The High Court ruled that VAT on the sale of a former Fitz-Pack Cartons Limited premises in Ballyhaunis accrued when the sale completed, making the tax a necessary expense of the company’s liquidation.
In a judgment delivered on 21 February 2008, Mr Justice Brian McGovern directed that the VAT liability arose on completion on 5 February 2005. The court said it should be paid from the sale proceeds as an expense in the winding up, ranking ahead of preferential claims under the applicable liquidation priorities.
The company, which was in liquidation, had agreed in October 2003 to sell the Ballyhaunis property for €775,000 plus VAT of €104,625. A €67,500 deposit was held by the company’s solicitors as stakeholder. The company entered examinership in November 2003 and was placed in liquidation by the High Court on 3 February 2004, after the examinership process failed.
The company’s September/October 2003 VAT return declared a net amount payable of €165,786. The liquidator believed that figure included the VAT on the Ballyhaunis sale. Revenue lodged a preferential claim for the unpaid amount. The judgment records that the return’s liability had not been discharged.
The dispute was about when the sale triggered the VAT liability: when the contract was signed in October 2003, as the liquidator argued, or when the sale completed, as Revenue argued. That timing determined whether the VAT ranked as a preferential debt or as a necessary expense of the liquidation.
The judge considered the contract, which required the purchaser to pay the VAT on completion or after receiving an appropriate invoice, whichever was later. He also considered European case law defining a taxable supply by whether the purchaser obtained the right to dispose of property as owner, rather than by the date legal ownership formally transferred.
The court concluded that, although the purchasers had some equitable interest while the sale was pending, they had no right to dispose of the property before completion and payment. The judgment states that the invoice was furnished before completion, though it notes uncertainty about when it was sent. The judge therefore found that the VAT liability arose after liquidation, on completion, and gave directions accordingly.