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Indirect Tax Update for week ending 15 February 2017
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ITU 05/2017
1.
© 2017 Grant
Thornton UK LLP. All rights reserved. ITU Summary This week’s headline is the judgment of the Court of Justice in the case involving the British Film Institute (BFI) and whether the showing of films by a non- profit-making body was a cultural service for UK VAT purposes. The CJEU has confirmed that the EU VAT law on cultural services is not directly effective and that, as a result, Member States can select which cultural services benefit from VAT exemption and which are to be taxed. The UK’s Court of Appeal has also issued a judgment this week in the Associated Newspapers VAT & vouchers case. Finally, the Court of Justice has also issued a judgment in a Portuguese case relating to the imposition of VAT in Spain on intra-community transfers of goods between Portugal and Spain. 17 February 2017 British Film Institute The VAT Directive provides that the supply of certain cultural services should benefit from VAT exemption if they are supplied by either bodies governed by public law or by other cultural bodies recognised by Member States. The British Film Institute (BFI) is a UK non-profit-making body which is established to promote films and cinema generally. It charges entrance fees for admission to the showing of films and HMRC considers that VAT is due at the standard rate on that income. BFI argued that, as a non-profit-making body, this income should benefit from the VAT exemption provided for in the EU VAT Directive. HMRC did not accept that the showing of films was a cultural service that should so benefit and BFI appealed. BFI won its case at both the First-tier Tribunal and at the Upper Tribunal but HMRC appealed to the Court of Appeal. As the question to be answered involved interpretation of the VAT Directive, the Court of Appeal referred the matter to the Court of Justice for guidance on the meaning of the term ‘certain cultural services’. BFI argued that the word ‘certain’ contained in that phrase really meant ‘those’. In essence, it contended that, as a non-profit-making body (which was not in dispute), if the word ‘those’ was substituted for ‘certain’, its service of admission to films should qualify for exemption. It argued that the provisions of the Directive were unconditional and sufficiently precise meaning that the Directive had direct effect and could be relied upon in preference to UK VAT law. Unfortunately, the CJEU stated in its judgment that the word ‘certain’ gave Member States a margin of discretion as to which services it should recognise as being cultural and which were not. This discretion meant that EU VAT law was not unconditional and sufficiently precise and was not, therefore, directly effective. HMRC has the right under EU law to determine which cultural services benefit from exemption from VAT and which cultural services should be taxed. BFI could not rely on the principal of direct effect. Comment – as BFI had won its appeals at the First-tier and Upper Tribunals, this judgment from the CJEU will come as a major blow. It will also disappoint all of the other UK cultural bodies that had claims for overpaid VAT stood over behind the BFI case. The judgment makes it clear that the Directive gives Member States discretion to apply VAT exemptions. As such, the provision of the Directive exempting ‘certain’ cultural services does not have direct effect. Issue05/2017 VAT & Cultural Services – BFI loses at CJEU Indirect Tax Update
2.
© 2017 Grant
Thornton UK LLP. All rights reserved. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. grant-thornton.co.uk GRT100456 VAT & Vouchers – Associated Newspapers Ltd Court of Appeal This is another complicated case dealing with the thorny issue of VAT & vouchers. The taxpayer was Associated Newspapers Ltd (ANL) – publishers of the Daily Mail and the Mail on Sunday. It organised a business promotion scheme whereby it sought to boost the circulation of its newspapers by enticing would-be customers with the offer of free vouchers if they purchased the paper(s) for a certain period. ANL purchased the vouchers either directly from the issuing retailer (such as M&S) or through an intermediary. If the customer fulfilled certain conditions, ANL would then give the vouchers away to the customer free of charge. HMRC argued that ANL was not entitled to reclaim the VAT charged on the purchase of the vouchers as there was no taxable supply of them to the customer. Alternatively, HMRC argued that VAT was due on the free supply (under the ‘deemed supply’ rules) to the value of the input VAT that was claimable on the purchase of the vouchers. ANL argued that the purchase of the vouchers was a legitimate business cost that was linked to its taxable supplies of newspapers. As such, its use of the vouchers was for a business purposes and, accordingly, there was no VAT due on the free supply of the vouchers to the customers. The Court agreed with ANL except to the extent that ANL had purchased vouchers directly from the retailers as, under UK VAT law, no VAT should have been charged to ANL by the retailers. Comment Business promotion schemes can be complex from a VAT perspective and the complexity is compounded further if the scheme involves the purchase and re- supply of face value vouchers. Here, HMRC tried to argue that the vouchers were not used for a business purpose but the Court of Appeal dismissed that argument. Euro Tyres BV Comment This is another example of a Member State’s rules go beyond what is required by EU VAT law. In this case the conditions imposed by EU law had been met in full. That was enough for the exemption for intra- community supplies to apply to the supplies in question. Member States cannot impose additional conditions and, where they do, they can, as here, be challenged. Court of Justice of the European Union This case concerned a Portuguese branch of a Dutch company supplying tyres to a customer based in Spain. The goods were supplied by the Portuguese branch to a Spanish VAT registered business and the goods were physically transported across the Portugal/ Spain border. Although it was registered for Spanish VAT and had a Spanish VAT number, the Spanish company was not yet registered in Spain for intra-community acquisitions nor was it registered under the European Commission’s VIES system. As such, the Portuguese tax authority argued that the conditions of Portuguese VAT law in relation to intra-community supplies were not met and, as a result, the supplies did not qualify for exemption from VAT. Euro Tyres BV Appealed and the matter was referred by the Portuguese courts to the CJEU for a ruling. The CJEU held that Portuguese VAT law was incompatible with the VAT Directive. The evidence in this case was that the company had complied fully with EU law. The goods had clearly been supplied to a VAT registered business in another Member State and the goods had been physically transferred from Portugal to Spain. All the conditions for the exemption for intra-community supplies had been met. There was no requirement in EU law for the additional Portuguese conditions. Accordingly, the supply of the tyres was an intra-community supply and the exemption for such supplies was appropriate. Contact Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683 Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556 Vinny McCullagh London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100
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