With the surprise announcement of a General Election on 4 July, thoughts have very much turned to the tax policies of the main Parties, which are always a major feature of election promises. There have already been indications and announcements, though we will need to await all the Parties' Manifestos to see their full range of tax proposals. At that point, look out for our full analysis and comparison of the Parties' tax proposals which we will publish on our Insights pages. In the meantime, we have published articles on Labour's tax proposals (up to the Shadow Chancellor's Mais lecture in March) and Labour's plans to plan to close the tax gap.
In this edition we cover the following recent VAT and indirect tax developments:
The important decision of the Court of Appeal in relation to input VAT and share sales in Hotel La Tour.
The Upper Tribunal decision in SilverDoor on card handling fees.
A helpful decision of the FTT on how much detail is needed for a valid VAT invoice.
A CJEU decision on valuing an issue of shares as consideration for a supply.
New of HMRC's Revenue & Customs Brief on voluntary carbon credits and a new HMRC Manual of tertiary VAT legislation.
We also have updates from across our European network, including from Ireland and Spain.
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.
VAT and share sales
There has been a growing sense over the last decade or so that the decision of the CJEU in BLP (Case C-4/94) emphasising the chain-breaking effect of an exempt supply of shares was of waning importance. In particular, later cases, both at the CJEU and domestically, have taken into account the longer term purpose of the transaction to raise funds for economic activities. And on the basis of these cases, including SKF (Case C-29/08) and Frank Smart [2019] UKSC 39, the FTT and UT held that this longer term economic purpose trumped the immediate exempt sale.
The Court of Appeal has, however, reassessed that case law in HMRC v Hotel La Tour Ltd [2024] EWCA Civ 564 and concluded that it does not displace or gloss the normal input VAT approach. If the costs on a share sale have a direct and immediate link to that share sale, they are not recoverable. There is no special rule for fund raising cases. The only departure from BLP in the later case law was a recognition that it was not inevitable for such costs to bear and direct and immediate link to the exempt share sale. Correctly analsyed, the intervening cases were either dealing with situations where there was no exempt transaction or the relevant expenses did not have a direct and immediate link to the share sale.
The decision is important, if somewhat disappointing to companies seeking to raise finance via a share sale. It remains to be seen exactly when costs incurred in connection with such a transaction may nevertheless not have a direct and immediate link with the transaction. Businesses in this position will need to carefully consider all the associated inputs and consider if and to what extent they may have a closer connection to the wider business than the immediate exempt transaction.
Read our Insights article here
VAT and card handling fees
The fact that a person seeking to treat a charge for payment by way of credit card as an exempt supply of financial services under Schedule 9 Group 5 should, by now, come as no surprise. That was, however, the contentious point in SilverDoor v HMRC [2024] UKUT 147 and it was roundly rejected on the basis that CJEU jurisprudence made it abundantly clear that such charges do not fall within the finance exemptions and are instead simply ancillary to the principal supply, in this case a supply of property reservation services. What is more, it made no difference that the taxpayer made no other charge for those reservation services.
However, of perhaps most interest in the case, is the discussion of the Telewest principle ie that it is not possible to combine supplies by independent persons into one single supply. Whilst all comments on this were obiter, the Upper Tribunal considered that it appeared to be "an inevitable consequence" of the approach of the CJEU in the Bookit and National Exhibition Centre cases (to the effect that the fee for being allowed to pay in a particular way, which was retained by the agent, could be analysed as ancillary to the principal supply made by the event organiser/cinema owner) that merely disaggregating activities between different suppliers will not of itself necessarily prevent those activities being analysed as one single supply for VAT purposes.
Read our Insights article here
VAT invoice details
How much information do you need to include on an invoice for it to qualify as a VAT invoice? This is obviously an important question as it can affect the entitlement of the recipient to input VAT credit. In Fount Construction Ltd v HMRC [2024] UKFTT 00340, the FTT has held that a brief description which enables identification of the essentials of the supply will normally be sufficient and it does not have to definitively identify the supply with sufficient precision to answer any queries as to liability that HMRC might have.
The FTT held that a general short description of the nature of the services (such as "Building Services"), along with some further identifying information such as the name of the site, the contract, or the date of works, will be sufficient to meet the requirements of VAT Regulations 1995 regulation 14. HMRC have wide-ranging powers to seek further information in relation to the supply, and to refuse recovery of input tax if such information is not supplied. "The invoice is the gateway into any enquiries by HMRC, rather than a repository for the answers to any questions that might be asked."
