Post Brexit, the EU 4 quick fixes go live
Britain has formally exited the EU on 31st January 2020, while the existing VAT rules continue to apply to cross border trade between the two islands and the EU until the end of 2020 focus must be maintained by all on the necessary preparation to deal with the VAT implications of the exit.
In future newsletters and briefings, we will be revisiting and highlighting particular areas of attention together with recommended actions for clients and the business community.
As part of this EU VAT reform, the 4 short term ‘quick fixes’ that change the VAT rules for EU cross border supply of goods in all EU member countries took effect from 1st January 2020. Discussions are ongoing on a definitive VAT system to replace the current rules and transitional VAT arrangements which have applied since 1993.
While the EU Council has indicated that the implementation of the ‘quick fixes’ is aimed at fixing some of the practical problems experienced with the current VAT rules - in reality and as encountered previously, the new procedures can give rise to fresh administrative challenges that are counter-productive from a business viewpoint.
Identified challenges include:
Substantive conditions that need to be met in relation to intra-community supplies of goods.
There are two new substantive conditions for the application of zero-rating in the case of intra-community supply of goods:
The VAT registrations of the business customer must be provided at the time of the intra-community movement of the goods and recorded on the EU sales lists of the supplier together with the specified information as prescribed under Article 264 of the EU Directive. Failure to meet the conditions specified leaves the supplier open to the tax authority being able legally to impose a charge to VAT on the supply.
Evidential proof of the physical movements relating to the intra-community of goods must be documented in accordance with the Council Regulation (EU) 2018/1912.
The supplier must possess at least two items of non-contradictory evidence issued by two independent parties.
Direct evidence of transport would include:
- Signed transport document such as CMR (customer managed relationship that pertains to a consignment note with a standard set of transport and liability conditions)
- Bill of Lading
- Airfreight invoice
- Invoice from the carrier of the goods
Secondary examples of proof include:
- Insurance with regard to the dispatch or transport of the goods
- Bank documents providing payment for the dispatch or transport of the goods
- Receipt issued by a warehouse keeper in the Member State of destination confirming storage
- Document issued by a public authority/ notary confirming arrival of the goods at the place of destination
In addition, where the transport of the goods is organised on behalf of the customer a further declaration is required containing:
- Information that the customer or a third party on their behalf transported the goods
- The date of issue
- Name and address of the customer
- Nature and quantity of the goods
- Date and arrival of the goods
- Identification of the individual accepting the goods on behalf of the customer
This customer declaration must be made available to the supplier by the 10th day following the respective month that the supply occurred.
It is clear that the purpose of the formalised steps being imposed have the intention of reducing VAT fraud however this also delivers a significant administrative and logistic cost burden on business.
VAT status around Airbnb letting activity and emergency accommodation
Arising from the considerable publicity around the impact and commercial returns being earned under Airbnb letting activity, the tax and VAT treatment of this sector and property providers have come under the scrutiny of the Revenue Commissioners.
VAT is only levied on goods and services provided in the course of an economic activity by a taxable person. Whether a person is carrying out an economic activity or a business depends on the facts and circumstances of a case; it is an objective test.
Where a taxable person is carrying out an economic activity or business, they are obliged to register and account for VAT on their supplies if they exceed the relevant threshold (i.e. they are considered an accountable person). They may also deduct VAT incurred on their associated costs in relation to these taxable supplies.
The profits derived from the provision of accommodation are chargeable to tax under Schedule D. As to which Case of Schedule D may govern that charge is dependent on the facts and circumstances of a case. Of particular importance is whether or not the accommodation is provided under a landlord and tenant arrangement (or lessor/lessee arrangement).
In general, the letting of immovable goods is exempt from VAT unless the letting relates to short-term accommodation, and similar short-term guest/holiday accommodation.
Short term accommodation is generally subject to VAT at a reduced rate (13.5%), and applies to activities such as:
- Letting of a room(s) in a hotel or guesthouse.
- Short term lettings of all or part of a house, apartment or similar building.1
- Letting of a part of a caravan park or similar place.
- Letting of a part of a camping site or similar place.
- Provision of any other holiday accommodation.
However, the provision of student accommodation is exempt from VAT.
A short term letting is a letting of all or part of a house, apartment or other similar establishment:
- to a tourist, holidaymaker or other visitor
- for a period that does not exceed or is unlikely to exceed 8 consecutive weeks
A letting of emergency accommodation is excluded from this definition. Where accommodation is let as emergency accommodation it is exempt from VAT.
A separate guide on the VAT treatment of emergency accommodation and ancillary services was published by the Revenue in April 2019.
Update on VAT Compensation Scheme for Charities
VAT Compensation Scheme overview- reminder
To reduce the VAT burden on charities and to partially compensate for VAT paid in the day to day running of the charity, a VAT Compensation Scheme for charities has been introduced. The scheme applies to tax paid on expenditure on or after 1 January 2018 and so VAT paid in years prior to that cannot be claimed. Refunds will be paid one year in arrears.
A total annual capped fund of €5m is available for payment under the scheme, and the scheme will be subject to review after three years. Charities will be entitled to claim a refund of a proportion of their VAT costs based on the level of non-public funding they receive. Where the total amount of eligible claims from all charities in each year exceeds the capped amount, claims will be paid on a pro rata basis.
Update on VAT refunds
The Revenue Commissioners has confirmed that over 1,100 claims, totalling almost €40m were made by charities under the Charities VAT Compensation Scheme for 2018. The percentage make-up of the overall claim reads 61% were received from charities supporting the community, 16% from religious charities, 15% from charities supporting education and 8% from charities involved in the relief of poverty.
The main error identified by Revenue with claims relates to the inclusion of public funding in the amounts represented in the claim as qualifying income. However, the scheme only entitles charities to refunds of VAT paid having regard to their level of non-public funding.
On the basis that the €40m figure represents valid claims, the divide of the €5m capped fund results in each charity receiving a refund of 12.5% of the value of their claim
Valid refunds made for the 2018 year were to have been processed for refund in late 2019.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars VAT team below: