Special Committee Value-Added Tax (Amendment) Bill, 1977 debate -
Thursday, 26 Oct 1978

SECTION 8.

Mr. Colley

I move amendment No. 17:

In page 10, to delete lines 24 to 28, and to substitute the following:

(4) The amount on which tax is chargeable in relation to a supply of goods referred to in paragraph (d) (ii), (e) or (f) of section 3 (1) or a supply of services by virtue of regulations made for the purposes of section 5 (3) shall be the cost, excluding tax, of the goods to the person supplying the goods or the cost, excluding tax, of supplying the services, as the case may be.

The purpose of this amendment is twofold. First, it makes it clear that the references to cost are to the cost exclusive of VAT. Second, it segregates the reference to the supply of services which may be made taxable by regulations under section 5 (3). This latter step is desirable because of the standby nature of the provisions of that sub-section.

Mr. P. Barry

Is this a tightening amendment on the section?

Mr. Colley

In the first place it is making it clear that the references to cost are to the cost inclusive of VAT. Secondly, it is segregating the reference to supply of services which may be made taxable by regulations under section 5 (3). Those services which might be made taxable under regulations are in the nature of a stand-by provision and it is desirable that we should segregate them from the other kinds of services or taxable activities which may be made taxable by way of regulations. It is really a drafting device more than anything else.

Mr. McCreevy

In my experience the biggest difficulty arises in the trading of vehicles against other vehicles. Perhaps the Minister would clarify the position. For example, in the case of a trade-in of one truck against another, how will the VAT be worked out?

Mr. Colley

The statutory provision is that only the cash adjustment at the time of trade-in is liable for tax. If somebody buys a vehicle for £4,000 and is allowed £3,000 trade-in, leaving a cash payment of £1,000, only the £1,000 is liable to VAT at that point. When the garage re-sells the trade-in vehicle, it is liable in the normal way on the sale. Tax is only payable on the cash payment at the point of the initial transaction. In the case of commercial vehicles where the purchaser is entitled to a tax credit, the garage might issue a tax invoice showing the price of the new vehicle and the VAT on the new vehicle. VAT is payable however, only on the cash adjustment of £1,000 and relief is allowable only for tax on £1,000, not on £4,000. This has caused some difficulty and the motor trade have had discussions with the Revenue Commissioners about it. They agreed it is incorrect and that it is not to anybody's advantage to invoice the gross amount.

Mr. McCreevy

I am sure that in the past three years many people inadvertently have claimed too much credit in these cases

Mr. Colley

In some instances the position becomes confused by the intervention of a hire purchase or a finance company where there may have been adjustments of figures for reasons that have nothing to do with VAT. The Revenue Commissioners have talked to the finance houses' association to make it quite clear to their members not to put in the gross amount in respect of a transaction when VAT is not payable on that amount.

Dr. Woods

Value-added tax is not chargeable on second-hand cars. If one trades in a car or a lorry against a new one, the VAT is on the cash difference. There may be a discount for a new car against an old one. Could there not be an inflated price in relation to the second-hand car?

Mr. P. Barry

The second-hand car may be over-priced.

Mr. McCreevy

Commercial vehicles such as lorries and vans have given rise to a lot of difficulties. People have claimed on the purchase price, getting a discount from the hire purchase company who show the figure again. This gives an inflated price Then the purchaser claims on the hire purchase charges. It should be made clear by the Revenue Commissioners that VAT is chargeable only on the adjustment.

Mr. Colley

The Revenue Commissioners have taken steps and have spoken to the traders involved and to their association to ensure that this will be done This is the sort of thing that would not lend itself easily to legislation. It is a matter of co-operation more than anything else.

Dr. Woods

I understand there is an EEC proposal—it is still only a proposal—dealing specifically with art objects and used goods. Is that taken into consideration here?

Mr. Colley

No.

Amendment agreed to.

Mr. Colley

I move amendment No. 18:

In page 10, line 46, to delete " and ".

Amendment agreed to.

Mr. Colley

I move amendment No. 19:

In page 10, between lines 49 and 50, to insert the following:

"(d) supplies deemed, pursuant to subsection (3) or (4) of section 3, to be made to and by the persons therein mentioned.".

Amendment agreed to.

Mr. Colley

I move amendment No. 20:

In page 11, lines 36 and 37, to delete " or rendered ".

This amendment deletes the term " rendered " which was inadvertently retained in the definition of " open market price " contained in this section.

Amendment agreed to.

Question proposed: "That section 8, as amended, stand part of the Bill"

Mr. P. Barry

This introduces VAT on goods that are regarded as having been acquired in exchange for trading stamps.

Mr. Colley

It determines the method of valuation of these goods. Where goods are received in exchange for trading stamps, the consideration is being disregarded except to the extent that it exceeds the amount stated. Such transactions are liable to VAT but this clarifies the manner in which the goods are to be valued for the purpose of VAT.

Mr. P. Barry

Does it not go a step further? Up to now, VAT was charged on goods given in exchange for Green Shield stamps. Are such goods to be charged at their retail price?

Mr. Colley

Most Green Shield transactions are liable to VAT not by reference to the purchase of the goods but by reference to the supply of the goods though at the purchase price. In other words, they do not pay VAT on stocks. The company acquire stocks tax free and are liable for tax on goods supplied in exchange for stamps at the time of such supply and by reference to cost price.

