The EU member states have agreed a range of changes to the current VAT rules, known as the VAT Package. This VAT Package will come into effect across the EU on 1 January 2010 and is summarised below. You will need to consider the impact of the new measures for your business.
BY DOROTHY GALLAGHER,
VAT MANAGER,
KPMG, GALWAY
New Filing Requirements
Under the current VAT system, an Irish supplier which is supplying goods to business customers in other EU member states is required to submit a quarterly statement (known as a VIES return ) to the Irish Revenue showing details of the value of goods sold to each EU customer in that period.
This information is shared between member states in order to combat fraud and seek to prevent entities from incorrectly availing of the zero rate.
Under the VAT Package rules effective from January 1 2010, entities will be required to file monthly (rather than quarterly ) VIES returns for goods where the value of a company’s intra-community supplies of goods exceeds €100,000 per quarter. This threshold will fall to €50,000 with effect from January 1 2012.
In addition, traders will have a reporting requirement for certain services for the first time. VIES returns will have to be filed quarterly for services to VAT registered customers in other EU jurisdictions where the customer is liable for the payment of VAT due. Returns will include details of the value of services provided, the name of the customer and their VAT registration number.
This would include cross border inter-group management charges. These changes will impose an additional administrative burden on businesses and will require system changes to ensure that the VIES return can be prepared with effect from January 1 2010.
New “Reverse Charge” Rate for Services
At present Irish entities supplying or receiving certain services e.g. advertising, apply the “reverse charge” procedure. Where such services are received from abroad, an Irish business customer (including the State and Public bodies ) must self-account for VAT at the appropriate rate. The supply of such services from Ireland are not subject to Irish VAT where certain conditions are met.
With effect from January 1 2010, the range of services subject to the “reverse charge” procedure will increase. The treatment of most services will not change but services such as leasing of transport, administration services and warranty repair work will come within the scope of the new rules. The VAT treatment of supplies to private customers will remain unchanged.
Businesses in receipt of services from abroad will need to review whether they will be required to self-account for Irish VAT on services currently not within the “reverse charge” and amend their VAT accounting system accordingly. Similarly, any business charging Irish VAT on services to foreign customers will need to consider whether Irish VAT will be applicable post 1 January 2010.
Foreign VAT Refunds
Under the current cross-border VAT refund procedure, an Irish entity wishing to claim foreign VAT must file a paper VAT refund claim in every member state in which it incurs VAT. The current paper system is burdensome and obtaining VAT refunds in some jurisdictions can be problematic.
The VAT package introduces a new system for cross border VAT refunds. With effect from 1 January 2010 Irish entities will no longer have to file VAT refund claims in each member state where they incur VAT. Instead they will submit their VAT reclaim electronically to the Irish Revenue. The Irish Revenue will review the claim and if satisfied that the reclaim is in order, it will then forward the VAT refund claims electronically to the member states concerned.
Under the new system member states must respond to a VAT refund claim within strict time limits and the failure to meet these time limits will result in interest being paid to the taxpayer. The new system should therefore make it easier for entities to submit cross border VAT refunds and also speed up the time within which they receive the refund claims.
In addition, the deadline for the filing of a VAT refund claim has been extended from June 30 to September 30 in the year following the year in which the VAT was incurred. Therefore a VAT reclaim for 2009 can be submitted up to September 30 2010. Where foreign VAT is recoverable by an Irish entity which does not have full VAT recovery entitlement in Ireland, it will have to restrict its foreign VAT reclaim in line with its domestic VAT recovery rate.
Conclusion
The VAT package contains a mixture of rules, some of which will help simplify business and some which will increase the administrative and compliance burden. As January 1, 2010 is the fixed deadline that has been agreed by all member states, it is important that businesses consider now the impact of the VAT package rules which are fast approaching, particularly in the area of accounting system changes.
