Plus ça change, plus c'est la même chose! Or at least the brave new world of post-Brexit VAT does not feel so very different (yet) to the pre-Brexit world of VAT. And that is indeed still the message from HMRC in their recent (underwhelming) Revenue and Customs Brief 4 (2024) on VAT and excise duties following the coming into force of the Retained EU Law (Revocation and Reform) Act 2023 (REULA). The Brief confirms that "HMRC policy for VAT and excise is unchanged" and confirms that UK VAT and excise legislation will continue to be "interpreted" in the same way. Though perhaps we should all be grateful that Brexit has seen no great upheaval in the application of the VAT system that we all know (and love).
Of course, VAT is not quite the same post-Brexit and REULA. Recent CJEU decisions are only persuasive, older decisions can be disregarded, acquisition VAT on goods is no more and businesses will no longer be able to rely on direct effect to disapply incompatible UK legislation meaning, in practice, that some areas of VAT law may have actually been changed. But this is all very subtle at this stage and the changes resulting from Brexit, including those in the original version of the EU (Withdrawal) Act 2018 as well as REULA, are likely to give rise to substantial areas of uncertainty for years to come.
In this edition we also cover the following recent VAT and indirect tax developments:
The AG's opinion on the correct VAT analysis of supplies by an intermediary providing access to EV charging by third parties through the use of an app or card.
A decision of the CJEU on the VAT liability of a charge made for arranging the sale of goods held as security for a debt.
A CJEU decision on the scope of the deemed supply rules for goods donated free of charge by a business.
An Upper Tribunal decision looking at the correct approach to interpreting the various exceptions to the zero-rating of food, items overriding the exceptions and notes to those provisions.
A CJEU decision on the classification of vouchers for VAT purposes.
A (very) brief mention of the VAT announcements made as part of the Tax Administration and Maintenance Day.
We also have updates from across our European network, including Italy.
In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.
If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch. Our contact details are at the bottom.
Facilitating supplies of EV charging
The CJEU has already held that a complex transaction consisting of a supply of electricity to the battery of an electric vehicle (EV) together with access to charging devices and necessary technical and IT support constitutes a single supply of goods for VAT purposes. But what of the supply where a business provides access to a network of EV charging for a monthly fee. Is that still a single supply? And what is being supplied to whom? This question raises some very difficult issues in applying the existing VAT system to supplies of electricity to EVs.
The AG in Skatteverket v Digital Charging Solutions GmbH (Case C-60/23) has suggested that where an intermediary provides a card or app that gives a consumer access to a network of (third party) charging stations in return for a monthly fee and then recharges for the electricity supplied to the consumer, there are separate supplies of goods (electricity) and services (facilitation). This, of course, may have consequences both for the place of supply (as in this case) and the rate of VAT chargeable.
The opinion also goes on to consider the nature of the supply of electricity in such a case. The AG rejects the argument that the supply by DCS amounts to a contract to finance the purchase of electricity provided directly to consumers (the approach adopted to a fuel card in Auto Lease (C-185/01)). Instead, the arrangement should be analysed as either one of agency (under which the supply of electricity should be treated as both to and from DCS if the conditions for this are met) or one where the electricity was supplied to DCS and then on-supplied to the consumer by DCS (the approach suggested by the VAT Committee).
We will review the final decision of the CJEU with interest.
Read our Insights article here
Arranging supplies of pledged goods
If a person in possession of goods held as security for a debt arranges to sell those goods to satisfy the debt and charges a fee to the debtor for doing so, is that simply a supply ancillary to the exempt supply of credit? In the case of a pawnbroker, HMRC's guidance (at HMRC VATFIN3180) would appear to say it is. However, the recent CJEU decision in Companhia União de Crédito Popular SA v Autoridade Tributária e Aduaneira (Case C-89/23) has taken a different approach.
