VAT 6 March 2015 - PowerPoint Presentation

Slide1

VAT

6 March 2015

Lorcan

O'Rourke

Assistant Manager

Indirect TaxesSlide2

VAT

PART 1 VAT on Leases

PART

2

VAT Requirements for InvoicingSlide3

Part

1 VAT on LeasesSlide4

Background: the old system

properties developed post 1972 in ‘VAT Net’l

eases

of less than ten

years i.e. short leases,

were treated as supply of ‘service’

short

leases were exempt but ‘waiver’ could be put in place

l

eases

of more than ten years were treated as a supply of ‘goods’

capitalised

v

alue

used for long leases

Economic

Value Test (EVT

)

required

to be satisfiedSlide5

Problems encountered in old system

knowing VAT history of the property

a

rtificial

split between long and short leases

‘waiver

’ applying to

all sort term let

properties

was

an issue

‘self supply' of reversionary interest

on leases between 10 and 20

years- absolute VAT cost for landlord

e

conomic

v

alue

t

est

Issues

c

omplexity

for ordinary transactionsSlide6

New lettings of

property post 1 July 2008

no

distinction between long and short leases

a

ll

leases

are exempt

from VAT (except ownership-type

leases i.e. freehold equivalent)

c

annot recover VAT on acquisition/ development or maintenance where VAT not charged on rent

landlord

can ‘opt to tax

’ (VAT at 23% chargeable on rents and only for commercial properties)

the

option to tax will be on a property by property (lease by

lease basis)

i

f

landlord and tenant are connected (broadly defined) and tenant does not have at least 90% VAT recovery, landlord can not opt to tax

landlord

can cancel an option to tax at any timeSlide7

Letting of property - acquired or developed post 1 July 2008

Option to tax

c

an be exercised by the Landlord alone

o

ption exercised by:

including a clause in the lease agreement that VAT is chargeable, or

i

ssuing a document notifying the tenant that VAT is chargeableSlide8

VAT clauses in lease agreements

landlord's option to tax lettingoption to tax must be in writing to the tenant

n

o formal lease?

r

ental invoice with VAT included

no Revenue consent required to opt to tax a letting

Revenue audit – written documentation essential

review of VAT clausesSlide9

Letting of property - acquired or developed post 1 July 2008

Option to tax

no option to tax can be made where:

landlord and tenant are connected and tenant is entitled to less than 90% input tax or

property is residential

Connected parties:

s

pouse

, relative, partnership, trustee to settlor & beneficiaries, control of a company or partnershipSlide10

Letting of property - acquired or developed post 1 July 2008

Option to tax

option terminated where:

landlord and tenant agree in writing, or the landlord issues a document notifying the tenant. Must specify the date of termination or

the landlord and tenant become connected persons (unless tenant entitled to recover at least 90% of VAT)

property starts to be used for residential purposes.Slide11

Opt to tax VAT

clause should cover the following:

o

bligation

for

the

tenant to inform the landlord if the tenant becomes aware that it has become connected to the landlord

o

bligation for

the tenant, if it does become connected, to keep the landlord informed of its VAT recovery entitlement in relation to the rent

c

onfirmation

that the tenant will not allow someone connected to the landlord to occupy the

premises

r

equire

the tenant to indemnify the landlord if the landlord has a VAT cost as a result of becoming connected to the tenant or the occupant.Slide12

Letting of property

example

Develco

constructs a new office block and recovers all of

the VAT

on the associated costs. It decides to let part of the building to a VAT-registered trading company, part to a bookmaker who

makes VAT exempt supplies and

part to a financial institution (also

making VAT exempt supplies)

with which it is ‘connected’.

Will the lettings be subject to VAT?

A –

Develco

will likely opt to tax the letting to the trading company as this tenant can recover the VAT on the rent.Slide13

Letting of property

exampleB

-

Develco

may opt to tax the letting to this tenant (bookmaker) although commercially it may be more attractive not to opt to tax this letting. By not opting to tax the letting, the landlord will be able to achieve a higher rent from the bookmaker but will need to repay the VAT recovered on the development of this portion of the building.

