The Regulations implemented a number of new measures, namely:

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1 The VAT Package 2010 Changes The European Communities (VAT) Regulations (S.I. No.520 of 2009) amended the Irish VAT Act 1972 and gave effect to significant new EU legislation which took effect from 1 January The Regulations implemented a number of new measures, namely: New place of supply rules for services New VIES reporting requirements A new electronic VAT refund (EVR) system Each one is addressed separately below. New Place of Supply Rules for Services 2010 Changes From 1 January 2010, there are two principal rules for the place of supply of cross border services, depending on whether the recipient is a business or a consumer, i.e. non-business or private individual. Supplies made to a business will be referred to as B2B ( business to business ) supplies and supplies made to consumers will be referred to as B2C ( business to consumer ) supplies. General rules The general rule for the place of supply of a service provided by a supplier in one country to a recipient in another country (i.e. cross-border) is as follows: B2C the place of supply is where the supplier is established This rule means that B2C supplies made by an Irish supplier to a consumer in another EU Member State will be subject to Irish VAT as the place of supply is Ireland (where the supplier is established). Similarly, services provided by EU suppliers to consumers in Ireland will be subject to VAT in the EU Member State that the supplier is established. However, it should be noted that certain services (namely the old Fourth Schedule

2 services) provided by an Irish supplier to consumers outside the EU will not be subject to Irish VAT. B2B supplies the general rule is that the place of supply is the place where the recipient is established and the recipient must account for VAT due on the reversecharge basis. It should be noted that if the business customer has a fixed establishment in a place other than the place where the business is established, the service is supplied where the fixed establishment is located, or if no such fixed establishment, the permanent address or usual place of residence of the business customer. This means that service suppliers established in Ireland must not charge Irish VAT when supplying services to any business customers established outside Ireland. Similarly, businesses in Ireland that receive services from overseas suppliers should not be charged VAT by the overseas supplier, as the Irish recipient will self-account for Irish VAT (unless the services received are treated as VAT exempt in Ireland in which case no obligation to self-account arises). Exceptions to place of supply rules As with most rules in VAT, there are always exceptions to the general rule. There are a number of exceptions to the new general rules for the place of supply of cross border services. If any of the exceptions are not specifically covered by a reverse-charge, then a supplier may be required to register for and account for VAT in the Member State of supply. Even though new rules were introduced from 1 January 2010 for the place of supply of services generally, some of the exceptions outlined below are a continuation of the place of supply rules that were in place pre 1 January 2010 for those specific services and as such may not represent any change in treatment. Services connected with immovable goods Immovable goods generally means land or buildings. Services connected with immovable goods, or the grant of rights to use or occupy such land or buildings, are subject to VAT in the jurisdiction where the immovable goods are located.

3 Services connected with immovable goods include: the services of experts or estate agents, the provision of hotel, guesthouse or similar accommodation, services involving the preparation and co-ordination of construction work (such as architects and on-site supervision). From 1 January 2010 a reverse-charge has been introduced for cross-border B2B supplies of services connected with immovable goods when provided by experts or estate agents. It should be noted that there are no changes to the existing reversecharge arrangements for principal contractors and sub-contractors involved in construction operations to which RCT applies. Passenger transport services The place of supply of B2B and B2C passenger transport services is where the passenger transport takes place. Restaurant and catering services For both B2B and B2C supplies, the place of supply is the Member State where the services are physically carried out. Restaurant and catering services for consumption on board ships, planes, trains travelling within the EU For both B2B and B2C, the place of supply of such services during part of a transport within the EU will be the place of departure, (this mirrors the rule for the place of supply of any goods sold on board). Short-term hiring of a means of transport For both B2B and B2C, the place of supply is where the customer takes physical possession of the means of transport i.e. where the means of transport is actually placed at the disposal of the customer.

4 Some points to note in relation to hiring of a means of transport are: Short-term hire means up to 30 days for cars and vans and up to 90 days for vessels. Long-term hire of a means of transport for B2B and B2C supplies is governed by the general rules outlined above. Short-term car hire can become long term hire in certain circumstances (e.g. where the contract is extended beyond the 30 or 90 day limits) in which case the VAT treatment of the contract will need to be amended. Further changes to the place of supply rules for the hiring of a means of transport will come into effect from 1 January Intermediary services An intermediary is any person who operates to facilitate any transaction or interaction between two other parties. When referring to an intermediary in the context of agency / acting as an agent, an intermediary acts in the name and on behalf of one of the other parties to a transaction. B2C intermediary services - the place of supply of services to consumers by an intermediary acting in the name and on behalf of another person is where the underlying transaction is supplied. B2B intermediary services the place of supply of services provided by an intermediary that acts in the name and on behalf of another person to a taxable person is where the recipient is established, i.e. the B2B general reverse-charge applies. Intra-Community transport of goods The general rule applies for B2B services (i.e. a reverse-charge applies). However, intracommunity transport of goods for consumers (i.e. B2C) will be subject to VAT based on the place of departure of the goods. Cultural, artistic, sporting, scientific, educational and entertainment or similar services The place of supply of such services remains where the services are physically carried out. However please also see below the 2011 changes introduced.

