Eircom illegally charging VAT on cancellation fee

What goes up

I'm currently going through the process of cancelling my Eircom service. As I am within my 12 month contract I am aware that Eircom will charge me an early termination fee for the remaining months on my contract. That seems far enough, I'm ok with that....

However, when I spoke to their cancellations department today I was shocked to find out that they charge 23% VAT on the cancellation fee. As no good or service is being provided, VAT should not be collected on this amount.

Section 5.4 of the attached Revenue Notice states:

Where a supplier levies a charge on a customer in the event of the customer cancelling an order or
request for a supply of goods or services and the supply does not take place, VAT is not due on the
“cancellation charge” as set out in paragraph 3.2 above.

The Revenue Notice can be found at:

http://www.revenue.ie/en/tax/vat/leaflets/vat-forfeiteddeposits-cancellationcharges.pdf


This means that all of the VAT that Eircom has been collecting on cancellation charges over the years (and from reading this section, it sounds like this is likely a substantial amount) was improperly collected.


I thought this information might be relevant to others that are also going through this process, or have gone through this process in the past.

MadsL

OP - could I ask you to report this to Revenue please as a public service.

EoghanConway

MadsL wrote: »

OP - could I ask you to report this to Revenue please as a public service.

Who said he hasn't done so already? Nice spot OP

abouttobebanned

Well spotted OP. I think they're not the only ones either. I could be wrong but I believe O2 do/have done it too.

What goes up

EoghanConway wrote: »

Who said he hasn't done so already? Nice spot OP

I literally just dug this up about 30 minutes ago. I plan to include this in my cancellation letter to Eircom (informing them that I will NOT be paying the 50E+ in VAT that they told me they were going to charge) and will also send the information to Revenue.

I just feel bad for all of the people that were hit with this addition, unnecessary, tax in the past.

cookie1977

Eircom could owe a lot to those customers. Think of when the banks have had to pay back money to customers for things such as foreign currency over charging etc... Nice find. Will follow and read up on this.

PaulDalyRoI

Interesting..

I wonder will this bit:

and the supply does not take place

give them some wriggle room since they are actually supplying the service... and you are cancelling part way thru the contract period. It's not like you cancelled because (for example) they did not activate the line in time.

Would be interesting to get eircom's view on this... and revenue of course!!

edit -
plus you did sign into a contract and they could easily call the cancellation fee an "breach of contract charge" or something like that...

Sponge Bob

What goes up wrote: »

it sounds like this is likely a substantial amount) was improperly collected.

Eh ....is there any evidence that eircom ever sent this to the Revenue seeing as they obviously didn't have to.

However the individuals who were scammed for VAT when it was not chargeable should all be be refunded in full........after a full Revenue audit.

What goes up

PaulDalyRoI wrote: »

Interesting..

I wonder will this bit:



give them some wriggle room since they are actually supplying the service... and you are cancelling part way thru the contract period. It's not like you cancelled because (for example) they did not activate the line in time.

Would be interesting to get eircom's view on this... and revenue of course!!

edit -
plus you did sign into a contract and they could easily call the cancellation fee an "breach of contract charge" or something like that...

It doesn't make a difference what they call it; VAT is levied on the sale of goods and services. As the Revenue Notice states, the fact that no goods or services are being provided, even where the service is "cancelled by the customer" (Section 1.1(b)), is the determining factor in this matter. It is this lack of service or goods in the transaction that renders the charge "outside the scope of VAT" (Section 3.2).

I happen to be a tax accountant and, while VAT isn't my speciality, I've read enough notices and rulings like this to say that it is pretty clear that Eircom should not be charging VAT on their cancellation charges. The interesting part of this situation will be the stance that Eircom takes on this issue when it is presented to them. Whether they refuse to acknowledge that their policy is wrong, or whether they amend their policy to conform with the law.

cookie1977

How far could this go. In terms of any cancellation fee. Say you were in a 12 month contract and you broke it at 6 months and the network charged you (what they themselves call a cancellation fee) of 6 months. Can they charge vat or would this fall under the same rules?

i71jskz5xu42pb

Sponge Bob wrote: »

Eh ....is there any evidence that eircom ever sent this to the Revenue seeing as they obviously didn't have to.

I'd doubt that Eircom collected the VAT and then did not pass it on. Think of the sums involved here (and 23% of that sum). We're not exactly talking huge money here. You're seeing malice where incompetence would explain it.

So if there is a refund it most likely will come out Government not Eircom coffers.

What goes up

cookie1977 wrote: »

How far could this go. In terms of any cancellation fee. Say you were in a 12 month contract and you broke it at 6 months and the network charged you (what they themselves call a cancellation fee) of 6 months. Can they charge vat or would this fall under the same rules?

