Transfer of Business
- What the law says
- What are transfers of business assets qualifying for the relief?
- Circumstances in which the relief applies in relation to goods
- Circumstances in which the relief extends to services
- Publican’s licence - concession
- Transfer of an interest in a partnership or co-ownership
- Transfer of a business to a non-established person
- Milk Quotas
- Transfers of property as part of a transfer of business or part thereof
- Credit Notes issued after a transfer of business
- Costs incurred fulfilling outstanding obligations, e.g. warranties after a transfer of business
- Bad debts determined after a transfer of business
- VAT Credit in relation to services supplied
- Private or non-business use of property acquired under the transfer of business relief
- Further Information
1.1 The Value Added Tax Consolidation Act 2010 (the VAT Act) provides that a transfer of ownership of goods, being the transfer to an accountable person of a totality of the assets or part thereof, of a business, even if that business or part thereof had ceased trading, where those transferred assets constitute an undertaking or part of an undertaking capable of being operated on an independent basis, is deemed not to be a supply for VAT purposes. Similar provisions apply as regards the transfer of goodwill or other intangible assets between accountable persons.
1.2 These provisions are important trade facilitation measures aimed at reducing compliance costs for traders involved in this type of transaction. However, traders are advised that when they are involved in a transfer of this type, particularly as an acquirer of a totality of assets or part thereof of a business which might constitute an undertaking or part thereof capable of being operated on an independent basis, they should, in cases of doubt, check with their local Revenue District office before paying any VAT invoiced by the vendor in such circumstances. Where such a transfer is involved it is important to note that any VAT paid by a purchaser to a vendor in error will not be deductible as no supply is deemed to have taken place.
1.3 This leaflet does not refer to the transfer of a business by means of the transfer of shares in a company. Such a supply is exempt from VAT in accordance with paragraph 6(1) of Schedule 1 to the VAT Consolidation Act.
What the law says
2.1 Sections 20(2)(c) and 26(2) of the VAT Consolidation Act are the main provisions. The corresponding European provisions are Articles 19 and 29 of Council Directive 2006/112/EC (the VAT Directive). Sections 64, of the VAT Act provides for Capital Goods Scheme adjustments. The definitions of Accountable persons and Taxable persons are set out in Section 2(1) of the VAT Act. See also Revenue VAT Guide on Accountable and Taxable persons.
What are transfers of business assets qualifying for the relief?
3.1 VAT law refers to the transfer of a totality of the assets, or part thereof, of a business. Where a business is transferred, the assets that may be transferred can normally be sub-divided as follows:
- plant and machinery
- intellectual property
The classic transfer of a business will include the transfer of all seven. Some businesses may not have some of these items, for example, there may be no plant, machinery or stock where the business is a service business. The Courts have ruled that the relief does not cover the transfer of assets alone, such as the sale of trading stock.
3.2 A totality of the assets or part thereof must constitute an undertaking or part of an undertaking capable of carrying on an independent economic activity. The transfer, in order to qualify for the relief, must be made to another person in circumstances where that other person intends to apply those goods for the purposes of a taxable business.
Circumstances in which the relief applies in relation to goods
4.1 The relief applies where an accountable person transfers a totality of the assets or part thereof of a business to another accountable person where the assets transferred constitute an undertaking or part of an undertaking capable of being operated on an independent basis:
- to carry on the same or a similar taxable business,
- for the purposes of the acquirer’s own taxable business, following the cessation of the transferor’s business or
- to carry on a different taxable business in the premises using the assets acquired.
4.2 The relief applies even if the business or part of the business has ceased trading.
4.3 As stated above, the relief does not apply to the sale of stock-in-trade on its own. Neither do once-off sales of business assets qualify for the special VAT treatment. For example, the sale of an oil tanker by a garage owner who also delivers home heating oil is not a VAT-free supply under Section 20(2)(c). However, the sale of the entire home-heating oil distribution business which also includes an oil tanker would qualify for the relief.
4.4 The absence of any one of the component parts of the business will not automatically preclude the application of the provision to the transaction.
4.5 Where a person acquiring a business or part of a business has applied for but has not yet received a VAT registration number, the vendor should apply the provisions of Section 20(2)(c).
4.6 It should be noted that the term "accountable person" does not include a person registered only for the purposes of accounting for Intra Community Acquisitions or received services.
Circumstances in which the relief extends to services
5.1 Section 26 of the VAT Act provides that the transfer of goodwill or other intangible assets of a business, in connection with the transfer of the business or part thereof, or in connection with the transfer of goods qualifying for the relief :-
- between an accountable person and a taxable person who carries on a business in the State or
- between a person who is not an accountable person and another person,
qualifies for the relief.