5 Ancillary transport services, valuations / work on movable goods The place of supply of such services for B2B supplies is subject to the general rules and therefore a reverse-charge applies. The place of supply of such services for B2C supplies is where the services are physically carried out. Effective Use and Enjoyment Provisions It should be noted that there are also use and enjoyment provisions, each with their own place of supply rules and consequently such provisions must also be taken into account when determining the place of supply of certain services. New Place of Supply Rules for Services 2011 Changes Article 3 of Directive 2008/8/EC introduces further changes to the place of supply rules for services, following on from the substantial changes introduced in January 2010 (please see above). Since 1 January 2011: The place of supply for B2B admissions to events, seminars etc. is where the event is held. The place of supply of B2C admissions to activities such as fairs, sporting events etc. is where the event takes place. The place of supply of B2B services relating to events etc. will fall under the general B2B rule i.e. taxed where the customer is established. The understanding, at the time of print, is that Revenue intend issuing an information leaflet to give further guidance on how this operates. The leaflet will take account of ongoing discussions at EU level to agree a common interpretation in each Member State to ensure that neither non-taxation nor double taxation arises. For more detail and a full list of all the exceptions, please see Revenue Information leaflet Place of Supply of Services.

6 New VIES Reporting Requirements VIES stands for VAT Information Exchange System. As part of its efforts to monitor the movement of goods throughout the EU the European Commission introduced in 1993 a system of recording such movement. These records enable the authorities in each jurisdiction to monitor the movement of goods into and out of each country within the EU. Suppliers of zero-rated goods to VAT registered customers in other EU Member States must file a VIES statement giving details of the aggregate value of such supplies to each VAT registered customer. From 1 January 2010, all VAT registered traders that make B2B (business to business) supplies of reverse-charge services to customers in other EU Member States are also obliged to file VIES returns, provided the customer is obliged to pay VAT under the reverse-charge in their jurisdiction, i.e. exempt or zero-rated supplies need not be recorded. Frequency of VIES for Goods Since 1 January 2010, where a trader s intra-eu supplies of goods exceeds 100,000 in any of the previous four quarters the trader is obliged to file VIES returns on a monthly basis. This threshold is set to further reduce to 50,000 from 1 January Revenue have indicated that, as a general rule, VIES returns for supplies of goods should be filed monthly, but traders whose intra-eu supplies of goods do not exceed the thresholds outlined above may file VIES returns on a quarterly basis, or annually in certain circumstances. Frequency of VIES for Services Traders generally file quarterly VIES returns, but may file monthly if preferred. Annual returns may be filed in certain circumstances Filing Deadline for VIES VIES returns must be filed by the 23rd day of the month following the period of each return, i.e., whether monthly or quarterly. An agent may file VIES returns on behalf of a taxpayer. VIES may be filed online through ROS.

7 What to Include in VIES Return Among the details which must appear on the VIES return are: the trader s VAT number the VAT numbers of customers in other EU Member States the total value of supplies to each customer during the period Include S or G in the appropriate box to indicate whether the supply related to services or goods As previously mentioned, supplies of services which are exempt from VAT should not be included in the aggregate value of supplies listed in a VIES return. Also, the value of supplies to private consumers (as opposed to businesses) should not be included in VIES returns. New Electronic VAT Refund (EVR) Procedure Background VAT is an indirect tax on consumption. As such, the objective is to tax the expenditure of private persons, and not to generate additional costs for persons in business. Thus, the VATable business person is entitled to claim a refund of any local VAT paid by him on (most) purchases of goods and services used by him for the purpose of his qualifying business activities (i.e. taxable supplies) through his local VAT return. Central to the concept of VAT within the EU is the principle of neutrality. One aspect of neutrality is that the place of purchase of a good or a service by an accountable person should be irrelevant. At present, if the goods/services purchased by an Irish business are subject to VAT in a jurisdiction where the business is not VAT-registered (e.g. France), then the business cannot claim a refund of the French VAT incurred through their Irish VAT return. However, there is a mechanism by which traders registered for VAT may obtain refunds of VAT paid in Member States where they are not established. Accordingly, the neutrality of the VAT system is maintained, as VAT on foreign purchases (subject to certain

