Article 11 of the EU VAT Directive. The Court held that it is therefore possible to include non-taxable persons in a VAT group. As a result of this decision, similar cases that the Commission has brought against the Czech Republic, Denmark, Finland and the UK with respect to the same issue were dismissed.