C –

Develco

is not entitled to opt to tax this letting as it is connected to the tenant and the tenant is

engaged in solely VAT exempt supplies.

No VAT will therefore arise on the rental income from the financial institution but

Develco

will need to repay the VAT which was recovered on the development of this portion of the building.Slide14

Transitional measures

- properties and leases held on 1 July 2008

m

ost

complicated part of the new system

c

aters

for existing properties (freehold and leasehold interests)

VAT treatment depends mainly on whether or not the owner (or tenant) was entitled to VAT recovery when the interest was acquired.Slide15

Assignment or surrender of a ‘long lease’

- held on 1 July 2008

Assuming the tenant

was

entitled to recover VAT on the acquisition of the interest:

Assignment/surrender

is subject to VAT for 20 years from acquisition of interest.

Example

Trade Co was granted a 30 year lease in 2005. The capitalised value of the lease was €10,000,000 and the VAT arising was €1,350,000. Trade Co was entitled to 100% recovery and the VAT 4A mechanism was used.

Trade

Co assigns the lease in 2010 to another company (the assignee).

VAT arises on the assignment and the amount of VAT is €1,012,500 (€1,350,000 *15 / 20) – Note: the VAT amount is based on 15 years out of 20 being left even though the lease was originally a 30 year lease.Slide16

Assignment or surrender of a ‘long lease’

- held on 1 July 2008

Assuming the tenant was

not

entitled to recover VAT on the acquisition of the interest:

Assignment/surrender

is exempt but parties can opt to tax.

Example

Bank

Co was granted a 30 year lease in 2005. The capitalised value of the lease was €10,000,000 and the VAT arising was €1,350,000. Bank Co was not entitled to any VAT recovery and so paid the VAT to the landlord. Bank Co assigns the lease in 2010 to another company (the assignee). The assignee has 100%

recovery and the parties agree to opt to tax the agreement.

VAT arises on the assignment and the amount of VAT is €1,012,500 (€1,350,000 *15 / 20) – Note: the VAT amount is based on 15 years out of 20 being left even though the lease was originally a 30 year lease. Bank Co gets a refund of VAT from Revenue in the amount of €1,012,500.Slide17

Assignment or surrender of a ‘long lease’

Held on 1 July 2008

VAT due calculated as follows:

T x N

Y

T = VAT on acquisition/most recent development

N = Number of intervals + 1 remaining in adjustment period (length of lease if <20 years or 20 years of lease longer than 20 years if developed

Y = Total number of intervals in adjustment periodSlide18

Surrenders of leases

a

bandonment by tenant

e

jectment

f

orfeiture

failure to extend a lease treated as a lease for 10 years or more (only for leases pre July 2008)Slide19

Waivers of exemption (short lettings)

existing waivers continue to apply until cancelled by the landlord – cancellation payment may be

required

letting

made on or

after 2008 is covered by an existing waiver

where the property was acquired/developed prior to that date

no new waivers can be granted

on or after

1 July

2008Slide20

Waivers of exemption (short lettings)

no

new waivers for residential property

on or after

2 April 2007

existing waiver can apply to residential property in development on 2 April 2007

existing waiver can also apply to commercial property which was in mid-development on 18 February 2008Slide21

Cancellation of a waiver of exemption

If you cancel your waiver of exemption then: you will no longer have to charge VAT on your lettings (unless you put an option to tax in place); and

y

ou

may have to pay a cancellation sum to Revenue. Basically the cancellation sum is the difference between the VAT recovered on acquiring or developing the property (or properties) and the VAT paid on the rents from the property (or properties). Slide22

Connected parties

if tenant has less than 90% recovery and if parties are connected, then the waiver will be cancelled automatically unless the VAT charged each year meets a certain minimum amounteffectively, VAT reclaimed on acquisition must be paid back within 12

yearsSlide23

Lease Variations

where the lease variation is to extend the term of the lease it is deemed the grant of a new lease from the date that the existing lease expires.

No

surrender of the existing lease and no VAT obligations arising out of the deed of variation other than those which would normally arise if a new lease

were

granted.

where the lease variation is to

reduce the rent there are no VAT

implications.

w

here

the lease variation reduces the floor area of the lease there will be a partial surrender of the

lease

which may have VAT

implications.