The Court noted that the service of organising the auction of pledged goods by a pawnbroker could not be regarded as inseparable from their grant of credit. The need to auction the goods was neither an inevitable part of the grant of credit and nor need the pawnbroker itself be the person organising that sale. Moreover, the auction of pledged goods pursued an objective independent from the grant of credit and was not merely a means of for the customer to better enjoy the supply of that loan, but an end in itself. The VAT exemption could therefore not be applied.
Whilst the decision may cast doubt on HMRC's guidance, it is worth noting that it does not appear that the taxpayer in this case argued that the fee for arranging the sale fell within the concept of the exempt management of credit by the person granting it.
Read our Insights article here
Deemed supplies of donated goods
The purpose of the deemed supply rule where goods on which a business has recovered input VAT are put to a non-taxable use such as when they are used for private purposes or the private purposes of an employee is clear. It is to prevent distortions arising between the purchase of such goods privately (where VAT would be a real cost) and through a taxable business (where it is not). The deemed supply rules also include the situation where a business gives away goods for free. But what of the situation where the donee is a taxable business which would have been able to recover any VAT charged to it in any case? Is that still a situation where the deemed supply rules should require the donor to account for output VAT to recover the input VAT previously deducted?
The taxpayer in Tax Office X v Y KG (Case C-207/23), which provided heat (a good for VAT purposes) from a biomass plant to local businesses free of charge, argued not. The provisions of the VAT Directive should be construed purposively to exclude the charge in this situation given that there is no loss of tax, because the recipient would be entitled to recover any VAT charged. The CJEU had, after all, accepted a similar purposive approach to read conditions into Article 203 to alleviate the requirement to pay overcharged VAT shown on an invoice where the supply is to a final consumer in GmbH v Finanzamt Osterreich (Case C-378/21). However, the Court has rejected such an approach in this case, for the somewhat unconvincing reason that it could give rise to practical difficulties by requiring the person providing the free goods to verify the status of the recipient.
On the question of the valuation of the deemed supply, the CJEU held that in determining the cost price of the goods (where there is no purchase price or market price available) account needs to be taken not only of the direct costs of production but also costs that are indirectly attributable, such as financing costs.
Read our Insights article here
VAT and confectionary
VATA 1994 Schedule 8 generally zero-rates supplies of food. However, Item 2 of the Excepted Items excludes from zero-rating "confectionary". Note 5 to Group 1 provides that "confectionary includes chocolates, sweets and biscuits... and any item of sweetened prepared food which is normally eaten with the fingers".
Should large packets of Mega Marshmallows be subject to a different VAT treatment to smaller packets of marshmallows? On the face of it, this seems like an absurd proposition but it is nevertheless one accepted by the Upper Tribunal in HMRC v Innovative Bites Ltd [2024] UKUT 95, in a case that contains a very detailed analysis of the correct approach to interpreting the relevant provisions.
The UT rejected HMRC's argument that Note 5 was a deeming provision and has held the correct approach requires a multi-factorial test. In this case, the FTT had held that although "Mega Marshmallows" bore the fundamental characteristics of confectionary, the fact that they were designed to be roasted to be eaten, rather than eaten on the go from the packet, meant they were not confectionary given its ordinary meaning and the UT saw no error in the FTT's conclusion.
VAT and vouchers
To qualify as a single-use voucher (such that VAT is charged on its issue), both the place and liability of the ultimate supply of the redeemed goods or services must be known. The CJEU has recently held that the place of supply condition for such vouchers will be met where the conditions for issue limit the vouchers to users in a particular jurisdiction, even if in practice that condition is not always met: M-GbR (Case C-68/23).
The case concerned voucher codes to be redeemed for supplies made via an online website. The voucher codes were supplied down a chain of intermediaries, but the particular codes used in this case were intended only for users in Germany (which would determine the place of supply of such electronically supplied services). In practice, the issuer did not carry out due diligence on the location of the users and many people from outside Germany used the voucher codes. However, according to the CJEU, the place of supply should be determined by reference to the conditions of issue of the vouchers and not any practice which abused those conditions. As such, voucher codes issued for use only by German residents could in principle qualify as single-purpose vouchers on the basis that the place of supply was known at the time of issue, even if in practice (and contrary to the terms of issue of the voucher codes) they were acquired and used by persons outside Germany.