They would only be able to collect the amount they are due under the contract. That is, if every month your bill was €25 (€20 service charge and €5 VAT), then they would only be able to collect the €120 (€20/mo x 6 months) they are due under the contract. They should not be collecting the €30 in VAT that would have been on the bill each month, as that VAT liability is contingent on the provision of goods or services (which the Revenue Notice says is not taking place.

Currently, Eircom is charging and collecting the full €150, rather than just the €120 they are allowed by law. Eircom would still be entitled to collect the full amount THEY are due under the contract, but they should not be tacking VAT on top of that amount.

cookie1977

What goes up wrote: »

They would only be able to collect the amount they are due under the contract. That is, if every month your bill was €25 (€20 service charge and €5 VAT), then they would only be able to collect the €120 (€20/mo x 6 months) they are due under the contract. They should not be collecting the €30 in VAT that would have been on the bill each month, as that VAT liability is contingent on the provision of goods or services (which the Revenue Notice says is not taking place.

Currently, Eircom is charging and collecting the full €150, rather than just the €120 they are allowed by law. Eircom would still be entitled to collect the full amount THEY are due under the contract, but they should not be tacking VAT on top of that amount.

Well if all this is true and correct the networks owe a he'll of a lot of money to a lot of people. Have you spoken to revenue about it?

What goes up

Roberto Purring Radiologist wrote: »

I'd doubt that Eircom collected the VAT and then did not pass it on. Think of the sums involved here (and 23% of that sum). We're not exactly talking huge money here. You're seeing malice where incompetence would explain it.

So if there is a refund it most likely will come out Government not Eircom coffers.

Correct, I think it is unlikely that Eircom would not be remitting these amounts to the Government. I see this more as an issue that is hurting the consumer than one that is benefiting the company.

I was thinking through this last night, and the only logical benefit I can see for Eircom in collecting this unnecessary tax is that it inflates the amount of the cancellation fee and, in doing so, might help dissuade some people from cancelling their service.

As for the amount, it's impossible to say how large or small the total might be. By the time you factor in personal and business accounts going back years it could be a fairly sizeable amount. But, at any rate, I would argue that paying an additional 23% of any amount one pays to receive no service is substantial.... or at least it certainly feels that way when you are paying someone NOT to provide you a service.

cookie1977

Any update on this OP. Did eircom withdraw the vat charge?

eircom: Mark

cookie1977 wrote: »

Any update on this OP. Did eircom withdraw the vat charge?

Hi Guys,

Apologies for the delay in getting back to you. We have escalated the issue on the 31/07/12 to have an official response drafted.

We should have a reply by early next week.

Sorry again for the wait.

Mark

cookie1977

Dum de dum de dum de dum

Any news?
I see it's being queried on the O2 forum as well:
http://community.o2online.ie/t5/Billpay/Cancelling-my-contract/td-p/534552/page/2

IE2012

:mad:i have a final eircom bill here and eircom are charging me VAT on the cancellation charge, which is clearly not above board.

i am being charged a cancellation fee for the line, and another one for the broadband! :mad:

and i also have a copy of the cancellation email that i sent , to eircom giving over 30 days notice.

eircom what is the story here?

Shakti

yeah eircom whats the story?

IE2012

eircom, i will be paying my final bill in 1 cent coins once correct bill is issued.

can you please advise what address to send it to?


thanks

Doom

Has anyone talked to revenue about this yet?

IE2012

Doom wrote: »

Has anyone talked to revenue about this yet?

just sent them an email

TheBody

IE2012 wrote: »

just sent them an email

Well done. Let us know if they get back to you.

IE2012

TheBody wrote: »

Well done. Let us know if they get back to you.

will do, just trying to source a load of 1cent coins now.;)

Shakti

theres a decidedly eerie silence from all the providers on this matter,

TheBody

Shakti wrote: »

theres a decidedly eerie silence from all the providers on this matter,

There is. They are cornered and they know it!!

flutered

is there any way one can cancel their eircom service on the grounds that they are extreamly unhappy with the service, funnily today i used two different speed tests, eircoms one read a download speed of 2.60 mps, the indys one read 1.9.

Shakti

so if they have been charging vat on something that apparently shouldn't incur vat how could they then pass that same vat on to the revenue and how could the revenue accept it if they don't require it in the first place? so many questions so little answers, c'mon eircom let's clear this up.

cookie1977

Shakti wrote: »

theres a decidedly eerie silence from all the providers on this matter,

O2 are remaining just as silent on the matter too.

http://community.o2online.ie/t5/Billpay/Cancelling-my-contract/td-p/534552/page/2

IE2012

update, eircom have now written off the cancellation charges on my account,
when i queried the VAT charges on it.

JDxtra

Their systems probably can't handle the charge without applying VAT, hence they had to waive.

There's no point in emailing Revenue - best to send a printed letter.