VAT package 2010 |
In accordance with EU legislation, a number of VAT measures will be introduced in to Ireland, as outlined below. Currently, the Irish legislation surrounding these measures is in draft form.
VIES statement for services
Currently, a VIES statement is required to be completed by businesses that sell goods to EU VAT registered customers. With effect from 1 January 2010, the VIES statement will be extended to businesses that provide services to EU VAT registered customers. Depending on the level of transactions, there will be a requirement to file the statement monthly or quarterly. Currently, VIES statements are required to be filed by the last day of the month following the monthly/quarterly period. It is not clear at this stage if there will be one VIES statement for goods and services.
New procedures for 8th Directive refunds
There are also new procedures in place for filing an 8th Directive refund. The rationale behind the changes was to simplify the repayment process for businesses and to ensure refunds are paid in a timely manner. The main change is that the repayment claim is made electronically to the member state in which you are established i.e. an Irish established business will apply to the Irish Revenue for refund of VAT incurred in another member state. The Irish Revenue will carry out a checking procedure and will forward the repayment claim to the member state that the VAT was incurred in. There are specific time limits in which the refund must be made; otherwise, interest must be paid to the applicant.
Significant changes the VAT rules affecting services supplied cross-border to other businesses
Under the existing value added tax (VAT) rules, the general rule governing the obligation to charge VAT on services supplied cross-border is that the VAT is charged by the supplier of the services. This is done by reference to the establishment from which the service is supplied. So if the services are being supplied from an establishment in Ireland, Irish VAT applies; if they are being supplied from the UK, UK vat applies etc.
There are many exceptions to this rule, with which most businesses will be familiar. One of those exceptions is now to become the general rule when supplies are being made cross-border to other businesses (not private consumers). That exception is known as the reverse charge rule.
Under the reverse charge rule, the place of taxation for the service is to be governed by the establishment of the customer receiving the service. Furthermore, under this rule, the obligation is on the customer rather than the supplier of the service to charge the VAT due on the services to himself and then, in certain circumstances, to remit it to his tax authority. The supplier will not be obliged to charge VAT when this rule applies. If the customer is entitled to full VAT deduction, there is an immediate matching input deduction for the VAT due on the services and VAT is effectively eliminated as a cost for such businesses under the new regime.
This significant change means that, for services supplied cross-border to business customers (not private consumers), certain services on which Irish VAT has been charged to date will no longer be subject to Irish VAT. Furthermore, services currently received with foreign VAT will no longer have foreign VAT charges and there may be an obligation to charge yourself VAT and, if you are not entitled to full VAT input deduction, pay some or all of this VAT over to the Irish tax authorities. These changes will only affect certain services, however, because the existing exceptions to the general rule are, for the moment, unaffected by the change to the general rule and will consequently remain the same.
Businesses should therefore check whether any of the services they are supplying or receiving cross-border are affected by these changes. They should also be aware that European case law has just emerged that confirms that parties charging VAT incorrectly to other business are liable to the tax authorities for the incorrectly charged VAT, even if it has not been paid to them, unless they correct their invoices to ensure that the exchequer cannot lose out through incorrect claims for refunds based on the invoices issued to foreign customers.