TSG Paper – Valued Added Tax - Budget 2020

On Wednesday 18 July 2019 the Department of Finance published the Tax Strategy Group Papers for Budget 2020. There were 12 papers in total, with one paper focussed on Value Added Tax (VAT), and another on Brexit Preparedness – Taxation and Customs.

We have set out below some key highlights from the papers.

VAT

Consideration is being given to the following:

• Reform of VAT rates in terms of increasing or decreasing VAT rates, moving zero rated items to higher rates, composite VAT rates and streamlining VAT rates.
• Reducing the VAT administration on small businesses by increasing the current cash receipts basis threshold of €2m turnover and also increasing VAT registration thresholds.
• Whether all food supplements should attract the same VAT rate or whether supplements such as sports supplements, slimming aids etc. should attract a different VAT rate. This follows the postponement from the initial plan to apply the 23% VAT rate to most food supplements from 1^st March 2019 and the subsequent public consultation.

Recent VAT Developments at EU Level

• Modernisation of VAT on e-commerce – changes the place of taxation of cross-border B2C supplies to the Member State of the consumer from 2022, abolishing the €22 exemption from third country imports and makes online platforms liable for VAT due on third country imports made through their portals.
• VAT on e-Publications - This proposal provided the option for Member States to apply a reduced VAT rate to all publications (regardless of whether supplied in printed form or electronically) and also provides the option to align the VAT treatment of printed and electronically supplied publications.
• Generalised Reverse Charge Mechanism – This proposal provides that a generalised reverse charge mechanism would be made available to Member States experiencing massive carousel fraud on all invoices of €17,500. Supplies below €17,500 would be subject to VAT as normal.
• Simplification for SME’s – This proposal includes the opening up of the VAT registration exemption for SME’s to all EU eligible businesses, establishing a new maximum level and transitional period for national exemption thresholds and the introduction of simplified VAT obligations for both exempt and non-exempt SME’s in the area of registration, VAT numbers and VAT returns.
• Reform of VAT rating – This was proposed in light of the move to the destination system whereby the VAT is charged in the Member State of consumption as it minimised VAT rate competition. The proposal set out that Member States must apply a standard rate of 15% or more and will have the option of applying 2 reduced rated of 5% or more.
• Definitive VAT system for cross border trade – Provides detailed technical measures for the operation of the definitive B2B system which is due to be implemented by 2022. The proposal changes the place of supply of B2B cross-border goods to the Member State of the consumer. The change will also apply to some B2B services.
• Payment Service Providers – proposals were published to try to reduce the problem of e-commerce fraud by strengthening the cooperation between tax authorities and payment service providers.
• Quick fixes – The four areas of change relate to VAT identification numbers, chain transactions, call-off stock and proof of intra-community supply. The addition of cost sharing to this list is under examination.

Brexit VAT considerations

• Postponed Accounting - The Government approved the introduction of postponed accounting (importers will not pay VAT on import instead the importer will account for the import VAT on their bi-monthly VAT return) for VAT purposes in the event of a disorderly withdrawal of the UK from the EU, in order to mitigate against cash flow issues which would arise. It will initially be introduced for all traders however at a future date certain criteria will be introduced for continued authorisation.
• VAT56 Authorisation – The amendment makes participation in the scheme subject to a number of conditions, including complying with customs legislation and tax rules. It also gives power to Revenue to cancel the authorisation where there are reasonable grounds to do so and to provide for a penalty for failure to adhere to conditions of the scheme.
• VAT Retail Export Scheme – Proposed changes to the minimum value for qualifying goods is being introduced in order for a refund to apply and a new requirement of proof of importation and payment of goods is required for applicants from the UK however these changes are dependent on the UK policy on their similar scheme.

The full text of the TSG Papers can be found here:

TSG 08/19 VAT: https://assets.gov.ie/19123/083625ae43d948c88917c749a2ff6b57.pdf   

TSG 10/19 Brexit Preparedness – Taxation and Customs: https://assets.gov.ie/19137/0495a3c5cf114c489e27c5f52ad7bf66.pdf