Finance Bill 2013: The VAT and property section

Tuesday, February 19, 2013

by Nick Ryan

A number of technical changes have been announced, some clearly a catch up by Revenue in bringing the law in line with their understanding and others to reflect the current economic situation Ireland finds itself in.
The majority of the changes are in connection with the application of the Capital Goods Scheme and are definitely an attempt to tidy up a number of loose ends particularly where the legislation has been found wanting. A key focus for these changes is the result of the consultation process held in 2012 on the tax implications for receivers. From this a number of proposals in connection with VAT were made and the measures to be introduced reflect some of these proposals.
The option to tax and receivers/liquidators: This change covers the requirement for a receiver to account for VAT on supplies of taxable services. Here where a receiver is appointed over a property which had an option to tax in place for a lease then the receiver is now required to register for VAT and to continue to tax the letting and account for VAT on the rental income received. The current legislation is silent on this and provides for no such requirement though in practice some receivers to date have applied this approach.
Receivers liable to Capital Goods scheme claw back: In the instance where the property sold by the receiver is deemed to be exempt and, as such, results in a CGS claw back adjustment then Revenue’s view was that the receiver is liable for any claw back adjustment due. Current legislation does not support this and therefore changes are to be introduced to cement Revenue’s view. This may sound straightforward yet one of the key stumbling blocks in the sale of commercial property has been this claw back adjustment and the fact that it is not reflective of the current value of the property but rather is determined by the value of the property on acquisition, which in the boom days would have been considerably higher. In some cases this value resulted in a high VAT value which can often result in the potential claw back amount being in excess of the current value. Shifting the onus of responsibility for VAT onto the receiver appears to be on the face of things the logical approach yet from my involvement in advising a number of receivers the key difficulty for them is obtaining the VAT history of the property(ies) concerned from the borrower and therefore the receiver is expected to apply the law yet is, in most cases, not in possession of the facts.
CGS and mortgages in possession: In dealing with a number of receivers the stumbling block in many appointments is the lack of information they have for the property concerned. To counter this problem changes are to be introduced that cover the provision of this information by the owner/borrower to the receiver and include the provision by the owner of their Capital Goods record in order that the receiver can be treated as the Capital Good owner. Further provisions are to be put in place to cover the situation where a receiver’s appointment is ended and where possession of the property reverts back to the owner. Here there will be a requirement for the receiver to provide the owner with the updated Capital Goods record; a handing back of the baton! Also the new legislation will cover CGS adjustments covering an interval in which the the receiver is appointed/mortgagee went into possession and which allows for both an apportionment of the claw back between the two parties and, where there is a CGS increase in deductible VAT through a change to taxable use of a property, for a additional payment of VAT from Revenue.
If the above changes were not enough there is also a positive development in respect of Sales between connected parties as the new legislation clears up the confusion where the purchaser “steps into the shoes” of the vendor. The new legislation looks to simplify the application of the CGS by restricting it to the VAT deducted by the vendor on the acquisition/development of the property. The sale of the property will also be deemed not to be a supply for VAT purposes which creates a problem in itself with regard to the right to a deduction of any VAT incurred by the vendor on the related sale costs. This is clearly an anomaly and where would we be without these!
Overall the changes have to be welcomed though it is clear that they bring with them a more demanding compliance burden for those involved. Whether this improves matters remains to be seen.
The VAT Practice works with a number of accounting practices and receivers in assisting them in determining the VAT treatment of the sale, CGS requirements, contractual obligations to manage the sale of the property and in meeting the overall compliance and reporting requirements. We provide this service under a very competitive fixed fee arrangement. For more information on our services or to discuss a particular query then please contact Nick Ryan, 0238838181 or

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