8 exceptions) may be reclaimed and therefore does not become a cost to the accountable person. Electronic VAT refunds Special scheme for intra-community refunds of tax Since 1 January 2010, an EU wide mechanism allowing traders to electronically reclaim VAT incurred in other EU Member States was introduced. In Ireland, the filing mechanism is called an Electronic VAT Refund, or EVR. Instead, a trader will file an online VAT reclaim with the Tax Authority in their Member State of establishment, which will then be directed to the Tax Authorities in the Member State from which a refund is sought. Since 1 January 2010, Revenue will no longer accept paper based applications for refunds of foreign VAT. Who can reclaim? A taxable person that is established in (at least) one EU Member State may seek to reclaim VAT incurred in another EU Member State provided they: are not established or otherwise required to be registered for VAT in that other EU Member State, and, they are engaged in transactions that give rise to a right of VAT deduction in that other EU Member State. An EVR will be rejected if an applicant carries on any activity which could make them liable to register for VAT in the Member State from which they are seeking a refund. This would arise because the VAT being reclaimed should actually be claimed through a VAT return in that Member State and not the EVR mechanism, (which is for traders who are not VAT registered in that country). An applicant may seek to reclaim VAT incurred on purchases of goods or services, or on the importation of goods into a Member State, provided that the goods or services are used by the applicant for business purposes. If the goods or services are not fully used for business purposes, then the reclaim should reflect the extent to which they are used for business purposes.

9 If an applicant does not have full VAT recovery entitlement because, for example, they engage in a mix of taxable and VAT exempt supplies, then the amount of VAT refunded by the foreign Tax Authority will be in accordance with the applicant s VAT recovery entitlement in their Member State of establishment. So, if an Irish established applicant has only 60% VAT recovery entitlement in Ireland, they will only be entitled to reclaim 60% of the foreign VAT incurred for business purposes in other Member States. How to claim An applicant must file a foreign VAT reclaim online with the Tax Authority in their Member State of establishment. This means that any Irish applicant must file their overseas VAT reclaims with the Revenue Commissioners through ROS. Timing and frequency of claims Typically, a VAT reclaim must be for a period of not more than 1 calendar year but not less than 3 calendar months. Since 1 January 2010, a claim must be lodged by 30 September in the calendar year following the refund period, e.g. for the calendar year 2009, applications must be filed by 30 September However please note that there is an exceptional/one-off extended deadline in respect of 2009 reclaims in that the filing deadline is 31 March Applicants are allowed to submit a maximum of 5 applications for each Member State in any calendar year, although some Member States may only accept 4. A Member State is required make a decision to approve or reject a VAT reclaim within 4 months, but if a request for further information is made then the time limit is increased to 8 months. How much can be claimed? The total amount of VAT that may be reclaimed must not be less than: 400 where the claim is for a period between 3 months and 1 calendar year. 50 if the claim is for a calendar year (12 months) or the last quarter of the calendar year.

10 Information required to file a reclaim Information required to file an EVR includes the following: Name and full address address Description of business activity for which goods and services are acquired Refund period covered by application Bank account details (including IBAN and BIC codes) Details of each invoice / importation document as follows: Name and address of each supplier VAT number of supplier Prefix of Member State of refund (e.g. Ireland is IE, France is FR etc.) Date and invoice number Invoice value before VAT and VAT amount in currency of refund Member State Amount of VAT charged which is deductible in Member State of refund Nature of the goods and services acquired Process of reviewing reclaims The Irish Revenue will initially review any application made by Irish applicants to overseas Tax Authorities. If Revenue are satisfied with the application they will forward it for processing to the overseas Tax Authorities. However, if Revenue are not satisfied with the claim they will notify the taxpayer electronically of their decision not to forward the claim. This same procedure will apply for claims submitted in other EU Member States, in that the local Tax Authority will review the claim before forwarding it to the relevant Tax Authority in the Member State of refund. Supporting documentation for reclaims The Revenue Commissioners do not require copies of invoices or other documentation to be filed with a reclaim, but may request additional information to be provided at a later date. Regardless of the Irish Revenue s position, other Member States may request copies of invoices or importation documents to be filed as an attachment with the reclaim and other Member States may seek additional documentation from a taxpayer to evidence their entitlement to a reclaim.

