The Court of Justice of the European Union issued three judgments related to VAT (value added tax) this week: 1) It ruled that the EU VAT law does not directly apply to cultural services and gives member states discretion to determine which cultural services are exempt from VAT and which are taxed. This means the UK can tax the British Film Institute's showings of films despite its arguments that it should be exempt. 2) It sided with Associated Newspapers in a case regarding VAT on vouchers the company purchased and gave away as promotions for its newspapers. 3) It ruled that Portugal improperly imposed VAT on an intra-community transfer of goods between a Portuguese and Spanish company, as the transfer met the conditions

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

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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