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News & Publications - News Article
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| VAT Treatment of Forfeited Deposits and Cancellation Charges, September 2008 |
On 26 September 2008, following the ECJ ruling in the 'Societe Thermale d'Eugenie-Les-Bains' case (C-277/025), the Irish Revenue Commissioners issued a Notice (eBrief No.49/2008) revising its VAT treatment of forfeited deposits and cancellation charges.
The Notice states that a charge levied by a supplier when a customer makes a cancellation ("cancellation charge") and a supply does not take place, is to be treated as falling outside the scope of VAT by virtue of it being regarded as compensation and not a payment in respect of a taxable supply.
Prior to the ECJ ruling, the Irish Revenue Commissioners treated deposits as prepayments for the supply of the goods or services to which they related, and the supply of those goods or services for a consideration equal to the amount of the prepayment was deemed to have taken place. Accordingly, where such supplies were taxable, tax was charged on the deposit.
Revenue state that the normal statutory period of four years applies to receipt of refund claims which arise as a result of these changes, and where a refundable amount is payable by Revenue, interest calculated from the period to which the claim relates up to the date of the refund will also be paid.
The changes have immediate effect and although they will mainly impact the hotel service sector, they will also affect the supply of other goods and services.
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