Amendment No. 50 is consequential on amendment No. 3. Amendments Nos. 18, 19 and 39 are related, and therefore amendments Nos. 3, 18, 19, 30 and 50 may be discussed together.
SECTION 4.
I move amendment No. 3:
In page 4, to delete lines 46 to 50, and to substitute the following:
" public.',
(c) by the insertion of the following subsection:
‘ (1B) The provision of electricity, gas and any form of power, heat, refrigeration or ventilation shall be deemed, for the purposes of this Act, to be a supply of goods and not a supply of services.', and
(d) by the substitution for subsection (3) of the following subsection:
‘ (3) (a) The supply by auction of goods being—
(i) livestock, horses, greyhounds, vegetables, fruit, flowers, poultry, eggs or fish, or
(ii) immovable goods supplied in circumstances in which tax is not chargeable, shall be deemed, for the purposes of this Act, to constitute a supply of the goods to and simultaneously by the auctioneer.
(b) The supply through an estate agent or other agent of—
(i) livestock, horses or greyhounds, or
(ii) immovable goods supplied in circumstances in which tax is not chargeable, shall be deemed, for the purposes of this Act, to constitute a supply of the goods to and simultaneously by the agent.'.".
If the Committee agree, I propose to give a brief summary of the purpose for which each amendment is designed.
Amendment No. 3 redrafts the reference originally to electricity, gas and so on in paragraph (c) of section 4 so as to ensure that the deeming of such supplies—that is supplies of goods and not services—is fully for the purposes of the VAT Act. It is a technical provision that is needed for VAT which would not necessarily be correct under other law. It is confined solely to VAT.
In adition, the amendment introduces a new paragraph—paragraph (d)—in order to make appropriate provision for application of VAT to cattle marts, auctioneers and estate agent.
Amendment No. 18 is consequential on the insertion of an additional sub-paragraph in subsection (7) of section 8 which is in accordance with amendment No. 19 which I am about to explain.
Amendment No. 19 provides for regulations determining the amount on which tax is chargeable in cases where, under subsection (3) or subsection (4) of section 3 of the VAT Act, which is subject to amendment in the case of subsection (3) by this Bill, goods supplied through agents are in certain circumstances deemed to have been supplied by and simultaneously to the agent. These regulations will provide in general that tax will be chargeable on the selling price increased by any commission or other fee charged to the buyer and that the goods will be deemed to have been supplied to the taxable person at the selling price less any commission or other fee charged to the seller. It is a complicated way of ensuring that tax is payable on fees or commissions and that the tax charged is allowable where that is provided for as a deduction from a person's liability for VAT.
The paragraph proposed to be deleted by amendment No. 39 provides for regulations allowing relief to dealers in livestock. In accordance with amendment No. 3 cattle marts will be fully within the VAT system as also will cattle dealers. In these circumstances the necessity for the regulations no longer exists.
Amendment No. 50 is consequential on amendment No. 3 which substitutes a new subsection (3) in section 3 of the Act. The new terminology is provided for in the new subsection (3) so that the amendment provided for in the Bill as initiated is no longer necessary.
The deletion of " 3(3) " appears to bring in a much broader description of the number of people who will now be liable for VAT. Am I right? Is this to comply with the directive?
It is to comply with the directive but I do not think that it would be correct to say that it introduces a much broader basis. It brings in auctioneers, estate agents and cattle marts. The effect of this is to treat them as dealers and thereby enable them to get a refund of VAT. Without this provision they could not get it. The categories of persons involved, apart from auctioneers, estate agents and cattle marts, do not extend very much more than that.
Marts and certain auctioneers are being treated as if they had bought the goods and sold them. Therefore the VAT that is applicable is the VAT rate for the goods—on livestock it is only 1 per cent. Similarly where an auctioneer is selling VAT-exempt goods, such as secondhand houses, his commission can be exempt. These provisions have been drawn in general terms. As you can see they cover livestock, horses, greyhounds and so on. However, the other items mentioned, vegetables, fruit, flour, poultry, eggs and fish were already treated in this way under the 1972 legislation.
Am I right in understanding that an auctioneer will now not be required to pay VAT on any commission he makes on the sale of a secondhand house?
Yes, if the item in which he is dealing is not subject to VAT, his commission will not be subject to VAT.
On the sale by auction of a £200,000 house, which was built 100 years ago, the auctioneer's commission would be very substantial. Does he not pay any VAT on that, although he will pay income tax?
That would be correct. The principle is that if the goods are not liable to VAT, then the commission is not liable to VAT. Conversely if it is liable to VAT, then the commission is liable. As was pointed out, if this provision of deeming the auctioneer to have bought and sold the goods were not made, his commission would be liable to the rate applicable to the goods, in many cases 10 per cent but under this arrangement it will be 1 per cent.
In the case of taxable goods?
Yes.
Another argument for thresholds.
Do the Revenue Commissioners envisage issuing a schedule explaining the differences to auctioneers because this could lead to a lot of confusion?
Yes, the Revenue Commissioners have spoken to the Auctioneers' Association and there is a draft leaflet of four or five pages being finalised. This will eventually be issued to members, either by the Revenue Commissioners or the Auctioneers' Association. This leaflet covers all the different and complex questions, including the circumstances in which they can sell immovable property on which no tax is payable and their commission is exempt; if they sell new property which is liable to tax they are not deemed to be dealers, which means that the normal position would apply, which is that they would be deemed to have rendered a taxable service and their commission would be liable at 10 per cent.
As regards sales of chattels, there is no sense in deeming the auctioneer to be buying and selling the chattels. This would be a heavy liability on him. There is no deeming done there which means that again the ordinary position would apply. He would be regarded as having rendered a commercial service and his commission would be liable to 10 per cent. The residual items would be the valuation services, management of property, rent collection—which is exempt formally. The others would be taxable services liable at 10 per cent in the normal way.
Surely new houses are not taxable goods.
As regards the VAT content of the price of those houses, there is a special rate of 3 per cent which was worked out to coincide with the turnover tax. Certain items that go into the building of a house were liable to turnover tax and other items were not. The calculation of 3 per cent is the nearest VAT equivalent that can be got to what the tax was under the old system. The position was not changed, but that is a special VAT rate in relation to new houses.
The Minister will agree that there is an anomaly here. There is a tax rate on the new " semi " which most people are buying, in a sense a tax liability, when it is not on the larger houses——
If you put a tax on a secondhand house which has already been liable to VAT or turnover tax, you are taxing it again.
Depending on when it was built.
Yes. I also believe that, apart from that aspect of it, if you do this the net effect would be to push up the price of houses further. That is not the most desirable thing to do. When the turnover tax was operating and VAT was brought in to substitute for it, the object was to maintain the position, as it had been as far as possible. That is what is represented by the present position. The idea of imposing VAT now on secondhand houses would be to introduce a new form of tax which did not apply under turnover tax or VAT in the past.
I was not speaking specifically in terms of applying VAT to the price, as such, of a house but to the commission charged by auctioneers on sales of secondhand houses, which is a different thing.
We are not talking about VAT on the building itself, we are talking about the fees for disposing of that building. The normal auctioneer dealing in housing would auction secondhand houses but he would not be selling new houses. I do not think new houses are sold or bought in that way except very rarely, except when he is acting as agent for the builder.
But he is still an auctioneer.
Are the fees he charges for selling that house, when acting as agent for the builder, chargeable to VAT?
Would the Deputy please repeat his question?
An auctioneer auctions secondhand houses when somebody goes to him. In rare cases—I did not think it is common—a new house is auctioned. I thought that the auctioneer would act as agent for the developer. Are the fees on that transaction chargeable to VAT.
Yes
Then you certainly have an anomaly, as Deputy Horgan says, because you have the case of new houses in respect of which the fees are VAT-taxable and secondhand houses in respect of which they are not.
Is this not based on the principle that VAT is chargeable only when they are VAT chargeable goods, if you like? Is this not the whole point of this amendment, that VAT is chargeable only on the fees if VAT is chargeable on the goods themselves? Therefore, there is no VAT chargeable on the secondhand house in itself and consequently there is no VAT chargeable on the fees which go with that.
The Deputy means on the cost of a secondhand house if it was built since the introduction of turnover tax, in the early sixties. That contains a VAT-taxable charge. In fact, any house built after 1963 contains an element of VAT in its price.
Yes.
If that house is resold by an auctioneer now, it is auctioned, that is done away with, the charge on the fees is done away with?
But, of course, the Deputy will appreciate that stamp duy is payable which is, in general, much more substantial on a secondhand house than on a new one.
I know that but I do not think that makes any difference to the case. A new house also contains VAT on the inputs at 3 per cent. On top of that, if it is sold through an agent one is now dealing with VAT on the agent's fees as part of the cost.
But it would be recoverable by the builder.
Yes, but it is the consumer in both cases. In the case of a secondhand house the consumer is the person who is going to live in it. In the case of a new house again it is the person who is going to live in it. But one has to pay VAT on the auctioneer's fees and the other does not.
The auctioneer would be working for the builder and the builder would be registered. Then he would claim.
The Value-Added Tax Act of 1972 in the whole area of movable and immovable goods, auctioneers fees and so on, was never completely understood. In those areas of value-added tax I do not think the Revenue Commissioners ever pursued people who should have been registered and were not. Am I correct in thinking that this Bill will clear up that loophole. It was a very grey area?
By and large auctioneers were exempt under the 1972 Act and also they did not have to register for VAT. Now some change has to be made and the Bill makes the minimum change.
What will be the situation of the auctioneer who sells a secondhand house other than by auction, again acting as an agent for somebody? Even though the secondhand house itself is not liable for VAT will his commission be taxable?
His commission would normally be taxable, but he is going to be deemed to be a dealer——
He is going to be deemed to be a dealer because the goods are not taxable.
That is right, yes. He will be a dealer and therefore the rate applied will be the rate for the goods. As these goods are exempt so will the commission be exempt. It is very complicated but what it boils down to is this: if there is dealership treatment the rate for the goods applies; if it is a services/commission treatment, the 10 per cent rate for services is charged. What is being given here is whichever is the more favourable. In other words, where dealership would be to the advantage of the auctioneer that is given and, where it would not, the other is applied.
At first when this 10 per cent was introduced on services, marts were particularly disturbed by it. But by being redefined as dealers in articles which were in themselves exempt they come under the 1 per cent which I gather is regarded as being acceptable.
That is right.
The members of the Committee might welcome the four page document of the Revenue Commissioners. It might be no harm to circulate it.
I think it was a four or five page document.
Like Deputy Horgan a point strikes me listening to the debate here on the question of secondhand houses and of commission to the auctioneer. Turnover tax was introduced in 1963. VAT was the follow-up to the turnover tax. Suppose an auctioneer gets an old mansion built years before—the reason I make this point is that it could be taxable twice—on which no tax was ever charged, am I correct in thinking that at present that auctioneer is exempt from VAT? It seems to me there is something there that should be examined.
If an auctioneer is paying VAT on his commission will he, in turn, pass this VAT charge on to the seller of the property? Is that envisaged?
Normally auctioneers are employed by sellers and it is the seller who is liable for their commission, so they would pass this on to the seller.
If that seller happens to be a businessman who is registered he can claim that back?
It depends on whether it is in the course of his business or trade or not.
But in the case of 99 per cent of people who would be engaging an auctioneer—even though they were in business—the business of selling their house would not be in the course of their normal business.
No, but it has been done, I am sure.
I want to revert to the point I was making earlier about which I am still not clear. An auctioneer who is engaged by a builder to sell houses, as an agent, gets exactly the same type of houses to sell secondhand. Let us say both of them are valued at £15,000. That is the price he gets at the auction and that is the price the builder has for selling it. His fees are at 5 per cent, which is £750. On the new house he must charge, on top of that, VAT at 10 per cent, which is another £75. Who pays that?
Nobody, because the builder gets it back from Revenue.
The person going into the house does not have to pay it?
No, he is the builder's customer.
And the builder is exempt?
No, the builder can claim back from Revenue.
It would apply then on a secondhand house?
No, there is no tax on a secondhand house.
Will the Minister have a careful look at the question raised in connection with the stamp duty which has nothing to do with the auctioneer but with the person buying or selling the house? The auctioneer is exempt from tax, is that not right?
The whole question of the liability of auctioneers was gone into at the time of the introduction of VAT. It is extremely complicated, as the Deputy will have gathered, and even other issues in this connection have been raised today. There is the question of the sale of movable goods and the sale of immovable goods and some auctioneers are engaged in both of these fields. We have to consider the effect of imposing VAT liability and where it will end up. Will it end upon the purchaser? Will it increase the price of various goods? In general, it was found in the case of movable goods that it just was not possible to apply VAT. If it was applied in one case and not in another it gave rise to an anomalous situation. What is happening now is that, because under the directive auctioneers and estate agents must be brought into VAT, consideration was given as to how this should be done. What is being done is to disturb the existing situation as little as possible, rather than impose new liabilities for VAT, if that could be avoided. Whatever might be done in the future—it is a very complex issue—I certainly do not propose in this Bill to impose new liabilities for VAT.
Is there a definition of a secondhand house?
There is.
Must it have been lived in? Because if it has not there is an obvious loophole which can be exploited there.
I recall that this was a matter of some importance when we dealt with this first.
A building firm could set up an auctioneering firm and transfer the houses to them.
It is not of terrific importance to builders because whatever VAT they pay they can recover.
Yes, but if they set up an auctioneering firm they would not have to pay any VAT because they could then avoid the auctioneer's fees by saying that they were secondhand houses.
They would still have to pay VAT on the new house but they could recover it, so it is a neutral position from their point of view. Section 4 of the 1972 Act gives the definition of what immovable goods are taxable. The definition of exempt secondhand immovable goods is not given but arises by default, so to speak.
In relation to immovable goods, are sites and developed sites redefined? This is a very technical area.
It is in section 4 of the old Act. We are not changing any of that.
Amendment agreed to.
Question proposed: " That section 4, as amended, stand part of the Bill."
Does section 4 mean that people will now be charged for goods that are called self-delivered, or gifts—the Christmas gift for instance?
Paragraph (b) deals with this. As a consequence of the revised formulation of section 2 (1A) of the 1972 VAT Act it is necessary to deem self-supplies to have been effected for consideration in the course of business. This is done in the first part of the paragraph but the effects are purely formal. The main practical effect of the paragraph will be to relieve from tax, first, gifts of small value made in the course of business and, secondly, industrial samples up to a reasonable quantity irrespective of value. The limit of the value for gifts, which is intended initially to be £10, will now be prescribed by regulations to be made by the Revenue Commissioners. The amendment does not signify a substantial change in practice because under present arrangements relief would be given for industrial samples.
Is there relief for gifts?
For some gifts. Christmas drink is regarded as a discount rather than a gift. If one drinks in a pub for 12 months and then one got one free drink, it was regarded as a discount for one's business. But if the pub gave a bottle of whiskey, not in the course of trade, that would be taxable at present but under the new provisions that would be allowed up to £10.
Take a builder or an accountant who has 100 customers and wants to give each of them a case of wine at Christmas, that would cost more than £10. He is charged for it at £3 per bottle plus 30p VAT on each bottle. Can he reclaim that?
It would not be deductible at present and in future, under these proposals, it would only be deductible up to £10 per customer.
If a man gives something worth £15 to each customer, is he entitled to claim back up to £10?
No.
What if a person buys a lot of these goods and enters them in his VAT purchases book as purchases and does not divide them out like that? He sells so many and gives so many out as gifts. Does that sort of thing not create difficulties in relation to self-deliveries under this section? How is this to be policed?
Presumably he will claim in respect of these. He cannot claim them as sales so he must explain what he is claiming in respect of. I presume he will claim discount on them. Under present law the person is deemed to have delivered them and he will be deemed under the proposals here to have supplied them, but the result will be the same. There will be no charge. He will be liable in each case. If he has claimed relief when he bought them he will then be deemed to have delivered them under present law or to have supplied them under the proposals here. If he did not claim relief on the purchase this provision would not apply. The result is the same. He pays on the purchase and does not claim back or, having claimed back on the purchase, he then becomes liable on giving away the commodity.
In practice it could not be done any other way. The position is that if he gives away the goods he becomes liable for VAT on them.
If they are of more than £10 value, he will be treated as having sold them.
Therefore, he should record them at that stage as deliveries or supplies.
Taxable supplies.
In other words, there is no real change here.
There is no basic change involved.
Question put and agreed to.