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Capital goods scheme.
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98.— The Principal Act is amended with effect from 1 July 2008 by inserting the following section after section 12D:
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“12E.— (1) This section applies to capital goods—
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(a) on the supply or development of which tax was chargeable to a taxable person, or
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(b) on the supply of which tax would have been chargeable to a taxable person but for the application of section 3(5)(b)(iii).
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(2) In this section—
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‘ adjustment period ’, in relation to a capital good, means the period encompassing the number of intervals as provided for in subsection (3)(a) during which adjustments of deductions are required to be made in respect of a capital good;
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‘ base tax amount ’, in relation to a capital good, means the amount calculated by dividing the total tax incurred in relation to that capital good by the number of intervals in the adjustment period applicable to that capital good;
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‘ capital goods owner ’ means—
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(a) except where paragraph (b) applies, a taxable person who incurs expenditure on the acquisition or development of a capital good,
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(b) in the case of a taxable person who is a flat-rate farmer, means a taxable person who incurs expenditure to develop or acquire a capital good other than a building or structure designed and used solely for the purposes of a farming business or for fencing, drainage or reclamation of land, and which has actually been put to use in such business;
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‘ deductible supplies or activities ’ has the meaning assigned to it by section 12(4);
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‘ initial interval ’, in relation to a capital good, means a period of 12 months beginning on the date when a capital good is completed or, in the case of a capital good that is supplied following completion, the initial interval for the recipient of that supply is the 12 month period beginning on the date of that supply;
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‘ initial interval proportion of deductible use ’, in relation to a capital good, means the proportion that correctly reflects the extent to which a capital good is used during the initial interval for the purposes of a capital goods owner’s deductible supplies or activities;
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‘ interval ’, in relation to a capital good, means the initial, second or subsequent interval in an adjustment period, whichever is appropriate;
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‘interval deductible amount’, in relation to a capital good in respect of the second and each subsequent interval, means the amount calculated by multiplying the base tax amount in relation to that capital good by the proportion of deductible use for that capital good applicable to the relevant interval;
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‘non-deductible amount’, in relation to a capital good, means the amount which is the difference between the total tax incurred in relation to that capital good and the total reviewed deductible amount in relation to that capital good;
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‘proportion of deductible use’, in relation to a capital good for an interval other than the initial interval, means the proportion that correctly reflects the extent to which a capital good is used during that interval for the purposes of a capital goods owner’s deductible supplies or activities;
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‘reference deduction amount’, in relation to a capital good, means the amount calculated by dividing the total reviewed deductible amount in relation to that capital good by the number of intervals in the adjustment period applicable to that capital good;
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‘ refurbishment ’ means development on a previously completed building, structure or engineering work;
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‘second interval’, in relation to a capital good, means the period beginning on the day following the end of the initial interval in the adjustment period applicable to that capital good and ending on the final day of the accounting year during which the second interval begins;
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‘subsequent interval’, in relation to a capital good, means each accounting year of a capital goods owner in the adjustment period applicable to that capital good, which follows the second interval;
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‘ total reviewed deductible amount ’, in relation to a capital good, means the amount calculated by multiplying the total tax incurred in relation to that capital good by the initial interval proportion of deductible use in relation to that capital good;
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‘ total tax incurred ’, in relation to a capital good, has the meaning assigned to it by subsection (3)(b).
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(3) (a) In relation to a capital good the number of intervals in the adjustment period during which adjustments of deductions are required under this section to be made, is—
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(i) in the case of refurbishment, 10 intervals,
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(ii) in the case of a capital good to which paragraph (c) or (d) of subsection (6) applies, the number of full intervals remaining in the adjustment period applicable to that capital good plus one as required to be calculated in accordance with the formula in subsection (7)(b), and
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(iii) in all other cases, 20 intervals.
