Taxing Times: VAT and other indirect taxes

Taxing Times: VAT and other indirect taxes

There will be no change to the 9% VAT rate, but Budget 16 presented other VAT developments.

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VAT rates

The minister confirmed that there is no change to the 9% VAT rate. The rate was originally introduced in 2011 for a three year period and extended indefinitely in Budget 2014 as part of the Government’s Jobs Initiative for Tourism. The minister however sounded a cautionary note that the case for the retention of the 9% VAT rate is diminishing due to room rate increases in the hotel sector in Dublin, but the case for the retention of this measure for the rest of the country remains. The 9% rate applies to a range of goods and services including restaurants and catering, hotel accommodation, newspapers, and admission to cinemas, theatres and museums.  

The 23% and 13.5% rates of VAT and the flat-rate addition for non-VAT registered farmers remain unchanged. 

VAT on charities working group report

A Department of Finance ‘VAT on Charities Working Group Report’ was published with other ancillary budgetary documentation. This report notes the estimated VAT burden for charities represents €77.4 million per annum or 4.5% of total expenditure. The report considers compensation schemes in operation in other EU member states that could be implemented in Ireland. It notes that EU VAT law permits a compensation scheme to be introduced as long as it is clearly separate from the normal VAT system. Issues for further consideration noted in the report include the potential scope of a refund scheme, methods of implementation and the administrative burden on the Revenue Commissioners. However, the minister did not refer to any proposal to lessen the VAT burden for charities in his Budget speech. 

Other recent VAT developments

There have been other recent VAT developments which may be of interest to readers:  

Share deal fees

In a welcome decision reached earlier in the year, the Court of Justice of the European Union (“CJEU”) has clarified the VAT recovery position for holding companies which incur VAT on share acquisition deal fees. It held that a holding company which involves itself in the active management of its subsidiaries is entitled to recover VAT incurred on share acquisition deal fees in line with its general VAT recovery position. 

Portfolio investment management services

Revenue announced a change in practice in relation to the VAT treatment of portfolio investment management services with effect from 4 September 2015. Under previous Revenue practice it was possible in certain cases to treat a single fee for portfolio investment management services as partly VATable and partly VAT exempt. Following the change in practice, the standard rate VAT will apply to the entire fee.  

Fees charged on a per transaction basis for the purchase and sale of securities carried out as part of an overall portfolio management service may in certain cases continue to be treated as VAT exempt.  

The change does not impact the application of VAT exemption to portfolio investment management services provided to “qualifying funds” which includes most regulated funds, defined contribution pension schemes, certain life assurance funds, and Section 110 securitisation vehicles.  

Can real estate management be VAT exempt? 

A decision due in the coming months should clarify the scope of the VAT exemption in Ireland for the management of regulated funds holding real estate assets and whether VAT exemption should apply to property management services provided to such funds.  

The opinion of the Advocate General released in May 2015 favoured a wide application of the VAT exemption. 

Excise duty

Tobacco products & other ‘old reliables’ 

The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT), with a pro-rata increase on other tobacco products. This has effect from midnight on 13 October 2015. The minister announced that this will raise €61.4 million in a full year.  

No changes were made to excise duty rates on alcohol, petrol or diesel.  

Excise duty cashflow relief for microbreweries 

A special relief reducing the standard rate of Alcohol Products Tax by 50% on beers produced in microbreweries was introduced in last year’s budget. The minister announced the relief will now be available upfront as well as through a rebate, thereby creating a cash flow benefit for the industry.  

Commercial motor tax

Commercial motor tax rates are to be reduced and simplified with the goal of removing distortions in the haulage industry between Ireland and the UK. The existing regime will be revised from twenty rates of motor tax to five, ranging from a minimum of €92 to a maximum of €900 per annum. By comparison, the current maximum motor tax rate is €5,195 per annum. These measures will be introduced with effect from 1 January 2016 and it is estimated will cost €43 million in a full year. 

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