The document discusses proposed changes to VAT place of supply rules for advertising services, suggesting a 'use and enjoyment' rule that determines VAT based on where the service is consumed rather than the customer's location. HMRC is consulting on this rule, but there are significant hurdles regarding definitions and implementation. Additionally, the document reports on legal disputes related to VAT claims by businesses, concluding that a competition called 'spot the ball' qualifies as a game of chance and is exempt from VAT, reinstating an earlier tribunal decision.

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The basic VAT place of supply
rules – the rules that determine
where a supply of goods or
services takes place – sometimes
lead to an outcome which results
in supplies not being taxed at all.
As an example, the place of
supply of advertising services is
currently where the customer
belongs. If this is not within the
EU, then no EU VAT is charged
by an EU supplier even though
the advertisement in question
may be targeted at EU
consumers.
HMRC has begun a consultation
process which may lead to the
imposition of a 'use and
enjoyment' rule which, it hopes,
will ensure that, in such
circumstances, the place of
supply will be determined by
reference to where the service is
targeted and consumed rather
than simply where the customer
is established.
10 May 2016
Place of supply of advertising services
Under the current place of supply rules, a supply of advertising services supplied to a
business established outside the EU does not attract any EU VAT. This fact has not
gone unnoticed by businesses in the financial services, insurance and betting and
gaming sectors. By establishing a business entity outside the EU, such businesses do
not incur VAT that would otherwise be unreclaimable. In the sectors concerned, where
advertising costs are considerable, this rule provides a substantial saving.
HMRC has announced a consultation to consider amending the rule so that the place
of supply of advertising services would be determined by reference to where the
advertising is 'used and enjoyed'. For example – where an advertisement [of the
underlying service] is aimed at UK consumers, then the place of supply of that service
would be the UK and the supply would be subject to UK VAT at the standard rate.
At a meeting on 3 May 2016 held in London, HMRC set out its plans for the
consultation process. It seems clear from that meeting that there is a distance to go
before the new law will be introduced (possibly late 2017).
The meeting with representatives of the accountancy profession posed as many
questions as it answered. For example, presently, there are no legal definitions for the
terms 'advertising services' or 'use and enjoyment'. Similarly, how will a supplier of an
advertising service determine where the use and enjoyment of the service takes place?
Will this fact need to be certificated by the recipient of the service (the customer) and,
if so, how will HMRC verify and audit? Advertising to support a brand may be 'used
and enjoyed' on a multi-jurisdictional basis and it may be necessary to apportion
supplies between different Member States. How will this apportionment be undertaken
and, again, how will it be verified? There are many other questions where the answers
are not yet known. HMRC is to launch a wider consultation in the summer of 2016
with a view to producing draft legislation by the time of the Autumn statement in
November 2016.
Comment – the imposition of a use and enjoyment rule for advertising services
sounds simple in concept but, in reality, it seems that there are a large number
of hurdles to get over before any meaningful rules can be introduced.
Businesses affected by these proposals are encouraged to let their views be
known to HMRC as part of the consultation process.
Issue15/2016
VAT rules to change for 'advertising'
services
Indirect Tax Update

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GRT100456
Grand Entertainments Company
Upper Tribunal
The taxpayer in this case submitted a claim to HMRC for a repayment of VAT it considered had
been overpaid. The issue under appeal was whether, as the taxpayer asserted, a document submitted
after the initial claim was an amendment to the existing claim or whether, as HMRC contended, the
document was a new claim. The Tribunal concluded on the evidence that the document was a new
claim and that it was 'out of time'.
Following the decision in the 'Fleming' case, the taxpayer had submitted a claim for repayment of
VAT overpaid on the provision of mechanised cash bingo (MCB) and gaming machines.
Subsequently, following the Rank case, later in 2009, the taxpayer submitted what it considered was
an amendment to the earlier claim to take account of the fact that it could claim for VAT overpaid on
Main Stage Bingo (MSB). HMRC rejected that submission arguing that it was, in fact, a fresh claim
not an amendment to the existing claim. According to HMRC, as a fresh claim, it had been submitted
out of time.
The First-tier Tax Tribunal (FTT) dismissed the taxpayer's appeal and the Upper Tribunal upheld
that decision. The purported amendment related to a completely separate head of claim not
previously contemplated in the original claim. As such, the later claim could not be said to be an
amendment to the original claim but was a new and distinct claim. The time limit for making the
claim had expired.
Comment
The time limits for
making claims for
overpaid VAT are set
out in VAT law.
An amendment to a
claim can be made
provided that it meets
the test of being based
on the same subject
matter as the original
claim. Here, the original
claim was for VAT
overpaid on MCB
whereas the
amendment was for an
entirely different head
of claim (being MSB).
IFX Investments Ltd – Spot the Ball
Comment
The tax at stake in this
case is £97 million so it
is likely that HMRC will
seek leave to appeal the
judgment to the
Supreme Court.
Whether or not leave to
appeal will be granted
remains to be seen. The
FTT found as a fact
that Spot the Ball was a
game of chance and
made no error of law in
making that finding.
Accordingly the Upper
Tribunal's judgment
was wrong and the
taxpayer's appeal was
allowed.
Court of Appeal
IFX Investments Ltd operates a competition known as Spot the Ball. Participants are invited to mark
a cross on a photograph of a football match where they consider the centre of the ball would be –
the ball having been removed from the photograph. IFX considered that the income it received from
participants should have been exempt from VAT under the betting and gaming provisions of VAT
law. For such a supply to be exempt from VAT, the competition had to be regarded as a game of
chance. HMRC considered that Spot the Ball was neither a game nor one of chance. The taxpayer
appealed to the FTT which allowed its appeal. HMRC appealed to the Upper Tribunal which
overturned the FTT's decision and, finally, the taxpayer appealed to the Court of Appeal.
In a unanimous judgment, the Court of Appeal has reinstated the FTT's decision. It rejected HMRC's
contention that, for there to be a 'game', it was necessary for there to be an interaction between two
or more players or, where a single player was involved, there had to be a reaction to a change of
circumstances by that player. The Court considered that there was no such requirement and, to the
extent that the Upper Tribunal agreed with that view, it had made an error of law.
As a consequence, the operation of the Spot the Ball competition is, for the purposes of the Gaming
Act, a game of chance and, in turn, this means that the income received by the promoter of the game
was exempt from VAT.
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