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(b) In this section ‘ total tax incurred ’ in relation to a capital good means—
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(i) the amount of tax charged to a capital goods owner in respect of that owner’s acquisition or development of a capital good,
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(ii) in the case of a transferee where a transfer of ownership of a capital good to which section 3(5)(b)(iii) applies—
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(I) where such a transfer would have been a supply but for the application of section 3(5)(b)(iii) and that supply would have been exempt in accordance with section 4B(2), then the total tax incurred that is required to be included in the copy of the capital good record that is required to be furnished by the transferor in accordance with subsection (10), and
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(II) where such a transfer is not one to which clause (I) applies, then the amount of tax that would have been chargeable on that transfer but for the application of sections 3(5)(b)(iii) and 13A,
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and
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(iii) the amount of tax that would have been chargeable, but for the application of section 13A, to a capital goods owner on that owner’s acquisition or development of a capital good.
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(c) Where a capital goods owner acquires a capital good—
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(i) by way of a transfer, being a transfer to which section 3(5)(b)(iii) applies other than a transfer to which subsection (10) applies, on which tax would have been chargeable but for the application of section 3(5)(b)(iii), or
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(ii) on the supply or development of which tax was chargeable in accordance with section 13A,
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then, for the purposes of this section, that capital goods owner is deemed to have claimed a deduction in accordance with section 12 of the tax that would have been chargeable—
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(I) on the transfer of that capital good but for the application of section 3(5)(b)(iii), less any amount accounted for by that owner in respect of that transfer in accordance with subsection (7)(d), and
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(II) on the supply or development of that capital good but for the application of section 13A.
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(d) Where a capital goods owner supplies or transfers by means of a transfer to which section 3(5)(b)(iii) applies a capital good during the adjustment period then the adjustment period for that capital good for that owner shall end on the date of that supply or transfer.
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(4) (a) Where the initial interval proportion of deductible use in relation to a capital good differs from the proportion of the total tax incurred in relation to that capital good which was deductible by that owner in accordance with section 12, then that owner shall, at the end of the initial interval, calculate an amount in accordance with the following formula:
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A — B
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where—
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A is the amount of the total tax incurred in relation to that capital good which was deductible by that owner in accordance with section 12, and
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B is the total reviewed deductible amount in relation to that capital good.
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(b) Where in accordance with paragraph (a)—
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(i) A is greater than B, then the amount calculated in accordance with the formula in paragraph (a) shall be payable by that owner as if it were tax due in accordance with section 19 for the taxable period immediately following the end of the initial interval, or
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(ii) B is greater than A, then that owner is entitled to increase the amount of tax deductible for the purposes of section 12 by the amount calculated in accordance with paragraph (a) for the taxable period immediately following the end of the initial interval.
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(c) Where a capital good is not used during the initial interval then the initial interval proportion of deductible use is the proportion of the total tax incurred that is deductible by the capital goods owner in accordance with section 12.
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(5) (a) (i) Subject to subsection (6)(b), where in respect of an interval, other than the initial interval, the proportion of deductible use for that interval in relation to that capital good differs from the initial interval proportion of deductible use in relation to that capital good, then the capital goods owner shall, at the end of that interval, calculate an amount in accordance with the following formula:
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C — D
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where—
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C is the reference deduction amount in relation to that capital good, and
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D is the interval deductible amount in relation to that capital good.
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(ii) Where in accordance with subparagraph (i)—
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(I) C is greater than D, then the amount calculated in accordance with the formula in subparagraph (i) shall be payable by that owner as if it were tax due in accordance with section 19 for the taxable period immediately following the end of that interval, or
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(II) D is greater than C, then that owner is entitled to increase the amount of tax deductible for the purposes of section 12 by the amount calculated in accordance with the formula in subparagraph (i) for the taxable period immediately following the end of that interval.
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(b) Where for the second or any subsequent interval, a capital good is not used during that interval, the proportion of deductible use in respect of that capital good for that interval shall be the proportion of deductible use for the previous interval.
