Finance Act 2010: Indirect taxes
| Carbon taxes | Vehicle registration tax | Value Added Tax | Tax clearance certificates | Mandatory disclosure of certain transactions |
Carbon taxes
There are a number of new provisions detailing the carbon tax charges promised in the Budget. Carbon tax is levied at €15 per tonne of CO2 emitted and will apply to petrol and auto diesel, natural gas and solid fuels.
In real terms the new charge gives rise to an increase of 4 cent on a litre of petrol and 4.5 cent on a litre of auto diesel. There is relief from carbon tax for bio-fuel or where bio-fuel is mixed with other mineral oils and the bio-fuel makes up more than 10% of the mix.
The new Natural Gas Carbon Tax will apply to any supplies of natural gas made on or after 1 May 2010 and will be levied at a rate of €3.07 per mega-watt hour. The supplier will account for the tax to Revenue, based on bi-monthly taxable periods. The returns and accompanying tax will be due within 30 days of the end of the taxable period. Non established suppliers will have to establish a company in the State that will be liable to account for the tax.
The Solid Fuel Carbon Tax will apply to supplies of coal and peat. There are varying rates set out depending on the fuel, for example the charge will amount to €39.51 per tonne of coal and €27.50 per tonne of Peat Briquettes. The rates are set to correspond to a levy of €15 per tonne of carbon dioxide emitted by the fuel. The supplier will account for the tax to Revenue, based on bi-monthly taxable periods. The returns and accompanying tax will be due within 30 days of the end of the taxable period The tax will apply from a date specified by ministerial order.
Vehicle registration tax
Scrappage scheme
The scrappage scheme announced in the Budget and already in operation has been copper fastened in provisions that confirm a rebate of VRT on the registration of new vehicles with a CO2 emission level not exceeding 140g/km. New cars which replace cars that are at least 10 years old are eligible for a repayment of up to €1,500. The scheme will run up to 31 December 2010. The rebate is only available where the scrapped vehicle has been owned by the person for a period of 18 months prior to the registration of the new vehicle. The old vehicle must be scrapped by 31 December 2010, and subject to this time limit can be scrapped either 60 days before or 60 days after the registration of the new vehicle.
We welcome any efforts to reinvigorate the ailing motor industry, and hope that the €1,500 limit is sufficient incentive to give a meaningful boost to new car sales. It seems to have had a modest impact on January sales .
Value Added Tax
There has been a significant number of changes to the VAT Act in this year’s Bill ranging from some important substantive changes to some more routine reordering in preparation for the proposed consolidation of the VAT Act. We have commented on the more substantive changes below.
Disposal of properties by liquidators/receivers
New measures have been introduced to confirm that where a property is sold or certain leases are assigned/surrendered by a liquidator or receiver and that disposal would be exempt from VAT, the liquidator/receiver and the purchaser can jointly opt to tax the disposal and in this event the purchaser will be required to self account for the VAT due. The option to tax would allow the parties to avoid a trapped VAT cost arising on the disposal where the purchaser has full VAT recovery. If the properties being disposed of are residential properties and form part of the assets of the developer at the time of disposal VAT will due on the sale if the developer was entitled to recover VAT on the development.
These provisions are to be welcomed insofar as they clarify the precise requirements for and capacity of liquidators and receivers when disposing of properties and provide a mechanism where trapped VAT can be avoided on property disposals.
New VAT treatment for public bodies
Following the ECJ’s recent ruling that the VAT treatment of public bodies applied by Ireland was contrary to EU law, the legislation has been changed to make public bodies taxable persons where they engage in activities in competition with private sector operators and where allowing public bodies not to charge VAT would lead to a significant distortion of competition. This change will come into force with effect from 1 July 2010
This change could have a very significant impact on public bodies and have wide ranging implications for a number of services that they currently provide.
Public bodies need to plan now for the impact of these changes, proper planning and consideration of available VAT recovery could mitigate any negative affect on budgets. Public bodies also need to consider whether their accounting systems are ready for the impending change. Systems will need to be able to capture sufficient information to ensure appropriate VAT recovery as well as being able to recognise VAT on income. Many private sector suppliers will welcome these changes as levelling the playing field in the competition with local authorities and other public bodies.
Margin scheme for used motor vehicles
As proposed in the budget the VAT treatment of the sale of used motor cars acquired by the dealer after 1 July 2010 will be aligned with the VAT treatment currently applied to the sale of other used goods. In essence the dealer will account for VAT on the profit margin made from the sale and not on the full selling price. The profit margin is inclusive of VAT. If the car is sold at a loss no VAT is due. This change is something of a mixed blessing for dealers, on the plus side there will be no claw back of previously recovered VAT if the car is sold for a loss, however dealers will no longer be entitled to recover the residual VAT on the acquisition of the motor vehicle – this could put an added cash flow burden on an already pressed industry. However to ease the burden transitional measures have been introduced to allow dealers to recover a portion of the residual input tax if the car is bought between January and June 2010. The level of residual claim reduces from 40% of the residual tax for cars acquired in January or February to 20% of the residual tax for cars acquired in May or June.
Tax clearance certificates
The Bill seeks to expand the taxes with which a taxpayer must be compliant before a tax clearance certificate will be issued to include custom duties and excise duties.
Mandatory disclosure of certain transactions
In what is described as an anti-avoidance measure the Minister for Finance introduced a very late amendment to the Finance Bill 2010 at committee stage providing for the mandatory reporting of certain transactions.
Broadly speaking the proposed amendment provides that either promoters (which will include accountants, tax advisors and banks) or tax payers contemplating or implementing certain transactions will be obliged to provide details of those transactions to Revenue. The transactions are described as disclosable transactions and are broadly defined as any transaction or any proposal for a transaction which might result in the obtaining of a tax advantage for any person.
Apart from broad policy concerns mentioned below in relation to the proposed legislation an unsatisfactory feature of the amendment as presented is that it is vague on precisely what type of transactions will require to be reported to Revenue and when they must be reported. This detail is to be contained in regulations made by the Revenue Commissioners with the consent of the Minister for Finance. Among the matters to be contained in the regulations are:
- The type of transactions which are to be “disclosable transactions”
- The type of information to be provided to the Revenue Commissioners in relation to disclosable transactions
- The time period within which information must be provided to the Revenue Commissioners
Therefore, while clearly signalling that there will be compulsory reporting of certain transactions, the draft legislation does not set out precisely what those transactions will be, how they are to be reported to Revenue or when. Given that the provisions if enacted will apply to transactions falling after the date of the passing of the Act, which is likely to be before the publication of the detailed regulations, there will be a period of uncertainty during which persons contemplating transactions will not know whether those transactions will be included as “disclosable transactions” when the detailed regulations are published. This is most unsatisfactory.
The Minister has stated that his officials and officials of the Revenue Commissioners will engage in a consultative process with practitioners and other interested parties in the drawing up of the detailed regulations. In these difficult economic times the regulations when drafted must ensure:
- Certainty for tax payers engaging in normal commercial transactions
- The regulations are clear on what transactions are reportable, what information is to be provided and when
- Compliance with regulations must not lead to burdensome tax administration impositions and compliance costs
The manner in which this very significant amendment was introduced by the Minister without consultation is to be regretted. The vagueness of the legislation creates uncertainty at a time when business needs it least. Hopefully the consultative process which the Minister has promised leading to the detailed regulations will remove any uncertainties.