11 Currently, the total size of all attachments that may be uploaded onto ROS is 5MB. If the size of attachments exceeds this then only the largest value invoices should be attached. Tax Authorities are entitled to deduct from any VAT repayments being made the cost of any bank charges incurred in making the repayment. Interest on incorrect refunds of VAT If a Tax Authority refunds VAT to a taxpayer on foot of an incorrect application, whether or not the error was intentional, reckless or careless, the VAT amount must be repaid to the Tax Authority and interest may be imposed. A Tax Authority may withhold any further refunds of VAT due to such a taxpayer pending the repayment of incorrectly repaid VAT, up to the amount of VAT that was incorrectly repaid. A Tax Authority must pay interest on amounts of VAT not refunded within the standard 4 month time limit that applies to most claims. VAT & Public Bodies In the past, generally speaking, State bodies, local authorities and bodies governed by enactment, were not considered to be in business and therefore had no entitlement to register for VAT in respect of most activities undertaken. They did, however, have to register for VAT where they received certain services from overseas suppliers, made intra-community acquisitions of goods etc. However, this issue was the subject of an ECJ case (Commission V Ireland C-544/07) the Judgement of which was issued in In the Commission v Ireland case, the EU challenged the Irish VAT treatment of public bodies. The case was taken following a complaint by a private car park operator obliged to charge VAT on car park receipts whilst local authorities were not. The ECJ found in favour of the Commission, meaning that Ireland was held to have failed to correctly implement EU legislation governing the VAT status of public bodies. Consequently, Finance Act 2010 introduced new legislation to address this matter, effective from 1 July Under the legislation a public body will be subject to VAT in respect of any transaction they undertake unless they can demonstrate that:

12 The transaction or activity is being carried out by a public body in its capacity as a public body and in exercise of its statutory powers, and Treating the public body as not subject to VAT does not create, nor is likely to create, a significant distortion of competition. For further commentary on the new measures concerning public bodies, you are referred to Revenue s e-brief No. 56/10. Travel Agents Margin Scheme (TAMS) Finance (No.2) Act 2008 introduced a Travel Agents Margin Scheme (TAMS) which has been in place since 1 January This special scheme applies to businesses (tour operators and travel agents) which buy-in and resell as principal, travel, accommodation and certain other services supplied within the EU. While the scheme does not apply to traditional travel agents where they continue to act exclusively as agent, it is important to note that their commission income from same is now subject to VAT at the standard rate whereas it was previously treated as VAT exempt. As a result, such agents will be entitled to reclaim VAT on their costs, which would have clearly not been the case in the past. The special scheme is essentially a simplification measure which will deem the place of supply of such services to be where the supplier is established. Essentially the main benefit of the scheme is to avoid the need to have multiple VAT registrations in other EU jurisdictions. Supplies of package holidays outside the EU will not fall within the scheme and so suppliers will not be obliged to account for VAT on profits from these sources. VAT will not be payable on the entire consideration received for such services but the profit margin from same. Consequently, the supplier will not be entitled to reclaim VAT on the services bought-in. It will however be entitled to reclaim VAT on its general business overheads such as utilities, rent, stationary etc. For further commentary on the new measures concerning travel agents and tour operators, please see Revenue s Information leaflet (e-brief No. 29/10).

13 Miscellaneous Changes & Developments VAT Consolidation Act 2010 The Value-Added Tax Consolidation Act 2010 was signed into law on Tuesday 23 November The Act is Number 31 of It took effect on 1 November For a link to the new Act, please see Revenue e-brief No. 86/10. This ebrief also contains a Memorandum (Destination Table) showing where in the new Act the corresponding provisions in the VAT Act 1972 (which is now repealed) are reproduced. It also contains comprehensive Notes for Guidance. New Margin Scheme for Motor Vehicles and Agricultural Machinery Since 1 January 2010, the sale of second hand vehicles are subject to the standard margin scheme that also applies to other second hand goods. Under the margin scheme, VAT is due on the profit margin earned by a dealer on the sale of a secondhand car, but with no entitlement to claim input VAT if charged on the purchase of the vehicle. The margin scheme ensures that if a dealer sells a car for less than what they purchased it for then no VAT arises on the sale. Under the old scheme that was previously in place i.e. pre 1 January 2010, a taxable dealer was entitled to reclaim residual VAT included in the price of the car. The concept of residual VAT has now been removed. Certain transitional arrangements (up to 30 June 2010) were put in place to facilitate dealers with the changeover. For further commentary please see Revenue s ebrief No. 91/09. New Reverse Charge Rules VAT & Trading in Greenhouse Gas Emission Allowances in the State There was a change in the VAT treatment of domestic supplies of greenhouse gas emission allowances (sometimes called "carbon credits") which took effect from 8 April From that date, a reverse charge mechanism applies in relation to supplies, within

