The document summarizes recent indirect tax developments in the UK, including: 1) The Advocate General issued an opinion in the long-running British Film Institute (BFI) case, finding that Member States have discretion to determine which cultural services qualify for VAT exemption as long as equal treatment and fiscal neutrality principles are followed. 2) HMRC issued guidance on new "use and enjoyment" rules for insurance repair services, placing the VAT on services in the country where the insured person is located rather than where the insurer is located. 3) The Upper Tribunal ruled against Hasbro in the tariff classification of toys called Beyblades, finding they were correctly classified as toys rather than games.

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ITU
Summary
The highlight from this week's
happenings in the Indirect Tax
world is the Advocate General's
opinion in the long-running
British Film Institute (BFI) case.
The UK's Court of Appeal has
referred the matter to the Court
of Justice as it required guidance
on the interpretation of the
phrase 'certain cultural services'
contained within the VAT
Directive.
HMRC has also issued a Revenue
& Customs Brief this week
providing information in relation
to the new 'use and enjoyment'
rule for insurance repair services.
Business involved in this sector
will need to take note of the new
place of supply rule which came
into effect on 1 October 2016.
Finally this week, the Upper
Tribunal has ruled against
Hasbro European Trading in
relation to the tariff classification
of Bayblades (a toy).
10 October 2016
British Film Institute
The Advocate General of the Court of Justice has issued his opinion in the long-
running BFI case. The issue – whether the VAT Directive provides Member States
with any discretion to pick which cultural services can benefit from exemption – was
referred to the Court of Justice by the UK's Court of Appeal.
The VAT Directive provides a VAT exemption for the supply of 'certain' cultural
services by bodies governed by public law (or other similar bodies recognised as such
by the Member State). BFI is a not for profit organisation established for the purpose
of promoting cinema in the UK. It had accounted for output VAT on admission
charges to cinematic performances at various film festivals and theatres. Considering
that such performances were cultural in nature and that BFI was a not for profit
organisation, it asserted that its supplies should have been exempt from VAT. HMRC
took the view that the wording of the Directive gave it a discretion to pick and choose
which cultural services should be taxable and which should be exempt. The Advocate
General considers that HMRC's view is correct. There are as many cultures as there are
Member States and Member States must, therefore be able to determine which cultural
services qualify for exemption.
However, the Member State's discretion must be exercised in a way that respects the
principles of equal treatment and fiscal neutrality. If other similar cultural services
provided by other bodies are in competition, the these principles mean that the
services should be treated the same for VAT purposes. The UK treats theatrical,
musical and choreographic performances provided by public and other bodies as
exempt from VAT so, the Court of Appeal will need to determine whether such
performances are in competition with BFI. If they are, then, according to the Advocate
General, the services provided by BFI should afforded the same VAT treatment.
Comment – We will have to wait until the full Court of Justice judgment is
released but, on the face of it, this is a good outcome for BFI. That said, the
Advocate General considers that the particular provisions of the Directive are
not sufficiently clear or precise for them to be relied upon by the taxpayer.
However, if the Court of Appeal determines that BFI's supplies of admission
are the same or similar and in competition with those provided by theatres etc,
it seems that the principle of fiscal neutrality would be breached if BFI is
treated differently.
Issue29/2016
BFI & 'certain' cultural services
Indirect Tax Update

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Revenue & Customs Brief 15/2016
Place of Supply changes from 1 October 2016
HMRC has issued Revenue & Customs Brief 15/2016 which deals with the new rules relating to the
place of supply of insurance repair services. Under the place of supply rules the place of supply of
services between two businesses is generally deemed to be in the country where the recipient of the
service belongs. (there are exceptions to this general rule). In some cases, insurance company's have
established offshore (Non-EU) entities to receive repair services thus avoiding a UK VAT charge
which, as an insurance company, they would be unable to reclaim as input tax.
This has come to the attention of HMRC and, as a consequence, new rules came into effect from 1
October 2016. Under these rules, where repair services are supplied to an insurer, the place of supply
of those repair services will no longer be where the insurance entity receiving the repair services is
established, but will be where the insurer's customer (the insured person) is established.
This means that VAT is now due where the service is consumed and VAT will be due on goods
repaired for people living in the UK. UK repairers will therefore have to charge VAT to insurers or
their agents that are based outside the EU.
Any business providing repair services to insurers will need to familiarise themselves with these new
place of supply rules.
Comment
VAT law specifies the
'place of supply'. These
rules are necessary to
determine which
Member State is
entitled to the tax on a
supply. The general rule
for B2B supplies of
services is that the
service is deemed to
take place where the
recipient belongs.
These new rules put the
place of supply where
the service is effectively
consumed. ie where the
insured person is
established.
Hasbro European Trading BV
Comment
The case illustrates
once again the
importance of tariff
classification.
Businesses importing
goods into the EU
should take great care
to determine the
correct tariff heading
for their goods. The
tariff classification
determines the rate of
duty payable and
getting the classification
wrong could mean that
too much or too little
customs duty could be
declared. Either way,
that could be a risk for
the business.
Upper Tribunal
This was an appeal from the First-tier Tax Tribunal (FTT) by a Dutch company. The issue was
whether the product imported by the company - known as a Beyblade – should have been classified
for Customs purposes as a 'toy' under tariff heading 9503 or, as 'an article for table or parlour games'
under tariff heading 9504.
The FTT had ruled that the correct classification was as a 'toy' and the company appealed.
It was common ground between the parties that the product was actually capable of falling with the
descriptions applicable to both tariff headings. In that case, the FTT determined that tariff heading
9503 provided a more accurate description of the product than heading 9504 and, using the tie-
breaker rules, it found that the product was a 'toy'.
The question for the Upper Tribunal was whether the FTT had made the right decision. In the
circumstances, the Upper Tribunal concluded (in a lengthy judgment) that there was no error of law
made by the FTT. As such, the Beyblades were toys and should be classified for customs purposes
under tariff heading 9503.
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