Qualified Accountants Dublin

On 5^th August 2022 the Irish Revenue Commissioners issued a new Tax and Duty Manual Part 04-06-03, which provides guidance on the tax deductibility of Digital Services Taxes (DSTs).

For full information, please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-06-03.pdf

The guidance provides that certain Digital Services Taxes (DSTs) incurred wholly and exclusively for the purposes of a trade (taxable under Case I and Case II Schedule D) are deductible in calculating the income of that trade for the purposes of computing Irish corporation tax.

The Revenue’s position is that Digital Services Taxes are a turnover tax.

They are levied on revenues associated with the provision of digital services and advertising and not on the profits.

The guidance provides that, in circumstances where the following DSTs have been incurred wholly and exclusively for the purposes of a trade, the Irish Revenue Commissioners will accept that they are deductible expenses in calculating the income of that trade:

• France’s Digital Services Tax;
• Italy’s Digital Services Tax;
• Turkey’s Digital Services Tax;
• United Kingdom’s Digital Services Tax; and
• India’s Equalisation Levy.

The Guidance material doesn’t distinguish between the two forms of equalisation levy under the Indian regime. At this time there is no clear guidance available however, it would be expected that that since both types of levy are so similar that both should be covered. If this situation applies to you, it is advisable to contact the Irish Revenue Commissioners to seek clarification via MyEnquiries.

This Guidance should be interpreted as an initial list.  According to The Revenue Commissioners “The list of DSTs above may be updated as required.”

The VAT reclaim provisions contained in s74(4) VATCA 2010 have been abolished with effect from 1st January 2022.

From 1^st January 2022, a key change in the Finance Bill 2021 has been introduced in relation to the VAT treatment of cancellation fees, including non-refundable or forfeited deposits, retained by business in the event of a customer cancellation.

Cancellation fees including forfeited deposits would be liable to VAT on the basis that they are either (a) a payment for a vatable service or (b) a right to access a vatable service. This is especially relevant to businesses in the tourism industry including hotels and restaurants.

In this amendment, it would appear that the Irish Revenue Commissioners are applying the CJEU judgements in:

1. Air France–KLM C-250/14 and Hop!–Brit Air SAS C-289/14 and
2. MEO C-295/17 and Vodafone Portugal C-43/19

They also appear to be following HMRC’s lead, which, with effect from March 2019, changed its legislation stating that VAT would remain due on retained payments for unused services and uncollected goods.

Prior to 1st January 2022 the Irish Revenue Commissioners had taken the view that if the supplier received a deposit from a customer that the deposit should be treated as an advance payment and VAT would be due when the deposit is received.  If, however, the supply didn’t proceed then the vendor/supplier could claim a repayment of the VAT on the deposit.  This was on the basis that the receipt of the deposit was not considered to be VATable because no supply of service had taken place.  In other words, prior to the amendment in the Finance Act 2021, if the actual supply didn’t proceed, the supplier or vendor could still claim a refund of VAT which it previously accounted for on receipt of the non-refundable deposit.

Pre 1st January 2022, a number of conditions were needed to apply:

1. the supply didn’t take place because the customer has cancelled it.
2. the cancellation was correctly recorded in the books and records of the supplier.
3. the deposit was not refunded to the customer.
4. the customer wasn’t given any other consideration, benefit or supply in lieu of that amount.

The Finance Act 2021 change has deleted from our legislation the previous entitlement of suppliers to reclaim a refund of VAT in respect of the non-refundable deposit, however, it does not affect the VAT treatment of deposits that are refunded to customers.  The VAT relief should still be available on those deposits.

For further information, please click: https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/vat/vat-guidance-notes-fa2021.pdf