Read our Insights article here
Consideration and share issues
Where shares are issued as consideration for a supply, how do you value that consideration? That was ultimately the question in P. sp. z o.o. v Dyrektor Izby Administracji Skarbowej w Warszawie (Case C-241/23). P, a Polish company, received contributions of buildings from two other companies in return for an issue of shares. P sought to recover input VAT on the supply to it of the properties, based on the market value of the shares it provided as consideration. The Polish tax authorities rejected the claim, taking the view that the taxable amount for VAT purposes of the contribution of the properties had to be calculated by reference to the nominal value of P's shares (presumably the consideration was inclusive of any VAT). This amounted to 50 PLN per share, rather than 35,287 PLN per share which was the market value.
Unsurprisingly, the CJEU has confirmed that the value of consideration for a supply is based on the subjective value actually received. In the absence of a sum of money agreed between the parties, this value is the value which the recipient of the supply attributes to the goods obtained. In this case, the subjective value of the consideration for the contributions of property corresponded to the market value of P's shares provided as consideration.
Carbon credits
HMRC has published Revenue & Customs Brief 7 (2024) announcing that from 1 September 2024, VAT will need to be accounted for on certain trades of voluntary carbon credits at the standard rate. Voluntary carbon credits are currently treated as outside the scope of UK VAT, however there have been significant changes, including the emergence of a secondary market, and accordingly the sale of these carbon credits must be treated as a taxable supply for VAT purposes from 1 September 2024 where the place of supply is in the UK. However, HMRC will allow the VAT zero-rate relief granted under the Terminal Markets Order to apply to contracts in taxable voluntary carbon credits traded on terminal markets.
This is a significant change in policy by HMRC and any businesses involved in this sector should carefully review their terms of business to ensure that they are not adversely affected by the imposition of VAT.
Read the Revenue & Customs Brief here
Tertiary legislation manual
HMRC has published a new Manual, bringing together all tertiary legislation published by HMRC in relation to VAT.
Within primary and secondary legislation, government departments are sometimes granted the power to publish additional legally-binding conditions or directions on a given topic. This information is known as tertiary legislation. Tertiary legislation has the force of law. This means it has the same legal status as primary and secondary legislation. HMRC has an obligation to publish this information in accordance with the law.
The new Manual can be found here
Ireland: VAT and corporate restructurings
The Irish High Court has held in Revenue Commissioners v Covidien Ltd [2024] IEHC 192 that a holding company which provided management services to some of its subsidiaries was carrying on an economic activity and all of the input VAT it incurred in relation to group restructurings could be deducted in full as attributable to that economic activity. In addition, the Court held that all of the input VAT incurred by Covidien in acquiring management services which it on-supplied to its subsidiaries had a direct and immediate link to those on-supplies despite the fact that the cost of the services was significantly in excess of the charges it made.
The decision is an important one in the context of recovery of input VAT by holding companies and will be welcomed by companies in a similar position which incur costs on management and broader corporate restructurings.
Read our Insights article here
Spain: services provided by a director not subject to VAT
The General Directorate of Taxes (DGT) has recently issued a tax ruling establishing their criterion for the VAT treatment of services provided by an individual who holds the office of director and is also a shareholder of the company. The DGT has ruled that the VAT treatment will, in all cases, depend on how these services are provided and on the assumption of risk or responsibility in relation to the provision of the services.
The DGT bases its conclusion on the case law of the CJEU, particularly in its ruling in TP vs. Administration de l'enregistrement, des domaines et de la TVA (C-288/22) where the Court held that, in general, a director of a company will not have the status of an independent entrepreneur from a VAT perspective, and thus the supply of services is not a VATable activity. This conclusion depends on the company being the entity that will suffer any negative consequences of decisions adopted by the board of directors and, therefore, bearing the economic risk derived from the activity of the board members. Under Spanish Company Law, provided that decisions made by a director in the provision of their services are not contrary to law or to the articles of the company, then the responsibility for such decisions is assumed by the company, not by the director, such that the director will lack the necessary status to be categorised as an independent entrepreneur for VAT purposes.
Finally, it should be noted that if the director does not receive remuneration for such services then such activity not be subject to VAT.
