With effect from 1 January 2010, new EU-wide VAT rules will apply in Ireland which will impact on businesses and how they account for VAT. The changes are extensive and require a business to prepare for the new rules. Internal systems and procedures should be put in place or updated so to avoid any potential VAT costs (will include penalties and interest) associated with incorrectly accounting for VAT and/ or for failure to file the necessary returns with Revenue. As part of the new rules, three areas will be affected in particular:

• Place of Supply of Services Rules
  From 1 January 2010, the general rule will be that where services are supplied to business customers within the EU (“B2B”), VAT be accounted for in the location where the business receiving the service is established.

  So where an Irish business supplies services to a business customer in another EU Member State, the Irish business will not, in most cases, charge VAT. Instead, the business customer in the other EU Member State will self account for the VAT arising on the supply (i.e. charge themselves VAT) in their own VAT return (called the “reverse charge” basis). Similarly, an Irish business customer receiving services from a supplier in another EU Member State will be obliged, in most cases, to self-account for the VAT on the supply. 
   
  The rules are quite detailed and a number of exceptions (relating to property/ transport etc) to the “general rule” also need to be considered. 

  These new rules will impact all businesses engaged in cross border supplies of services. In future, rather than paying over VAT and reclaiming VAT, the customer self accounts for the VAT arising on the supply. Businesses need to be careful to ensure that they only pay VAT when it is properly chargeable. In addition, existing IT systems, procedures and training needs to be reviewed and updated (where necessary) as a matter of priority to ensure the correct VAT treatment is being applied.

  The rule regarding supplies to non-business customers remains unchanged for whom VAT will continue to apply where the service provider is located.

• VIES Returns
  At the moment, VIES (VAT Information Exchange System) returns are only required for supplies of goods within the EU. However, from 1 January next, all Irish service providers must submit a VIES statement for all supplies to customers registered for VAT in other EU Member States where the B2B rules outlined above apply. This is a new anti -fraud measure, which applies across the EU, and no threshold amount for filing returns applies in relation to services (there are certain thresholds in the case of EU supplies of goods). 

  If a business has not previously completed VIES returns it must register with Revenue in advance of 1 January 2010. All businesses which are required to submit VIES returns in respect of goods and/or services must do so electronically and within specified time limits to avoid the imposition of penalties and interest. 

• Foreign VAT Refunds
  Because of the application of the new rules to B2B supplies, there should be a reduced need to make a foreign VAT refund claims (referred to as 8th Directive refund) for VAT suffered on business in other EU Member States. Nonetheless, a simplified refund procedure will apply from 1 January 2010. Under the new rules, a refund claim is made to the Irish Revenue by filing an electronic tax return. The Irish Revenue will, in turn verify the claim and forward it to the tax authorities of the Member State in which the VAT was incurred in order for the refund to be processed. The time limit for making such refund claims has also been extended and interest will be imposed on foreign Member States for late refunds. This change should be welcome for Irish businesses that carry on taxable activities in other EU Member States as the current refund process is widely regarded as being a slow and costly administrative burden.

Irish legislation is being finalised to introduce the new rules into Irish law before 1 January 2010 and we expect to see these rules in next Finance Act usually published in December. Given the wide reaching effect of the new rules and the 1 January deadline is fast approaching, businesses need to act now to prepare themselves for the new VAT changes.