Mr. P. Barry

It appears they would be liable for more tax now.

Mr. Colley

The supply of trading stamps is an exempt activity and therefore, the stamp company would not be entitled to tax relief on purchases related to that supply, for example, the printing of the stamps; and there would also be a certain amount of office equipment, stationery and so on related to the activity. Under the new proposal they will get relief on those purchases and that will go a long way towards balancing the increase in tax on the goods given away. I should add that the change being made is being done to comply with the directive.

Mr. Horgan

I am broadly in favour of the change being made but I am intrigued to know how the Commissioners will arrive at this " reasonable " addition to the cost to the company concerned, given the fact that many of the goods supplied in exchange for trading stamps are the kind in which there is a very substantial variation in retail prices, particularly electrical goods and so on. Many cut-price high-turnover establishments sell very much more cheaply on a retail basis than more orthodox employers and I am intrigued to know how the " reasonableness " criteria will be arrived at, if there is not a standard retail price for the goods in question.

Mr. Colley

In talking to the trading stamp company the Revenue Commissioners will have to have regard to the kind of back-up services they give in comparison with other traders selling similar kinds of goods. That service or lack of it would be one criterion. While it seems to be a difficult question, in practice no great difficulties are anticipated.

Mr. P. Barry

How will the GAA stamp scheme in Cork be affected?

Mr. Colley

The main activity here is an exchange for cash. A person buys the stamps and brings them back not to the GAA but to the trader who acts as an agent for the GAA for the purpose of redemption for cash. Redeeming stamps or anything else for cash is not an activity liable to VAT. On the understanding of the Revenue Commissioners of the Cork scheme there will not be any VAT implications. Of course, the trader is liable for tax on the goods with which the stamps were supplied in the first instance. I understand also that if a person collects stamps to the value of £4 and, having encashed the stamps, decides to apply the receipts to the purchase of further goods he will receive goods to the value of £5 from the trader, the extra £1 coming as a cash bonus from the GAA. In that case the trader would be liable for tax on the sale of the goods. He has now sold £5 worth of goods and there is nothing unusual about it. The consideration is made up of £4 worth of stamps from the customer and £1 cash which he gets from the GAA. He has still sold £5 worth of goods and he is liable for the sale of £5.

Mr. P. Barry

If he had exchanged those stamps for cash, there would not be a VAT liability?

Mr. Colley

No VAT liability but, of course, the original goods were liable to tax in the first instance.

Mr. Horgan

If he took the £4 cash into a shop and bought £4 worth of goods, VAT would be liable on those goods?

Mr. Colley

If he brought in the stamps and simply took the £4 cash there would not be any VAT because no further goods are passing at that stage. It is only if he takes up the option to use the stamps to acquire more goods and to acquire a bonus for additional goods that VAT becomes liable.

Mr. P. Barry

The issuing company—the GAA in this case—are liable for VAT on the cost of the stamps, the office equipment and so on?

Mr. Colley

Yes.

Mr. P. Barry

I think you said that the tax liability in the case of the other company, the Green Shield Company, would be relieved?

Mr. Colley

Yes. There seems to be increased activity in the area of redeeming for cash. The intention would be that in so far as either company are redeeming for cash, relief will continue not to be allowed in respect of inputs and to that extent the two companies would be treated in the same way.

Mr. P. Barry

Unless the redemption for cash represents a higher proportion of their trading in one case than in another.

Mr. Colley

Yes, but the Revenue Commissioners would understand it as being that the GAA do not redeem for goods, that the arrangement whereby they reimburse a trader is not a redemption by them of stamps for goods. Therefore, they would continue to stay outside the VAT system. I should point out that the Minister for Industry, Commerce and Energy will shortly introduce legislation dealing with stamp trading which may have the effect of increasing the incidence of redeeming stamps for cash rather than for goods.

Mr. P. Barry

What would be desirable. Can the Minister give an indication that the GAA in Cork will not be worse off as a result of this provision?

Mr. Colley

If the scheme operated by the GAA is, as we understand it to be, from their point of view entirely one of redeeming stamps for cash, then no liability for VAT will arise.

Mr. P. Barry

Will the fact that they are not a trading company as such have any bearing on it?

Mr. Colley

No.

Mr. P. Barry

Even though they are a sporting organisation, they could not be treated separately?

Mr. Colley

Of course they would not be entitled to relief if they are not liable.

Mr. P. Barry

They will be liable for their inputs, which they were not up to now.

Mr. Colley

They were liable. Under the present system, the GAA, like any other unregistered person, bear tax on any purchases whether they happen to be for their sporting activities or this activity. They will have borne tax on the printing of advertising literature, the printing of the stamps, the cost of office equipment and so on. That position will continue under these proposals.

Mr. P. Barry

Do they get no relief from being a sporting organisation rather than a profit-making industry?

Mr. Colley

That does not arise in the case of VAT.

Mr. McCreevy

Does relief for traded-in goods apply only where they are secondhand, and what relief is being referred to?

Mr. Colley

It is an amendment which is required technically to comply with the directive but in practice it will not make any difference. It could make a difference only where new goods are being traded against new goods and it can be visualised that that would be an unusual situation.

Question put and agreed to.