The economic turmoil sparked off by Covid-19 continues to make itself evident. In this issue the Panel addresses a number of issues arising, affecting all firms, in the VAT area; in regard to the impact of the July Stimulus as well as the specific impact in one sector examined this month - asset management.
VAT is a more topical subject on several accounts, not least because of the unusual circumstance of the temporary reduction in the standard VAT rate of 2 per cent by the Government in the July Stimulus measures, a bold move, involving a strong macroeconomic policy choice by the new Government to impart a stimulus to a very wide swathe of the economy in one fell swoop.
Another reason is the completion of Brexit, as, from January 1st next, Ireland’s closest trading partner, the UK, will now be a foreign country, from a VAT perspective.
In this month’s issue, our panel addresses a number of VAT issues. Richard McDaid, Tax Director at Deloitte addresses specifically a number of key VAT issues arising from Brexit for the Irish funds industry. The implications of this, for other financial services and indeed sectors in general will be important as the end year deadline approaches.
For asset managers, he says, management fees from Ireland-domiciled mutual funds will remain to be VAT exempt, non-mutual Irish funds will be VATable and off-shore undertakings VAT-free. That said, Irish funds with portfolios consisting of UK assets and investments should see some VAT deduction benefits once those holdings are reclassified as non-EU and Irish managers may be able to share in any such cost reductions.
He also makes an interesting reference to the legacy the UK will leave behind in Europe. ‘One of the VAT legacies of the UK’s membership of the EU will be the many CJEU decisions that originated in the UK. In particular, a recent decision addressing single supplies of management services delivered by way of a software system in respect of Specialised Investment Funds (SIFs) and non-SIFs is likely to impact the market both before and long after the UK’s departure, in particular where no distinction is made between the services supplied to SIFs and non SIFs’, he says.
Looking specifically at the July Stimulus 2 per cent VAT cut, Ciara McMullin, Tax Director, Deloitte provides a useful checklist (p25) of topics that all finance directors should be considering during the duration of the six month window of opportunity represented by the VAT cut.
“All businesses should also take any necessary steps internally within their systems to account for this temporary rate reduction, in particular from a tax coding, ERP, system capability, VAT compliance and invoicing perspective.
“Personnel within organisations need to be made aware of this temporary reduction in the standard rate of VAT and internal controls and procedures appropriately updated – from the accounts payable and receivable teams to those dealing with orders, IT departments, shared service centres and the wider finance function, legal department, sales and marketing staff", she says.
Elsewhere in this month’s Tax Monitor, the sheer complexity of events and considerations spurred by the combination of the economic turmoil caused by covid and Brexit continue to make themselves evident.
With Budget season now upon us, Ben McDonnell provides an overview of some of the key corporate tax issues to look out for. Stephen Lowry, Senior Tax Manager, Deloitte, examines, under three headings, measures that were clarified by Government in the wake of the July Stimulus as to the workings of Covid tax reliefs, notably in regard to Income Tax Relief for self-employed individuals adversely impacted by Covid-19 restrictions.
Ireland’s economy, and not least the financial services industry is one of the most open and successful in the world, and the question of the location of activities by multinational enterprises, and their staff is of critical importance, particularly in the context of the flexible working arrangements necessitated by Covid-19. In a Special Feature (on p 26), Lisa Mangan, a manager in Corporate Tax at Deloitte Ireland LLP, provides an assessment of the issues.