Value Added Tax.

Section 8(1) Value Added Tax Act, 1972 - Taxable Person.

Conditions to be satisfied by a person engaged in property development in order to be regarded as a taxable person.

Revenue Submissions

A person must satisfy three conditions to establish an entitlement to be treated as a taxable person in respect of property development, namely:

1 a declared intention by the person to develop the property in question, supported by

2 planning permission in respect of that property

and

3 an interest in that property pursuant to Section 4 of Value Added Tax Act, 1972.

The Revenue Commissioners contended that

1 Conditions 2 and 3 above are appropriate objective tests of intention in the light of paragraph 12 of the opinion of the Advocate General and paragraph 25 of the judgment of the European Court of Justice in Rompelman v Minister Van Financien (Case 268/83),

2 Conditions 2 and 3 make clear sense in that they combine two essential elements, namely:

· the identification of the earliest time when development can legally commence

and

· the completion of preparatory acts as evidence of the capacity and commitment of a person to carry out the ultimate supply.

The Revenue Commissioners determined that, as the taxpayer had not complied with conditions 2 and 3, they were entitled to refuse the claim for a refund of Value Added Tax.

Taxpayer’s Submissions

1. By virtue of clear guidance from the European Court of Justice the taxpayer was entitled to register for Value Added Tax and to receive repayments of input tax from its first preparatory act which it had undertaken in pursuit of its genuine intention to bring about a taxable supply.

2. Even if no taxable supplies were ever made by the taxpayer, either by reason of circumstances outside its control or by a voluntary decision made on economic grounds, its right to input tax deduction to that date is not affected.

3. There is no legislative basis that requires that a property developer must have a taxable interest in a property in order to be registered for or to receive a refund of Value Added Tax.

4. There is no legislative basis for a requirement that final planning permission be obtained in order for a taxpayer to be entitled to input deduction. Any such a requirement would be in conflict with the decision of the European Court of Justice in Rompleman: a person is a taxable person if he intends to make taxable supplies and is so from the first transaction in which he engages to fulfil that intention.

5. The question of whether a person is a taxable person or not is a question of fact and cannot be determined by arbitrary criteria laid down by the Revenue Commissioners.

6. Rompelman determined that a taxable person must be granted input deduction at the time specified in Article 17(1) of the Sixth Directive and it follows that the Revenue Commissioners cannot make requirements which inevitably delay the right of deduction until an arbitrary stage in the economic activity, unless they suspect fraud or abuse (Finanzamt Goslar v Breitsohl).

Determination of the Appeal Commissioner

The appropriate test for establishing whether a person is a taxable person is whether that person has established a genuine declared intention to make a taxable supply and whether that intention can be supported by objective evidence (Rompleman, paragraph 24)

A taxable person has the right immediately to deduct the Value Added Tax payable or paid on the investment expenditure incurred for the purposes of the transactions which he intends to carry out and which give rise to the right to deduct, without having to wait for the actual exploitation of his business to begin (Golsar – v – Breitsohl, paragraph 34).

Entitlement to input deduction having been established, such entitlement is retained even if the project does not proceed to the operational stage (Intercommunale voor Zeewaterontzilting v Belgian State and Grundstuckgemeinschaft Schlosstrabe Gbr,).

I agree with the submission by the Taxpayer that there is no legislative basis to the argument that:

· a property developer must have a taxable interest in a property before he can register for Value Added Tax or obtain a refund of Value Added Tax

· a property developer must hold valid planning permission in order for him to be entitled to input deductions.

The taxpayer, having established to my satisfaction that he intended to develop the property in question, is a taxable person from the time of his first preparatory act and is entitled to the input deductions claimed, even if the project does not lead to delivery of a taxable supply

Statutory References

1. Value Added Tax Act, 1972

“Taxable person” – Section 8(1), VATA 1972: “A person who…engages in the supply, within the State, of taxable goods or services in the course or furtherance of business shall…, be a taxable person and shall be accountable for and liable to pay the tax charged in respect of such supply…”

“Supply in relation to goods…means the transfer of ownership of goods by agreement…” (Section 3 (1) VATA, 1972).

“Immovable goods means land” (Section 1, VATA 1972).

Section 4 VATA, 1972, makes special provisions in relation to the supply of immovable goods. Subsection (1)(a) “…applies to immovable goods…which have been developed by or on behalf of the person supplying them, or in respect of which the person supplying them was or would…have been…entitled to claim a deduction under section 12 for any tax borne or paid in relation to a supply or development of them.” Section 4 (2) VATA, 1972 “subject to…[certain other provisions of VATA 1972] …a supply of immovable goods shall be deemed…to have taken place if…a person having an interest in immovable goods…disposes…of that interest or of an interest which derives therefrom”. An interest in relation to immovable goods is defined in Section 4(1)(a) VATA, 1972 : “an estate or interest therein which, when created, was for a period of at least ten years”.

Section 12 VATA, 1972 – deduction for a tax borne or paid.

Subsection (1)(a): “In computing the amount of tax payable by him in respect of a taxable period, a taxable person may, insofar as the goods and services are used by him for the purposes of his taxable supplies or of any of the qualifying activities, deduct…

(i) The tax charged to him during the period by other taxable persons by means of invoices, prepared in the manner prescribed by regulations, in respect of supplies of goods or services to him,”

Section 9(1) VATA, 1972: “The Revenue Commissioners shall set up and maintain a register of persons who may become or who are taxable persons or who are persons who dispose of goods which pursuant to section 3 (7) are deemed to be supplied by a taxable person in the course or furtherance of his business.”

2. Sixth Council Directive of 17 May 1997 [77/388/EEC]

Article 4

“Taxable person shall mean any person who independently carries out in any place any economic activity specified in Paragraph 2 whatever the purpose or results of that activity”.

Article 17(1)

“ The right to deduct shall arise at the time when deductible tax becomes chargeable”.

Cases Cited

Reference was made to the following decisions by the parties:

Rompelman – v - Minister van Financien, 1985, 3 CMLR

202

Tempany – v – Hynes, 1976, IR 101

Intercommunale voor Zeewaterontzilting (Inzo), in

Liquidation – v – Belgian State, 1976, ECR (Case C11 10/94)

Golsar – v – Breitsohl, 2001, STC 355.

Gabalfrisa SL and other cases. C11/98 to C147/98.

Ghent Coal case. C37/95.

In Re Midland Bank case C98/98.

In Grundstuckgemeinschaft Schlosstrable Gbr case

C396/98.