The purpose of the provision is to ensure that, where goodwill and intangible assets are transferred as part of the transfer of a business, the total transaction comes within the scope of the relief.
Publican’s licence - concession
6.1 The transfer of a publican’s business with accompanying assets qualifies for the relief. Revenue treat the consideration charged by one accountable person to another for an agreement to extinguish a publican’s licence, even without the accompanying assets being sold, so that a new publican’s licence may be issued to that other accountable person, as coming within the ambit of section 20(2)(c).
Transfer of an interest in a partnership or co-ownership
7.1 Where a taxable activity is carried out by a partnership and a partner sells out his/her interest in the partnership to a new or existing partner, section 20(2)(c) shall be applied to the sale.
7.2 In the case of a taxable co-ownership, Revenue regards the sale by a co-owner of his/her interest in a co-ownership as the transfer of a business to which section 20(2)(c) applies.
Transfer of a business to a non-established person
8.1 The transfer of a business to a person who is not registered or entitled to register for VAT in the State is not covered by the relief. The transfer of the goods out of the State may benefit from the EU intra-Community supply or export provisions while the transfer of rights to intellectual property may qualify for zero rating under Schedule 2 to the VAT Act. The sale of debtors is not classified as a Schedule 2 Service. It is open to the customer to apply for a refund of VAT under the provisions of the 2008/9/EEC and 13th VAT Directives.
9.1 A transfer of a milk quota between farmers, whether they are registered for VAT or not, does not give rise to a VAT liability in accordance with section 20(2)(c) . The transfer of business rules apply even where the business has ceased trading.
Transfers of property as a transfer of business or part thereof
When considering whether the transfer of a property as part of the transfer of a business qualifies for the relief, traders should bear in mind that the rules on property transactions changed with effect from 1 July, 2008 and these are set out in detail in the Guide to VAT on Property. Where the transfer, meaning the sale of a freehold or freehold equivalent of property, is subject to VAT and the transferee is an accountable person and the property forms part of an amalgam of assets forming an undertaking capable of being operated on an independent basis, the relief at Section 20(2)(c) may apply.
10.2 Capital Goods Scheme (CGS) and transfer of a business (Section 64)
Where the transfer of a property in the course of a transfer of a business qualifies for the relief, there are special rules within the CGS to deal with such transactions. There are basically two main rules dealing with the transferee to enable him or her to operate the scheme. One applies where the transfer occurs during the period when the sale of the property would have been taxable but for the transfer of business relief (i.e. while the property was considered "new"). The second rule applies when the transfer of the property occurs outside this period i.e. when, if it were supplied other than as part of a transfer of a business, the sale would have been exempt. There are also rules dealing with the transferor and these and further information are set out in the Guide to VAT on Property.
A further scenario may arise, under the provisions of Section 64(10)(d)(ii)(II) where a transfer by means of assignment or surrender of a transitional property on which the transferor had deductibility takes place, which would be taxable but for Transfer of Business relief. Where this arises the transferee steps into the shoes of the transferor and there is no new 20 year life.
10.3 Transfer of property during the period when property is considered "new" (Section 64(10)(a) and (b) )
Where a transfer of a property occurs in the course of a transfer of a business no VAT is charged on the sale of the property to the transferee. If this occurs during the period when a property is considered "new” (i.e. if the property was supplied at the time the transfer takes place it would be inherently taxable) then for CGS purposes:-
- the transferor is treated as having made a taxable supply of the property;
- the transferee is deemed to have been charged the VAT that would have been charged but for the fact that relief for the transfer of business applied. The amount of tax that would have been charged is treated as the ‘total tax incurred’. The transferee must pay to Revenue the difference between this amount and the amount that would have been deductible if this amount of VAT had been charged on the supply of the property.
10.4 Transfer of property during the period when property outside the "new" period (Section 64(10)(c) and (d) )
Where a transfer occurs outside the period where a property is considered "new” (i.e. if the property was sold at the time the transfer takes place it would be exempt from VAT) then the transferee essentially "steps into the shoes" of the transferor. The transferee takes over from the transferor and "inherits” the adjustment period of the property, i.e. if six intervals have elapsed then there will be fourteen intervals remaining in the adjustment period for the transferee. (The VAT life of a property is normally made up of twenty intervals. A Capital Goods Scheme interval is normally twelve months. Please refer to the Guide to VAT on Property
10.5 Interaction of property provisions with Section 56 of the VAT Act
Section 56 provides for the zero-rating of most supplies to exporters who qualify for authorisation under that provision. These supplies would include the sale of property to the exporter and construction services and other services and goods used by an exporter for the purpose of developing his/her business facility. Where, as a result of Section 56 , an exporter has had costs relating to the acquisition or redevelopment of a property zero rated – including refurbishment by the exporter as a tenant – then, for the purposes of the CGS, those inputs are treated as if Section 56 had not applied to them and as if the VAT had been charged at the rates appropriate to the goods or services concerned and fully deducted by the exporter. The exporter therefore has the same responsibility within the CGS in respect of capital goods acquired or developed and zero rated under a Section 56 authorisation as he would if the authorisation had not applied.
