VAT Snapshot - Q2 2023

In this publication, we include a summary on a recent Irish Tax Appeal Commission case and discuss the potential impact for business importing goods into Ireland where title to the goods is not held at the point of importation.

Further to our Q1 2023 Snapshot, we delve deeper into the debt warehousing scheme and the possibilities available to taxpayers in order to pay the liabilities that are now due to Revenue and some practical points to consider.

We outline the introduction of reporting obligations beginning from 1 October 2023 in relation to the Carbon Border Adjustment Mechanism and the potential impact for impacted business across their Sustainability agendas.

Finally, we cover the upcoming deadline for the renewal of VAT 56 authorisations.

Please do reach out to any of the contacts referenced or your usual EY contacts to discuss any of these items in more detail.

1. Tax Appeal Commission Determination - 71TAC2023 – Risk to recovery of import VAT paid where the importer does not hold title to the goods

Issue

A recent Irish Tax Appeal Commission Determination (71TAC2023) shines the spotlight on the question of whether import VAT can be reclaimed on goods imported into Ireland where the Importer of record is not the actual owner of the goods. This case follows on from Court of Justice of the European Union caselaw in recent years in (DSV Road C-187/14) and (Weindel Logistik Service C-621/19) which has made VAT recovery more challenging in this space.

Relevance

Although this case relates in particular to the auctioneering industry, it is a worthwhile case to note for businesses that may import goods where they do not own the goods and whether this position should be reviewed in light of the below.

The case concerned the importation of goods that had been purchased via an auction. The Appellant was an auctioneering and valuation business and operated under the auctioneer’s margin scheme. The Appellant sought to reclaim import VAT in the amount of €250,904 in respect of a collection imported into Ireland. The Appellant, acting acting as consignee, paid the import VAT at the point of importation albeit it did not hold title to the goods at that time.

The actual owners of the goods had entered into an arrangement with the Appellant whereby the Appellant would provide their services of arranging the transport of goods once imported, to the final customer. In return, the Appellant charged a commission fee for their service. Following the auctioneering of the collection, the Appellant sought to reclaim the VAT paid at importation.

On foot of the issuance of a Verification Check, the Respondent determined there was no right to a deduction of import VAT on two grounds. Firstly, the import VAT was chargeable to the owners of the goods at the time of importation and not the consignee. Secondly, the import VAT was not incurred for the purposes of the Appellants taxable supplies. Despite the Appellant putting forward its case for VAT deduction, the Appeal Commissioner concluded that the goods that were imported which gave rise to the VAT charge were not a cost component of the Appellants taxable service and the Appeal failed. Furthermore, VAT deduction in the specific context of operating the Auctioneer’s Margin Scheme was referenced in disallowing VAT recovery entitlement.

The above case highlights the position regarding the entitlement to reclaim VAT on importation of goods into the EU where the party seeking to reclaim that VAT does not hold beneficial ownership at the time the goods are imported into the EU. This decision may signal a potential stricter approach to come in Ireland following ECJ case law on entitlement to reclaim input VAT where title to the goods is not held.  Such an approach would be concerning for many businesses, in particular toll manufacturers and processors and is an area that businesses should watch closely.

How EY can help

EY specialists can advise taxpayers engaged in managing end-to-end supply chain processes to optimise the VAT recovery position in consideration of relevant case law and practice.

2. Debt Warehousing Scheme – practicalities and options available to companies to settle outstanding VAT liabilities.

Issue

The ‘Debt Warehousing Scheme (“DWS”) was introduced in Ireland to assist taxpayers who found themselves in a difficult financial position due to the effects of the Covid-19 pandemic. The scheme permitted taxpayers to defer the payment of certain taxes (VAT, PAYE, and income tax) without incurring interest until 30 April 2023.

Relevance

With the scheme for deferring taxes now having ended, taxpayers are required to pay tax liabilities owed to Revenue or to enter into a Phased Payment Arrangement (“PPA”) with Revenue to reduce the liability over a certain period of months The liability can either be paid in full in one single payment or a (“PPA”) can be implemented subject to certain conditions. Taxpayers have until 1 May 2024 to agree a phased payment arrangement with Revenue.

The PPA allows taxpayers to pay the tax liability in instalments via ROS with the maximum timeframe permitted increasing from 36 months to 60 months due to the impact of Covid-19.

Completion of documentation via ROS in order to obtain a phased payment arrangement is no longer mandatory. However, Revenue can request from the taxpayer the submission of certain documentation in order to approve a Phased Payment Scheme application.

The number of payment deferrals a taxpayer can request has increased to Six over the lifetime of a phased payment arrangement with the length of any payment break being extended from 6 months to 12 months. The total number of failed payments permitted before a Phased Payment Arrangement will cancel has been increased from three to 10. However, it is important to note that where a payment cancels and the second attempt to collect the payment fails, the Phased Payment Scheme will be cancelled by Revenue.

How EY can help

EY can assist clients to regularise their tax affairs and to liaise with Revenue on applying for a Phased Payment Arrangement and agreeing on the applicable terms.

3. Carbon Border Adjustment Mechanism (“CBAM”) - New reporting requirements from 1 October 2023 on imports of certain carbon intensive goods

Issue

Does your business import carbon intensive goods? To respond to the risk of carbon leakage, the EU is implementing a Carbon Border Adjustment Mechanism (CBAM). 

Relevance

In April 2023, the Council of the EU formally adopted legislation introducing CBAM, as part of a wider range of regulations designed to support the EU’s climate targets. The regulation will impose a tariff on imports of certain carbon-intensive goods based on their ‘embedded emissions’ and origin, to prevent ‘carbon leakage’ – where emission reductions within the EU are offset by increased emissions elsewhere.

Businesses in scope of CBAM are EU based businesses importing ‘covered’ goods from October 2023. The impacted goods are Aluminium, Iron and Steel, Cement, Fertilisers, Electricity and Hydrogen. However, the list of covered goods is expected to expand by 2026, with all goods covered by ETS falling within the scope of CBAM by the end of 2030. Initially, the regulations will take the form of reporting requirements from 1 October 2023 on covered goods however, from January 2026, businesses must purchase and surrender the appropriate amount of CBAM Certificates.

CBAM will have indirect impacts on businesses both in the EU and across the globe, with increased production costs expected to lead to significant downstream effects. Furthermore, CBAM must be considered in operational planning and strategic decision-making going forward.

How EY can help

EY can assist in assessing the impacts of CBAM on your business and the related obligations within the sustainability agenda.

4. Upcoming deadline for renewal of VAT 56 Authorisations

Issue

Do you currently hold a VAT 56 Authorisation? If so, this authorisation may be due for renewal by 31 October 2023.

Relevance

A business from which 75% or more of its turnover derives from the intra-community supply or export of goods from Ireland may apply to obtain or renew a VAT56 authorisation. Such authorisation allows businesses the cash flow benefit of acquiring “qualifying goods and services” (excluding non-deductible items) at the zero rate of VAT.

The application for this authorisation must be submitted through Revenue and is typically granted for a period of between one and three years. It is important to note that the certificate is not automatically renewed by Revenue and upon expiration, VAT should be charged as normal by the taxpayer’s suppliers until the certification has been successfully renewed. It is therefore important to submit the renewal in advance of the deadline to ensure that the new authorisation is in place and that a gap does not arise between the termination and renewal of the authorisations which would necessitate suppliers charging VAT on their invoices.

How EY can help

EY can provide assistance with the renewal process and in liaising with Revenue to make the renewal process as efficient as possible.

EY Indirect Tax Contacts

If you require further information, please call your regular contact in EY or contact any of the following: