Special Committee Value-Added Tax (Amendment) Bill, 1977 debate

Mr. Colley

I move amendment No. 4.

In page 5, line 7, after " drink " to insert ", of a kind specified in paragraph (xii) of the Second Schedule,".

This amendment is designed to ensure that the supply of drink in certain circumstances, for example, by way of vending machines or in restaurants, which is deemed under present law to be the provision of a service and liable therefore at the 10 per cent rate, shall be so deemed in respct only of a zero-rated drink. Drink which is not zero-rated is liable at the 10 per cent rate in any case but if the supply of such drink were deemed to be a service it would have the effect of having a lower categories of traders. The present registration limit for small traders supplying services is £300 per taxable period which, in accordance with amendment No. 13, would be £500.

Mr. McCreevy

What the Minister is getting at is that in a pub the registration limit, which is now £12,000 per annum, is being increased to £18,000. If vending machines were to be regarded as supplying services there would be an exemption limit only of £3,000 per annum.

Mr. Colley

Yes.

Mr. McCreevy

It would be unfair to put into a different category for the purposes of VAT drink which is dispensed by vending machines compared with drink sold across the counter in a pub. I take it that the purpose of the amendment is to overcome such anomaly.

Mr. Colley

Yes.

Mr. Colley

I move amendment No. 5.

In page 5, to delete lines 21 to 41 and to substitute the following:

" (3) Any of the following shall, if so provided by regulations, and in accordance therewith, be deemed, for the purposes of this Act, to be a supply of services by a person for consideration in the course or furtherance of his business—

(a) the use of goods forming part of the assets of his business for purposes other than those of his business,

(b) the supply by him of services for his own private or personal use and the supply by him of services free of charge for the private or personal use of his staff or for any purposes other than those of his business,

(c) the supply of goods for his own private or personal use or that of his staff, for the supply of which he provides materials or facilities or towards the cost of which he contributes in whole or in part,

(d) the supply by him of services, other than those referred to in the preceding paragraphs of this subsection, for the purposes of his business except where tax on such services, if it were chargeable, would be wholly deductible under section 12.".

This amendment redrafts paragraph 3 of the revised section 5 of the VAT Act which is being inserted by section 5 of this Bill. The amendment contains two substantive changes. First, it makes clear that implementing regulations under the proposed paragraph are not obligatory and, secondly, it widens the scope of the paragraph by enabling regulations to be made, if necessary, not only in relation to self-services rendered by taxable persons but by any person engaged in business.

In relation to the treatment of services supplied within a business or supplied free of charge or at a reduced charge to others it is important that any right of action should not be confined to taxable persons. The purpose of the provision is to prevent competitive distortion. This could arise from the actions of a non-taxable person such as a banker or an insurance company as much as from the actions of a taxable person. We are trying to keep them on the same basis of treatment.

Mr. P. Barry

Can the Minister give an example?

Mr. Colley

When I give this example I am not referring to any specific insurance company. If, say, an insurance company wished to equip their premises with furniture and if they were to make that furniture themselves or have it made the furniture could be free of VAT in the normal way because of the company being exempt, whereas if they bought the furniture they would have to pay VAT on it. The effect of this provision is that in such circumstances they would be liable for VAT. This is to put them in the same position as the ordinary person who is not liable in the normal way for VAT in the course of business.

Dr. Woods

Presumably if they were registered for VAT the position has been that they could claim VAT on inputs to their business.

Mr. Colley

Yes, but if the inputs were part of the normal business they would not be exempt from VAT if the company were liable for VAT.

Mr. P. Barry

That provision will be difficult to oversee.

Mr. Colley

I can see difficulties in it. One would have to be aware of the transaction in the first place. Perhaps we could take it that if the transaction were of any substantial size people in the business of supplying furniture would become aware of it very quickly and would be likely, by way of complaint, to make the Revenue Commissioners aware of it too.

Mr. P. Barry

That would be a most undesirable way for the Revenue Commissioners to get information.

Mr. McCreevy

But they accept information received in this way.

Mr. P. Barry

We should not leave the matter like this.

Mr. McCreevy

I agree.

Mr. P. Barry

We must not encourage snooping.

Mr. Colley

I would not regard it in that light. If a furniture manufacturer discovered that, say, a banker or an insurance company were engaging in a device the effect of which was not only to deprive the Revenue Commissioners of VAT but to deprive furniture manufacturers of trade, which would be the prime concern presumably of the complainant, the complaint would be justified within the terms of his business. It would be unfair competition.

Mr. P. Barry

But the company would pay VAT on the materials used to have the furniture made up.

Mr. Colley

That would be the case because they would not be in the VAT system.

Mr. P. Barry

They would have had to pay the supplier of the materials a price that would include VAT.

Mr. Colley

That is correct.

Mr. P. Barry

The Minister is distinguishing between VAT and the value of the furniture.

Mr. Colley

That is correct.

Mr. McCreevy

Let us take the example of a man in business on a very small scale but who is registered for VAT. Under the existing legislation he can claim back on goods bought by him for the purpose of his business, although they may be fixed assets. If such a person decided to build shelves for his shop rather than to buy them from a furniture manufacturer, will he be deemed to be supplying the service of furniture manufacturer and be caught? My reading of the section is that it could possibly be construed in that way. I hope the Revenue Commissioners do not start doing that.

Mr. Colley

If he is registered it would not make any difference.

Mr. P. Barry

The Deputy is talking about someone who is not registered.

Mr. Colley

If he is registered, whatever VAT he would become liable for he could claim.

Mr. McCreevy

But if he is not registered?

Mr. Colley

If he is not registered he comes within the terms of this section.

Mr. McCreevy

I think so.

Mr. Colley

If he is not registered he would be in the same position as you and I in purchasing. We would have to purchase from a firm and pay VAT.

Mr. McCreevy

Will he have to pay VAT on the items he made himself? Will he be deemed to be supplying a service for his use?

Mr. Colley

This gets back to what we were talking about earlier. In Deputy McCreevy's example, by definition, the person mentioned is a small shopkeeper who is not registered and who puts up his own shelves. It is true that under this provision, theoretically because he is in business, he would be liable for VAT on the labour involved; He would have already paid VAT on the material. In practice the Revenue Commissioners would never hear about this. If it is a substantial matter the Revenue Commissioners would be likely to hear of it but they would never hear the type of case Deputy McCreevy is talking about.

Mr. P. Barry

That is probably true, but it is a sound basis for legislation?

Dr. Woods

The Minister made the case that it is a means of preventing anomalies which have been identified in the system. I presume we are not going to make everything perfect at this stage.

Mr. Colley

That is true. We have to strike a balance and have regard to what happens in practice. In practice, it may be taken that the Revenue Commissioners would not be pursuing small traders—they have to be small if they are not registered. This would be covered in the more substantial case referred to earlier.

Mr. McCreevy

I cannot understand subparagraphs (b) and (c). Maybe I am missing the point and perhaps someone could enlighten me. I would like to get some person in mind and find out what is the thinking behind these subparagraphs. If I had an idea of the kind of people who could be caught under (b) and (c) I might understand. Under the income tax code (b) and (c) are benefit-in-kind legislation where the employer provides services for his staff but I cannot see how this can apply to VAT legislation. Is it an extension of the benefit-in-kind legislation that is in the Income Tax Acts?

Mr. Colley

In one sense we could say it is analogous but it is primarily designed to prevent a loophole in the VAT system being operated.

The directive requires us to do this kind of thing. It will however be interpreted by the Revenue Commissioners and as you will see there are regulations to cover it. I will give an example: a laundry could be providing a service by doing the private laundry of the members of the staff or the owners. Such laundering should come within the charge to VAT.

Special Committee Value-Added Tax (Amendment) Bill, 1977 debate - Thursday, 19 Oct 1978

SECTION 5

Special Committee Value-Added Tax (Amendment) Bill, 1977 debate -
Thursday, 19 Oct 1978