10.6 Transfers of let properties
Revenue accept that the concepts of 'undertaking' and 'business' includes the exploitation of tangible and intangible property for the purposes of obtaining income therefrom on a continuing basis and that the transfer of a let property is a transfer capable of qualifying for the relief. The relief only applies when the person acquiring the letting business is an accountable person but not necessarily accountable in respect of the asset being acquired.
Revenue accepts that the relief applies to the transfer of properties that are let or that have been let for a period of time on a continuing basis. Transfer of Business (TOB) does not extend to vacant property that has never been let or partially let. However, the case of a transfer of a property such as a shopping centre or office block where some units are let or have been let on a continuing basis and some are vacant Revenue accepts that TOB relief may apply.
In the case of a portfolio of distinct properties including some that are or have been let on a continuing basis, TOB may apply where the portfolio of properties is being sold in one lot to one purchaser. Where a portfolio of properties is being divided and sold to more than one purchaser, each individual sale will be treated separately in respect of TOB provisions.
11.1 Where a business is transferred in accordance with section 20(2)(c) and the transferee operates the business under a different VAT number, the transferor will normally be required to retain in his/her possession all records for at least six years from the date of the last transaction, unless Revenue notify the person that retention is not required.
Credit Notes issued after a transfer of business
12.1 Where a transferor of a business issues an invoice to a customer and, subsequent to the transfer of the business, the goods are proved to be faulty and returned (or where a discount or rebate is due to the customer against the price originally charged for the goods), then technically speaking, the transferor is obliged to issue a credit note in respect of this transaction in accordance with Sections 39(4) and 67(1)(b) of the VAT Act, together with regulation 20 (S.I. No. 639 of 2010 (PDF, 252KB) ).
12.2 However, on a concessional basis and on condition that the transferor had no tax liabilities outstanding in respect of the business or part thereof which had been transferred in accordance with Section 20(2)(c), Revenue are prepared to allow the transferee, rather than the transferor, to issue a credit note in respect of the transaction in question.
Costs incurred fulfilling outstanding obligations, e.g. warranties after a transfer of business
13.1 Where a transferor of the business supplies goods issued under warranty and, subsequent to the transfer of a business, the customer returns the goods to the transferee for repair/replacement, again technically speaking, the transferee is not entitled to recover VAT incurred on expenditure relating to the fulfillment of the warranty on the basis that this expenditure does not relate to any taxable supplies made by the transferee.
13.2 However, on a concessional basis and on condition that the transferor had no tax liabilities outstanding in respect of the business or part thereof which had been transferred in accordance with Section 20(2)(c), Revenue are be prepared to allow the transferee to claim input credit in respect of expenditure incurred by him/her in relation to the fulfilment of the warranties issued by the transferor.
Bad debts determined after a transfer of business
14.1 Where, as part of the transfer of a business in accordance with Sections 20(2)(c) or 26(2) of the VAT Act, the transferor of the business transfers debts that, subsequent to the transfer, are determined to be bad debts, there is no entitlement to bad debt relief. However, bad debt relief subject to the normal conditions is available in respect of any debts retained by the transferor that are not included in the transfer.
VAT Credit in relation to services supplied
15.1 Section 59(2)(a) of the VAT Act provides that deductibility is allowable in respect of services directly related to the transfer of a business where that transaction would have been taxable but for the operation of Section 20(2)(c).
Private or non-business use of property acquired under the transfer of business relief
16.1 Section 27(2) and Section 44 of the VAT Act provides that where a property on which a credit would have been allowable but for the operation of Section 20(2)(c) is appropriated to private or non-business use, there is a consequent taxable supply of services during a period of 20 years that the property is used for private/exempt purposes. The amount on which VAT is chargeable is arrived at by dividing the cost incurred by the business by 20 and for any private or non-business use of the property during each two monthly taxable period the appropriate portion of one sixth of that amount is taxable.
16.2 Regulation 7 of the VAT Regulations 2010 specifies the method to be used to identify the extent to which the goods are to be used for private or non-business purposes.
Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for your tax affairs. Contact details for all Revenue Districts can be found on the Contact Details Page.
VAT Interpretation Branch,
Indirect Taxes Division,