Tax administration and maintenance day
Tax administration and maintenance day was (much like the weather this season) something of a damp squib. There were only four minor announcements, but two of them were VAT related.
Firstly, the government published its promised consultation on VAT and private hire vehicles (PHV). The consultation invites views on potential government action to help mitigate any adverse effects on the PHV sector and its passengers of recent cases, including Uber Britannia Limited v Sefton Borough Council and the Uber London Limited v Transport for London.
Secondly, the government will publish a consultation later this year on proposals to encourage charitable giving, including a targeted VAT relief for low value household goods which businesses donate to charities for the charities to give away free of charge to people in need.
Italy: VAT anti-abuse and domestic presumptions
The decision in Feudi v Agenzia delle Entrate (Case C-341/22) provides a helpful warning against Member States introducing wide-ranging domestic presumptions for the application of the abuse principle. Such presumptions (even where rebuttable) are unlikely to be sufficiently targeted and proportionate to be considered a legitimate application of the principle of abuse of rights.
In this case, the CJEU held that Italian VAT rules introduced to prevent VAT evasion and avoidance by the use of shell companies were contrary to EU law. Whilst tax authorities are obliged to prevent the use of fraudulent or abusive transactions to obtain deductions of input VAT, the rebuttable presumptions put in place by the Italian rules, which related to turnover volume, were unconnected with the criteria necessary to demonstrate fraud or abuse and could not be relied on to prevent the deduction of input VAT.
Other issues we have recently covered
Ramsay and commercially irrelevant provisions
The FTT has held that a condition that included in the award of employee security interests with no commercial purpose could be ignored in applying the restricted securities legislation originally introduced in 1998: Lynx Forecourt Ltd v HMRC [2024] UKFTT 278. The relevant provisions should be construed as only applying to conditions which were not commercially irrelevant and it was not sufficient that they were both real and would have had a commercial effect.
Interest and beneficial entitlement
The Court of Appeal has confirmed the earlier decisions of the FTT and UT that interest on loans paid to a UK entity as part of entirely tax motivated arrangements did not benefit from the exemption from withholding tax in ITA 2007 s.933: Hargreaves Property Holding Ltd v HMRC [2024] EWCA Civ 365. The question whether the UK entity was "beneficially entitled" to the interest in the circumstances had to be judged by reference to a purposive construction of the legislation as applied to the facts viewed realistically. Parliament had not intended the exemption to benefit the involvement of a UK entity on an "ephemeral basis by way of steps that were entirely tax-motivated" where its involvement not only had no commercial purpose but had no practical or real effect.
UK finance company CFC exemption and EU state aid
The AG has opined that the decision of the General Court, upholding the Commission's state aid objections to the UK's Group Finance Exemption under the CFC rules, should be set aside: UK v European Commission (Case C-555/22). The AG accepted the UK's argument that the Commission and General Court were wrong to view the CFC rules alone as the correct reference framework against which any selective advantage should have been judged. Seen correctly, the CFC rules were an integral part of the UK's broader corporation tax rules and its approach to territoriality. Since the Commission and Court had identified the wrong reference framework, the decision on selectivity could not stand.
Taxation of carried interests: transitional rules
The FTT has held that carried interest profits arising and paid after 8 July 2015 were taxable pursuant to TCGA 1992 s.103KA even though those profits were attributable largely to the sale of fund assets made before that time: Ferguson-Davie and Edwards v HMRC [2024] UKFTT 321. The grandfathering provisions introduced only applied where the carried interest arose on disposals prior to 8 July 2015 and it was not sufficient for those profits to be simply attributable to disposals of assets prior to that date.
Tax podcasts
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