Spain: anti-abuse report on financial services platform
The Advisory Commission of the Spanish Tax Agency (STA) has recently published Report No. 14, which takes the view that there is an abuse of law in a corporate structure leading to inappropriate recovery of input VAT connected to the provision of exempt financial activities. The Report analyses a case in which a Spanish entity (Company A) was set up to develop and implement improvements on a technology platform as well as performing marketing tasks and brand promotion for a related Spanish company. That related Spanish entity, which provided exempt financial services and was mainly owned by a bank, was subsequently merged with Company A after a two year period and once the input VAT borne over the two years of development of the platform had been recovered by Company A.
Other circumstances taken into account by the STA in the specific case were that most of the employees of Company A were former employees of the bank and that a material part of the input VAT borne by Company A during the initial two year period was for supplies of services and goods provided by the bank.
The STA concludes that the setting up of Company A was designed to avoid the restriction otherwise applicable for deducting and, ultimately, recovering the VAT paid on the acquisition of goods and services for the development of the technology platform, which would not have been deductible if Company A had not been interposed, and had instead been borne directly by the entity that provided exempt financial services via the platform.
Other issues we have recently covered
Common EU-wide withholding tax procedures
The EU Council has announced that it has reached political agreement on the proposed harmonised approach to EU withholding tax procedures. The proposed Directive contains measures introducing a common EU digital tax residence certificate (with an automated procedure for the issue of such certificates), accelerated procedures in addition to the current normal refund procedure for withholding taxes and standardised reporting obligations for financial intermediaries.
Unallowable purpose and utilising existing losses
The Court of Appeal has upheld the decisions of the FTT and UT that arrangements entered into to enable a group to utilise trapped losses more quickly had an unallowable purpose: Kwik-Fit Group v HMRC [2024] EWCA Civ 434. However, the decision of the Court emphasises that it is in fact the making available of debits arising to the other group companies that represented the tax advantage in this case, rather than the use of the trapped losses per se.
Registration for Pillar 2 top-up taxes
HMRC has published information having the force of law (tertiary legislation) regarding the process for groups with consolidated group revenues of €750m to register in the UK for Pillar 2 top-up taxes. Groups must register within six months of the end of the first accounting period in which they fall within the scope of the rules. The information has been published in Notice 1 "Pillar 2 top-up taxes registration" and supporting information.
OECD consolidated commentary on Pillar 2
The OECD has published consolidated commentary, together with consolidated examples, on the OECD's Global Anti-Base Erosion (GloBE) model rules, which form the main element of Pillar 2. Commentary to the GloBE Rules was originally released in March 2022. The Commentary explains the intended outcomes under the GloBE Rules, clarifies the meaning of certain terms and illustrates the application of the rules to certain fact patterns. The Consolidated Commentary now published incorporates Agreed Administrative Guidance that has been released by the Inclusive Framework since March 2022 up until December 2023.
Deadlines for Corporate Tax Registration in the UAE
The Federal Tax Authority (the FTA) has issued Decision No. 3 of 2024, which came into effect on 1 March 2024. This decision prescribes the corporate tax registration timeline for taxable persons under the Federal Decree-Law No. 47 of 2022, concerning the taxation of corporations and businesses.
CGT: revocable option did not give rise to disposal
The FTT has held that an agreement entitled "Option Agreement" entered into by taxpayers to sell certain properties did not give rise to the grant of an option for CGT purposes until the grantee's right to exercise the option ceased to be dependent on events within the control of the taxpayers: Krishnamohan v HMRC [2024] UKFTT 346.
CGT: disposal of non-transferable rights
The Upper Tribunal has rejected a taxpayer's argument that an agreement to transfer certain distribution rights in a company, MAH, did not give rise to a disposal for CGT purposes of those rights: Tenconi v HMRC [2024] UKUT 110. The fact that the rights were not transferable did not prevent an agreement to transfer the beneficial interest in the rights (having the effect of a declaration of trust over the benefit of the rights) giving rise to a disposal of the rights for CGT purposes.
Tax Disputes Quarterly: Spring edition
Our selection of the most interesting tax dispute developments from the last quarter.
Tax podcasts
Our contentious tax podcast series covering tax controversy and transfer pricing issues can be found here. More general tax podcasts can be found here.
_11zon.jpg?crop=300,495&format=webply&auto=webp)
.jpg?crop=300,495&format=webply&auto=webp)
_11zon.jpg?crop=300,495&format=webply&auto=webp)
