Indirect Tax Update for week ending 26 October 2016

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
There has been a trend recently
where tax authorities in Member
States have attempted to collect
VAT and levy penalties in
situations where the terms of the
law have not been strictly
complied with by the taxpayer.
This week we see another case
(from Germany) where the tax
authority refused to an exempt a
transfer of a vehicle to another
member state because the
taxpayer had failed to record a
VAT number on the invoice.
The Court of Justice has said
that Member States must respect
the purpose of the VAT
Directive and, unless tax evasion
is present or suspected, failure to
comply fully with a formal
requirement should not result in
a refusal of the exemption.
The Upper Tribunal has also
issued its judgment in the VAT
group case involving BMW /
MG Rover and Lloyds /
Standard Chartered Bank.
28 October 2016
Court of Justice
In case C-24/15 – Plockl, the Court of Justice has ruled that a rule which prevents
genuine transfers of goods from one member state to another benefitting from
exemption from VAT is contrary to the purpose of the Directive.
In this case Mr Plockl transferred a vehicle from his business in Germany to Spain.
Such transfers are, under VAT law, deemed to be supplies of goods which, ordinarily,
would be subject to VAT at the prevailing standard rate. However, such transfers can
be exempt from VAT if the transferor uses a VAT registration number issued by the
Member State of arrival. This VAT number can be the VAT number of a customer or
the VAT number in the member state of arrival of the transferor. Mr Plockl failed to
provide any VAT number at all and, on that basis, the German tax authority refused to
allow the transfer to be VAT exempt.
The Court of Justice has ruled that Germany's refusal to allow VAT exemption in the
circumstances contravenes the VAT Directive's purpose. The requirement for
taxpayers to show a VAT number on the invoice is a 'formal' requirement but not a
'substantive' requirement and, as such, the taxpayer's failure to comply with a formal
requirement should not affect the availability of exemption. According to the Court,
unless the tax authority considers that the taxpayer's failure is connected with VAT
evasion or fraud, the VAT exemption for intra-community transfers should be
available if it is clear that the substantive requirements have, in fact, been met.
In this case, there was clear evidence that the goods (the vehicle in this case) had
actually moved to Spain (and had subsequently been sold there). The German tax
authority did not have any suspicions of evasion or fraud and, as a consequence, the
German law preventing VAT exemption for the transfer of the vehicle was contrary to
the scheme and purpose of the VAT Directive.
Comment – The Court of Justice judgment makes sense. A taxpayer may not
completely fulfil all of his fiscal obligations in minute detail but, provided that
all of the substantive conditions are met, the tax authority should not be
entitled to deny the taxpayer from applying VAT exemption. A Member State
may impose penalties for non-compliance but cannot, effectively, circumvent
the Directive.
Issue31/2016
Member States must exempt intra-
community transfers
Indirect Tax Update

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VAT Groups and VAT claims
BMW (UK) Ltd / MG Rover (& Others)
This is another area of VAT law that has dominated the news recently. The question in this case was
whether the company making a supply of goods was entitled to a refund of VAT that was
subsequently discovered to have been overpaid on the supply. At the time the goods were supplied
and the VAT overpaid, the company was a member of a VAT group. Under the UK's VAT grouping
rules, any supplies of goods by a member of a VAT group and any VAT due thereon is deemed to be
have been made by and be due from the representative member of the VAT group. What happens
when either the VAT group is disbanded or the member which made the supplies leaves the VAT
group?
The Upper Tribunal considers that the UK's VAT group rules are compatible with the provisions of
EU law. A VAT group takes on the status of being a 'single taxable person' so it is the VAT group
(and not the individual member) that makes the supplies. The person that accounts for VAT on
behalf of the VAT group is the representative member of the VAT group and, consequently, it is the
representative member of the VAT group (and only the representative member) that is entitled to
receive the proceeds of any VAT refund even though in reality, it was the member of the VAT group
that made the supplies in question. In essence, the Tribunal considers that any distribution of the
refund to the member which made the supplies is a matter of commercial law not VAT law.
Comment
The Tribunal followed
the Court of Session's
decision in the recent
case of Taylor Clark
Leisure Plc which
concerned similar
issues.
It is clear that
businesses will need to
give careful
consideration to the
legal consequences of
either the dissolution of
a VAT group, the
departure of a group
member or a change of
representative member.
First-tier Tax Tribunal
Comment
Another case of
'warehousekeeper
beware'. This case
follows quickly on the
heels of B&M Retail
(see ITU 30/2016) and
demonstrates that
parties can become
embroiled with HMRC
even though they were
not involved in the
commission of the act
of smuggling.
Warehouskeepers need
to take great care to
comply with their
customs authorisations
as, clearly, any failure to
comply can prove very
expensive indeed.
DNATA Ltd
This is another example of HMRC seeking to levy excise duty, customs duty and import VAT on a
warehousekeeper in relation to excise goods smuggled by other parties into the UK.
DNATA Ltd is a warehouse operator based near Heathrow airport. It is authorised by HMRC to
operate a 'transit shed' for the temporary storage of goods. A consignment of goods - 'yoga mats'
arrived at the transit shed but Border Force officials discovered that, concealed in the goods, were
quantities of tobacco. The goods were seized and the taxpayer was required to hold the goods in its
secure cage (known as an ullage cage). Unfortunately, due to a 'system' failure, the goods were
actually collected and taken away. HMRC considered that DNATA Ltd had failed to comply with
the terms and conditions of its temporary storage approval and, accordingly, decided to issue a C18
post clearance demand in the sum of £234,000 against DNATA Ltd.
The Tribunal set aside the element of the assessment attributed to excise duty considering that, in the
circumstances, excise duty was not due. However, as far as customs duty and import VAT was
concerned, the company was liable. Given that the goods had been removed (albeit inadvertently)
from customs supervision, the Tribunal confirmed that customs debt had arisen under Article 203 of
the customs code. As a customs debt had been incurred, it followed that import VAT was also
payable.
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