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(6) (a) (i) Where in respect of a capital good for an interval other than the initial interval the proportion of deductible use expressed as a percentage differs by more than 50 percentage points from the initial interval proportion of deductible use expressed as a percentage, then the capital goods owner shall at the end of that interval calculate an amount in accordance with the following formula:
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(C — D) x N
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where—
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C is the reference deduction amount in relation to that capital good,
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D is the interval deductible amount in relation to that capital good, and
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N is the number of full intervals remaining in the adjustment period at the end of that interval plus one.
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(ii) Where in accordance with subparagraph (i)—
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(I) C is greater than D, then the amount calculated in accordance with the formula in subparagraph (i) shall be payable by that owner as if it were tax due in accordance with section 19 for the taxable period immediately following the end of that interval, or
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(II) D is greater than C, then that owner is entitled to increase the amount of tax deductible for the purposes of section 12 by the amount calculated in accordance with the formula in subparagraph (i) for the taxable period immediately following the end of that interval.
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(iii) The provisions of subparagraph (i) shall not apply to a capital good or part thereof that has been subject to the provisions of paragraphs (c) or (d) during the interval to which subparagraph (i) applies.
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(iv) Where a capital goods owner is obliged to carry out a calculation referred to in subparagraph (i) in respect of a capital good, then, for the purposes of the remaining intervals in the adjustment period, the proportion of deductible use in relation to that capital good for the interval in respect of which the calculation is required to be made shall be treated as if it were the initial interval proportion of deductible use in relation to that capital good and, until a further calculation is required under subparagraph (i), all other definition amounts shall be calculated accordingly.
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(b) Where the provisions of paragraph (a) apply to an interval then the provisions of subsection (5) do not apply to that interval.
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(c) Where a capital goods owner who is a landlord in respect of all or part of a capital good terminates his or her landlord’s option to tax in accordance with section 7A(1) in respect of any letting of that capital good, then—
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(i) that owner is deemed, for the purposes of this section, to have supplied and simultaneously acquired the capital good to which that letting relates,
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(ii) that supply shall be deemed to be a supply on which tax is not chargeable and no option to tax that supply in accordance with section 4B(5) shall be permitted on that supply, and
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(iii) the capital good acquired shall be treated as a capital good for the purposes of this section and the amount calculated in accordance with subsection (7)(b) on that supply shall be treated as the total tax incurred in relation to that capital good.
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(d) Where in respect of a letting of a capital good that is not subject to a landlord’s option to tax in accordance with section 7A(1), a landlord subsequently exercises a landlord’s option to tax in respect of a letting of that capital good, then—
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(i) that landlord is deemed, for the purposes of this section, to have supplied and simultaneously acquired that capital good to which that letting relates,
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(ii) that supply shall be deemed to be a supply on which tax is chargeable, and
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(iii) the capital good acquired shall be treated as a capital good for the purposes of this section, and—
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(I) the amount calculated in accordance with subsection (7)(a) shall be treated as the total tax incurred in relation to that capital good, and
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(II) the total tax incurred shall be deemed to have been deducted in accordance with section 12 at the time of that supply.
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(7) (a) Where a capital goods owner supplies a capital good or transfers a capital good, being a transfer to which section 3(5)(b)(iii) applies, other than a transfer to which subsection (10) applies, during the adjustment period in relation to that capital good, and where—
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(i) tax is chargeable on that supply, or tax would have been chargeable on that transfer but for the application of section 3(5)(b)(iii), and
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(ii) the non-deductible amount in relation to that capital good for that owner is greater than zero or in the case of a supply or transfer during the initial interval, that owner was not entitled to deduct all of the total tax incurred in accordance with section 12,
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then that owner is entitled to increase the amount of tax deductible by that owner for the purposes of section 12 for the taxable period in which the supply or transfer occurs, by an amount calculated in accordance with the following formula:
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E x N
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T
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where—
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E is the non-deductible amount in relation to that capital good, or in the case of a supply before the end of the initial interval the amount of the total tax incurred in relation to that capital good which was not deductible by that owner in accordance with section 12,
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N is the number of full intervals remaining in the adjustment period in relation to that capital good at the time of supply plus one, and
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T is the total number of intervals in the adjustment period in relation to that capital good.
