The High Court has upheld a Tax Appeals Commissioner’s decision to reduce a €593,979 VAT assessment against Killarney Consortium C to zero, finding that the provision used to calculate the charge unlawfully restricted the right to deduct VAT under EU law.
In a judgment delivered on 20 December 2024, Mr Justice Rory Mulcahy answered “no” to all eight questions of law submitted by the Revenue Commissioners in a case stated. He concluded that the Commissioner had correctly disapplied section 96(12) of the Value Added Tax Consolidation Act 2010. The court did not refer the EU law questions to the Court of Justice of the European Union.
The assessment related to the period from 1 September to 31 December 2017. The Consortium had bought a property in December 2004 intending to develop it and let it. It opted to tax the rental activity and reclaimed €717,750 in VAT on the purchase in 2006. The property was unlet for significant periods. The Consortium paid €41,384 in VAT on rents and reclaimed a further €6,820. It sold the property in September 2017 for €750,000, paying €89,207 VAT on the sale.
Revenue issued the assessment on 22 October 2020. The parties agreed that the €593,979 claimed represented the difference between VAT deducted and VAT paid, as calculated under Irish law. The Consortium argued that requiring it to pay the balance would claw back deductions it had lawfully made while using, or intending to use, the property for taxable activity. Revenue argued that the legislation was within the State’s discretion to set conditions for opting to tax and preserved fair treatment between taxpayers.
The Commissioner had ruled on 5 January 2023 that section 96(12) should be disapplied as incompatible with EU law and reduced the assessment to zero. Revenue then requested the case stated for the High Court’s opinion on the legal issues.
Justice Mulcahy found that the cancellation payment interfered with the Consortium’s right to deduct VAT. He rejected Revenue’s argument that the payment was a permissible restriction on the scope of the option to tax, distinguishing it from the rules that apply after the option has been exercised. He also rejected the argument that the payment was needed to preserve fiscal neutrality. The judgment said deductions could not be limited simply because the VAT paid on outputs was lower than the VAT deducted on inputs.
The court’s ruling addressed the questions of law in the case stated. It did not make a separate order in the judgment beyond answering them; the Commissioner’s determination reducing the assessment to zero was upheld.