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Transfer of Business Relief - What is it and what has changed?

What is Transfer of Business Relief?

When the a business or part of a business capable of being continued by the person acquiring it are transferred from one person to another, and that transfer is not made by means of a share transfer, then, for VAT purposes, provided the conditions of Transfer of Business (TOB) Relief are met there is deemed to be no supply for VAT purposes. This means that no VAT is payable on the money paid for the transfer. The relief is not optional so where the conditions are met TOB will apply. Where the conditions are not met VAT may be chargeable on some or all of the assets being transferred. TOB relief is defined as follows in the Irish VAT Act:

Section 20(2)(c)

A supply of goods…..

Being the transfer to an accountable person of a totality of assets, or part thereof, of a business (even if that business or part thereof had ceased trading) where those transferred assets constitute an undertaking or part of an undertaking capable of being operated on an independent basis.

Section 26(2):

The transfer of goodwill or other intangible assets of a business, in connection with the transfer of the business or part thereof (even if that business or that part thereof had ceased trading), or in connection with a transfer of ownership of goods in accordance with section 20(2)(c), by-

    a) An accountable person to a taxable person who carries on a business in the State, or

    b) A person who is not an accountable person to another person,

It is evident, from the above legislative extracts, that there are a number of conditions to be met in order for TOB relief to apply which include but are not limited to the following;

• Transfer of ownership of goods or goodwill;

• To an accountable person;

• Of the totality of assets, or part thereof, of a business;

• The assets transferred must constitute an undertaking or part of an undertaking capable of being operated on an independent basis

Revenue published revised guidance in July 2018 outlining the type of assets that when transferred together will normally qualify for the relief. These include;

• Premises

• Employees

• Plant and machinery

• Stock

• Goodwill

• Intellectual property

• Debtors

A ‘classic’ transfer of business will include the transfer of all the above named elements. However, particularly where the business is a service business, the transfer may not have all the elements mentioned. The rules to be applied are such that the relief does not cover the transfer of assets alone it only covers the transfer of a business or a part of a business.

TOB on Property transactions

In July, even though there was no change in VAT legislation, Revenue issued updated Transfer of Business guidance changing their view of what might qualify as a transfer of business when it comes to immovable property transactions.
Previously TOB relief would have applied to a property being sold with vacant possession if the property was previously let or partially let on the basis that the sale of the property was the transfer of a property letting business. However the updated TOB guidance states that TOB relief will only apply on a sale which is subject to the following:

A. An existing letting agreement

B. An agreement to lease or

C. A licence to occupy

Therefore for single properties used for letting purposes, TOB will no longer apply where it is not being sold with either a sitting tenant/licensee in place or an agreement to lease or license to such an occupant. This would seem to be contrary to the legislation which anticipates the relief applying even where the business concerned has ceased.

As part of the new guidance Revenue have also stated that TOB will not apply on the sale of let property to a sitting tenant. This appears to be justified because the business being transferred cannot be operated by the person acquiring the property.

TOB will continue to apply to a single transaction which comprises a mixture of let and unlet properties owned by one person being sold to one other purchaser. However TOB will not apply to units that were never let if it was never the intention of the developer to let the property.

The new TOB guidance will affect future sales unless a legally binding document was entered into before the updated guidance was published, on the 31st of July.

The above is a high level overview of Transfer of Business relief however, there are often exceptions to the general rules and quite often there can be situations where at first glance the VAT treatment is not clear.

To discuss the above in more detail please contact Christopher Connolly or Donal Kennedy.

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