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(b) Where a capital goods owner supplies a capital good during the adjustment period applicable to that capital good and where tax is not chargeable on the supply and where either—
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(i) the total reviewed deductible amount in relation to that capital good is greater than zero, or
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(ii) in the case of a supply before the end of the initial interval where the amount of the total tax incurred in relation to that capital good which was deductible by that owner in accordance with section 12 is greater than zero,
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then that owner shall calculate an amount which shall be payable as if it were tax due in accordance with section 19 for the taxable period in which the supply occurs in accordance with the following formula:
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B x N
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T
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where—
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B is the total reviewed deductible amount in relation to that capital good, or, in the case of a supply to which subparagraph (ii) applies, the amount of the total tax incurred in relation to that capital good which that owner claimed as a deduction in accordance with section 12,
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N is the number of full intervals remaining in the adjustment period in relation to that capital good at the time of supply plus one, and
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T is the total number of intervals in the adjustment period in relation to that capital good.
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(c) Where a capital goods owner supplies or transfers, being a transfer to which section 3(5)(b)(iii) applies, part of a capital good during the adjustment period, then for the remainder of the adjustment period applicable to that capital good—
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(i) the total tax incurred,
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(ii) the total reviewed deductible amount, and
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(iii) all other definition amounts,
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in relation to the remainder of that capital good for that owner shall be adjusted accordingly on a fair and reasonable basis.
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(d) Where a transfer of ownership of a capital good occurs, being a transfer to which section 3(5)(b)(iii) applies, but excluding a transfer to which subsection (10) applies, and where the transferee would not have been entitled to deduct all of the tax that would have been chargeable on that transfer but for the application of section 3(5)(b)(iii), then that transferee shall calculate an amount as follows:
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F — G
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where—
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F is the amount of tax that would have been chargeable but for the application of section 3(5)(b)(iii), and
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G is the amount of that tax that would have been deductible in accordance with section 12 by that transferee if section 3(5)(b)(iii) had not applied to that transfer,
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and that amount shall be payable by that transferee as if it were tax due in accordance with section 19 for the taxable period in which the transfer occurs and for the purposes of this section that amount shall be deemed to be the amount of the total tax incurred in relation to that capital good that the transferee was not entitled to deduct in accordance with section 12.
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(8) (a) Where a tenant who has an interest other than a freehold equivalent interest in immovable goods is the capital goods owner in respect of a refurbishment carried out on those immovable goods, assigns or surrenders that interest, then that tenant shall calculate an amount in respect of that capital good which is that refurbishment in accordance with the formula in subsection (7)(b), and that amount shall be payable by that tenant as if it were tax due in accordance with section 19 for the taxable period in which the assignment or surrender occurs.
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(b) Paragraph (a) shall not apply where—
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(i) the total reviewed deductible amount in relation to that capital good is equal to the total tax incurred in relation to that capital good, or in relation to an assignment or surrender that occurs prior to the end of the initial interval in relation to that capital good the tenant was entitled to deduct all of the total tax incurred in accordance with section 12 in relation to that capital good,
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(ii) the tenant enters into a written agreement with the person to whom the interest is assigned or surrendered, to the effect that that person shall be responsible for all obligations under this section in relation to the capital good referred to in paragraph (a) from the date of the assignment or surrender of the interest referred to in paragraph (a), as if—
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(I) the total tax incurred and the amount deducted by that tenant in relation to that capital good were the total tax incurred and the amount deducted by the person to whom the interest is assigned or surrendered, and
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(II) any adjustments required to be made under this section by the tenant were made,
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and
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(iii) the tenant issues a copy of the capital good record in respect of the capital good referred to in paragraph (a) to the person to whom the interest is being assigned or surrendered.
