The Irish Revenue Commissioners (“Revenue”) have recently updated their guidance material in respect of the operation of the section 56 authorisation regime (the “Guidance”). The section 56 authorisation enables the holder of such to receives supplies of goods and services in Ireland at the 0% rate of VAT (also known as a ‘56B’ authorisation). Broadly, a person is eligible for a section 56 authorisation where at least 75% of their turnover is derived from zero rated intra-Community dispatches, exports of goods or certain supplies of contract work. The updates to the regime were announced in Revenue eBrief 045/22 published on 25 February 2022 and are summarised below.
Application to start-up businesses
As a result of changes to VAT legislation brought about by the Finance Act 2020, a person can only apply for a section 56 authorisation where they can show they qualified for such in the 12 month period prior to making the application. This effectively removed start-up companies from the ambit of the regime.
The Guidance now includes an exception to this requirement for start-up entities meeting certain criteria. Revenue has confirmed that an accountable person not fulfilling the required 12-month trading requirement may apply for an authorisation where each of the following conditions are fulfilled:
- The person can demonstrate that the turnover from zero-rated intra-Community supplies of goods, exports and certain supplies of contract work will exceed 75% of the start-up’s total turnover in the first year of trading;
- The start-up entity is a subsidiary of or is otherwise connected for tax purposes with a company that is in possession of a current section 56 authorisation; and
- The start-up entity satisfies all the other qualifying criteria as set out under Section 56 of the Irish VAT Act.
Renewals of existing authorisations
With respect to renewals of existing section 56 authorisations, the Guidance now confirms that the audited financial statements from an accounting period ending within the 12 months preceding the renewal application may be used to evidence that the 75% test is met.
Interaction with postponed VAT accounting arrangements
The Guidance further provides that the holder of a section 56 authorisation is not permitted to use VAT postponed accounting arrangements with respect to imports of goods. Rather, the section 56 authorisation should be used to import qualifying goods at the zero rate of VAT so that no VAT is accountable.
Cancellation of an authorisation
Finally, the Guidance provides that Revenue may cancel an authorisation held by an accountable person in instances where:
- The authorised person no longer qualifies for the authorisation;
- The information provided in the context of the authorisation application proves to be materially false, incorrect or misleading; and
- The authorised person no longer complies with the designated ‘Post authorisation obligations’ (ie, obligations to comply with tax laws and to keep certain records).
Where Revenue chooses to cancel an authorisation, a formal notice in writing setting out the grounds for such cancellation shall issue to the accountable person. Revenue have also expressly set out in the updated Guidance that it can request a specified list of documentation or proofs from an accountable person where it has doubts or concerns regarding the continued entitlement to a section 56 authorisation.
If you would like to discuss how to ensure your business can navigate the changes that will arise from these updates, or indeed discuss any other matters, please contact Matthew Broadstock or your usual Matheson contact.