If

the lease being varied is a legacy lease there will be

of

a partial

surrender

of a lease.Slide24

Dilapidations

Revenue confirmed its position regarding dilapidation payments:

"dilapidation payments by tenants to landlords generally represent compensation for "want of repair" and do not constitute consideration for any taxable supply. In these circumstances the payments are outside the scope of VAT"Slide25

Tenants Refurbishments

Where a tenant who has an occupational lease carries out a refurbishment to the property and then assigns or surrenders the lease within ten years of acquiring it, then it will have to pay back some of the VAT recovered on the refurbishment

unless

:

The tenant who carried out the refurbishment was entitled to recover all of the VAT charged;

The

tenant who carries out the refurbishment enters into a written agreement with the assignee/landlord confirming that the landlord will take over the tenant’s responsibility in relation to the capital good created by the refurbishment;

and

The tenant provides the assignee/landlord the capital good record for the

refurbishment.Slide26

Practical Considerations for Tenants and Landlords

A tenant can consider asking the landlord not to ‘opt to tax’ the letting and instead offer to compensate him for the claw-back that he will suffer as a result of creating an exempt letting. This amount may be significantly lower than the amount of VAT that would be paid over the term of the lease.

if you have lettings, ensure that the terms of the lease contain a clause which covers you if the tenant does something that triggers a claw-back of VAT.

as landlord, ensure the clause in any lease allows you to opt to tax a letting.

if you are a VAT exempt tenant paying VAT on rents, try to find out when your landlord could cease to charge VAT without suffering a claw-back of VAT and ask him not to charge!Slide27

PART 2 VAT Requirements for InvoicingSlide28

VATRegistration and VAT returns

Irish established businesses

VAT registration required where supplies of services exceed €37,500 in a 12 month period. (Registration threshold for goods is €75,000)

VAT returns – completed on a bimonthly basis – filed and paid electronically via ROS by 23

rd

day of month following the VAT period

Annual return of trading details

Disallowance of VAT input credit - where supplier has not been paid within six months

Slide29

VAT

Invoicing

List of

items

to

be

included on VAT invoices:

detailed description of the goods or services supplied

local currency

supplier and customer details

supplier's VAT number

date on which the supply was made

a sequential number which uniquely identifies the invoice

consideration exclusive of VAT – unit price – any discounts or price reductions given

VAT rate and amount

customer's VAT number (if sold to a business within the EU)

appropriate narrative if reverse

charge or intra-Community supply of goods

Slide30

VAT

VIES StatementsVAT Information Exchange System (VIES) = database available to VAT authorities containing information on supply of goods and services to EU business customers

VAT registered person who dispatches goods to VAT registered persons in other EU Member States is obliged to file a periodic VIES Statement

accountable person must file VIES statement if they

supply services

to VAT registered customers in other EU States, and the customer is liable to pay reverse charge VAT on the

supply

http://ec.europa.eu/taxation_customs/vies

/ - link to the

E

uropa website where a business can check the validity of its European customers' VAT numbers

Slide31

VAT

VIES Statements

There is

no threshold for filing VIES

statements for services

VIES are filed electronically, on a quarterly basis (Jan/Feb/Mar etc

.) by 23

rd

day of the month following the quarter

A

trader must file VIES returns for goods on a monthly basis where the value of the supplier’s intra-Community supplies of goods in a calendar quarter (or in any of the previous four calendar quarters) exceeds

€50,000

Slide32

Contacts

Lorcan O'Rourke

Assistant Manager, Indirect Taxes

T

01

436 6477

E lorcan.orourke@ie.gt.com

This

briefing is provided for general information purposes only and is not a comprehensive or complete statement of the issues to which it relates. It should not be used as a substitute for advice on individual cases. Before acting or refraining from acting in particular circumstances, specialist advice should be obtained. No liability can be accepted by Grant Thornton for any loss occasioned to any person acting or refraining from acting as a result of any material in this briefing. Grant Thornton, Irish member of Grant Thornton International, is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business. www.grantthornton.ieSlide33

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& feedback