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(c) Where paragraph (b) applies the person to whom the interest is assigned or surrendered shall be responsible for the obligations referred to in paragraph (b)(ii) and shall use the information in the copy of the capital good record issued by the tenant in accordance with paragraph (b)(iii) for the purposes of calculating any tax chargeable or deductible in accordance with this section in respect of that capital good by that person from the date of the assignment or surrender of the interest referred to in paragraph (a).
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(d) Where the capital good is one to which subsection (11) applies paragraphs (a), (b) and (c) shall not apply.
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(9) Where a capital goods owner—
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(a) supplies a capital good during the adjustment period applicable to that capital good, and where tax is chargeable on that supply, or
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(b) transfers, other than a transfer to which subsection (10) applies, a capital good during the adjustment period applicable to that capital good and tax would have been chargeable on that transfer but for the application of section 3(5)(b)(iii),
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and where, at the time of that supply or transfer, that owner and the person to whom the capital good is supplied or transferred are connected within the meaning of section 7A, and where—
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(i) the amount of tax chargeable on the supply of that capital good,
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(ii) the amount of tax that would have been chargeable on the transfer of that capital good but for the application of section 3(5)(b)(iii), or
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(iii) the amount of tax that would have been chargeable on the supply but for the application of section 13A,
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is less than the amount, hereafter referred to as the “adjustment amount”, calculated in accordance with the following formula:
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H x N
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T
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where—
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H is the total tax incurred in relation to that capital good for the capital goods owner making the supply or transfer,
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N is the number of full intervals remaining in the adjustment period in relation to that capital good plus one, and
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T is the total number of intervals in the adjustment period in relation to that capital good,
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then, that owner shall calculate an amount, which shall be payable by that owner as if it were tax due in accordance with section 19 for the taxable period in which the supply or transfer occurs, in accordance with the following formula:
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I — J
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where—
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I is the adjustment amount, and
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J is the amount of tax chargeable on the supply of that capital good, or the amount of tax that would have been chargeable on the transfer of that capital good but for the application of section 3(5)(b)(iii), or the amount of tax that would have been chargeable on the supply but for the application of section 13A.
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(10) Where a capital goods owner transfers a capital good, being a transfer to which section 3(5)(b)(iii) applies and that transfer would have been a supply but for the application of section 3(5)(b)(iii), and where such supply would be exempt in accordance with section 4B(2) then—
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(a) the transferor shall issue a copy of the capital good record to the transferee,
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(b) the transferee shall be the successor to the capital goods owner transferring the capital good and shall be responsible for all obligations of that owner under this section from the date of the transfer of that capital good, as if—
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(i) the total tax incurred and the amount deducted by the transferor in relation to that capital good were the total tax incurred and the amount deducted by the transferee, and
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(ii) any adjustments required to be made under this section by the transferor were made,
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and
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(c) that transferee as successor shall use the information in the copy of the capital good record issued by the transferor in accordance with paragraph (a) for the purposes of calculating tax chargeable or deductible by that successor in accordance with this section for the remainder of the adjustment period applicable to that capital good from the date of transfer of that capital good.
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(11) If a capital good is destroyed during the adjustment period in relation to that capital good, then no further adjustment under this section shall be made by the capital goods owner in respect of any remaining intervals in the adjustment period in relation to that capital good.
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(12) A capital goods owner shall create and maintain a record (in this section referred to as a ‘capital good record’) in respect of each capital good and that record shall contain sufficient information to determine any adjustments in respect of that capital good required in accordance with this section.
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(13) The Revenue Commissioners may make regulations necessary for the purposes of the operation of this section, in particular in relation to the duration of a subsequent interval where the accounting year of a capital goods owner changes.”.
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