14 the State, of these allowances. Up to now, the reverse charge mechanism applied to cross-border supplies, but not to domestic supplies. The change implements EU Council Directive 2010/23/EU of 16 March This Directive amends Directive 2006/112/EC on the common system of value-added tax (the "VAT Directive") as regards an optional and temporary application of the reverse charge mechanism in relation to supplies of certain services susceptible to fraud. Greenhouse gas emission allowances, which are the subject of the new legislation, are allowances that are tradable under the EU Emissions Trading Scheme (EU ETS). These have been subject to fraud in other EU countries. The new VAT provision was included in the Finance Act 2010, and is brought into effect by commencement order of the Minister for Finance. Further commentary can be obtained from Revenue s Tax Briefing (Issue 04 April 2010). Scrap Metal The supply of scrap metal within the State will be subject to VAT on the reverse-charge basis, i.e. VAT will be accounted for by the person who deals in or receives scrap metal from other taxable persons. This will take effect from 1 May Where a person who is not operating in a private capacity sells scrap mental to scrap metal dealers, the dealer is obliged to account for relevant VAT liability. An amount equivalent to the VAT liability can simultaneously be deducted by the dealer meaning the transaction will be VAT neutral for the dealer.

15 Finance Act 2011 New Penalties Statutory penalties are now extended to the following: Failure to file VIES returns Failure to create and issue (where required) a Capital Goods Record (a requirement for certain property and leasehold interests held) Failure to notify the Revenue Commissioners that a VAT 13B authorisation should cease Failure to provide certain documentation upon the assignment/surrender of legacy lease New 2010 Revenue Audit Code of Practice A new Revenue Audit Code of Practice became available in November Commentary on the new Code is beyond the scope of this presentation. However a copy of the new Code can be obtained on the Revenue s website (ebrief 81/10). E-Invoicing Directive On 19 July 2010, the Council of the European Union adopted Directive 2010/45/EU amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing. This new proposal aims to increase the use of electronic invoicing and to reduce the associate regulatory burden on business. It simplifies and modernises the VAT invoicing rules and even more, it removes some of the current barriers to e- Invoicing by, for example, treating paper and electronic invoices equally. Member States must implement the Directive by 31 December 2012 and apply the provisions from 1 January 2013 at the latest. It remains to be seen how the Revenue Commissioners will transpose the new rules into your domestic VAT legislation. Validity of invoices governing legislation Historically, there has been no clear guidance to determine whether the validity of an invoice was governed by VAT legislation in the country of the supplier or that of the

16 buyer. This has long been controversial and we believe an ongoing deterrent to the use of e-invoicing for cross border transactions. Whilst the new basic rule is that invoicing (paper or electronic) be governed by the national legislation applying in the Member State in which the supply of goods or services is deemed to be made, an exception to this rule states that the VAT legislation of the country where the supplier is located will in general apply. So for cross border transactions Irish VAT legislation will generally apply where the supplier is located in Ireland. Paper invoices vs. e-invoices An electronic invoice is defined as an invoice that is issued and received in electronic format. Technology Presently, under Irish VAT legislation, invoices must be transmitted using either an electronic data interchange (EDI) system, or an advanced electronic signature (AES). If a system other than EDI or AES is used Revenue must be notified in advance. Post implementation, a company will be able to use any method provided business controls which guarantee the authenticity, integrity and legibility of an invoice are in place (i.e. the requirement to use EDI or AES, or notify Revenue of any alternative method, will be removed). Storage and access to e-invoices The new rules allow Member States to obligate businesses to store invoices in the exact form that they were issued in. Where on-line access to the data has been guaranteed (to suppliers/customers), the new rules also make it mandatory for businesses to give access and downloading rights to the tax authority of the issuer and receiver, (potentially multiple tax authorities where goods and/or services are supplied cross-border out of Ireland).

17 Conclusion The use of electronic invoicing can help businesses reduce costs and be more competitive. It is important to note that e-invoicing applies to both the issuance of invoices by your organisation and to the receipt of invoices. With the implementation of new rules businesses may look again at the potential for savings through the use of e- Invoicing in so far as the issue, receipt and storage of invoices are concerned.