Tag Archives: ec-vat

VAT: Place of supply – The Sports Invest case

By   5 May 2023
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Latest from the courts

In the First-Tier Tribunal case of Sports Invest UK Ltd the issue was the place of supply (POS) of a football agent’s services (commission received for a player’s transfer).

The POS is often complex from a VAT perspective and depends on the place of belonging (POB) of the supplier and the recipient of the supply. These rules determine if VAT is charged, where VAT is charged and the rate of VAT applicable, additionally, they may impose requirements to register for VAT in different jurisdictions.

Background

Sports Invest was a football agent based in the UK. It received fees in respect of negotiating the transfer of a player: João Mário from a Portuguese club: Sporting Lisbon to an Italian club: Internazionale (Inter Milan). The appellant signed a representation contract with the player which entitled it to commission, and a separate agreement with Inter Milan entitling it to a fee because the player was permanently transferred.

The Issues

To whom did Sports Invest make a supply – club or player? What was the supply? Was there one or two separate supplies? What was the POS?

As appears normal for transactions in the world of football the contractual arrangements were complex, but, in essence as a matter of commercial and economic reality, Sports Invest had agreed the commission with the player in case it was excluded from the deal. However, this did not occur, and the deal was concluded as anticipated. Inter Milan paid The Appellant’s fee in full, but did this affect the agreement between Sports Invest and the player? That is, as HMRC contended, did Inter Milan pay Sports Invest on the player’s behalf (third party consideration) such that there were two supplies; one to the player and one to the cub?

The FTT stated that there was no suggestion that the contracts were “sham documents”.

VAT Liability

The arrangements mattered, as pre-Brexit, a supply of services by a business with a POB in the UK to an individual (B2C) in another EU Member State would have been subject to UK VAT; the POS being where the supplier belonged. HMRC assessed for an element of the fee that it saw related to the supply to the player. The remainder of the fee paid by the club was accepted to be consideration for a UK VAT free supply by the agent to the club (B2B).

Decision

The court found that there was one single supply by The Appellant to Inter Milan. This being the case, the supply was B2B and the POS was where the recipient belonged and so that the entire supply was UK VAT free. There was no (UK) supply to the individual player as that agreement was superseded by the contractual arrangements which were actually put in place and the player owed the agent nothing as the potential payment under that contract was waived.

The appeal against the assessment was upheld.

Commentary

The court’s decision appears to be logical as the supply was to the club who were receiving “something” (the employment contract with the player) and paying for it. The other “safeguarding” agreement appeared to be simple good commercial practice and was ultimately “not required”. This case highlights the often complex issues of; establishing the nature of transactions, the identity of the recipient(s), agency arrangements, the POS and the legal, commercial and economic reality of contracts.

 

 

VAT: Charging EVs ruled to be goods not services

By   24 April 2023
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Latest from the courts

In the Court of Justice of the European Union (CJEU) it was ruled that electric vehicle charging via public charging points, was a supply of goods, regardless that some elements of the supply were services, ie; access technical support, reservation of a charging point, and a parking space while charging. The overriding supply was the provision of electricity which is classified as goods.

The full P. In W. case here.

It is unlikely that the UK authorities will form a different view.

Although in most cases there is unlikely to be a significant difference, although there could be issues with the time of supply (tax point).

VAT: Post Brexit Import licences and certificates

By   5 November 2020
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From 1 January 2021 businesses importing (including bringing in from the EU which were previously acquisitions) certain goods will require licences and certificates. Additionally, there will be new rules for bringing goods into the UK. As the UK will be a third country post Brexit (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).

Licences and certificates

A business will need to obtain a licence or certificate to import some types of goods (below) into the UK and it may also need to pay an inspection fee for some goods before they’re allowed into the UK.

The Goods

The goods, with links to details, are as follows;

Further GOV.UK information on importing goods from the EU to Great Britain from 1 January 2021 here.

VAT: Brexit latest

By   23 June 2020
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The European Commission (EC) has published an updated Notice to Stakeholders which covers the UK leaving the EU.

The original document which was published in 2018 has been amended to reflect the latest developments which mainly include the official Brexit on 1 February 2020 and the current transition period, which, as matters stand, will end on 31 December 2020. Until that date, EU law in its entirety applies to the UK

The Notice includes:

  • The legal position from 1 January 2021
  • VAT rules for cross-border services
  • The VAT General Rule
  • MOSS
  • Refunds of VAT
  • Separation provisions of the Withdrawal Agreement
  • The supply of other services
  • Refund requests relating to VAT paid before the end of the transition period

The Notice states that; “…during the transition period, the EU and the UK will negotiate an agreement on a new partnership, providing notably for a free trade area. However, it is not certain whether such an agreement will be concluded and will enter into force at the end of the transition period”. I think that this is likely to be a charitable conclusion!

The EC advises businesses:

  • when they are established in the EU, to familiarise themselves with the rules applicable to services supplied to and received from third countries (which the UK will become from 1 January 2021)
  • when they are established in the UK, to examine whether new liability rules will apply to them with regard to their services supplied in the EU
  • to take the necessary steps in respect of services covered by MOSS
  • consider the changes in the VAT refund request procedures

The Notice does not cover the supply of goods nor digital services themself.

General

After the end of the transition period, the EU rules on VAT for services no longer apply to, and in, the UK. This has, particular consequences for the treatment of taxable transactions in services and VAT.

Businesses need to understand the probable changes and make preparations for a No-Deal Brexit.

VAT: Additional time for zero rating exported goods due to the coronavirus

By   19 May 2020
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COVID-19 Update 

HMRC has published concessions in VEXP30310 relating to the conditions for the zero rating of exports.

Background

Most exports of goods from the UK are subject to zero rating. However, in order for VAT free treatment to apply, certain conditions must be met, otherwise 20% VAT applies to the sale. One of the conditions is that the goods must be exported within specified time limits.

Time limits

Generally, goods can be zero rated provided that:

  • they are exported within 3 months of the time of supply, and;
  • valid evidence of export is obtained within 3 months of the time of supply

COVID-19

During the pandemic, it may not be possible for businesses to export goods within the prescribed time. HMRC recognises that some intended exports have been delayed due to circumstances outside a business’ control. Therefore, the guidance sets out the circumstances in which HMRC may agree to additional time for the export before any tax is collected.

Additional time

The time limits for the export of goods from the UK are set out in legislation. However, HMRC has discretion to permit non-observance of the conditions and time limits for export of goods – VAT Act 1994, Section 30(10). HMRC has said that it will use its discretion to temporarily waive the prescribed time limits for export on a case by case basis.  The goods must, however, have either already been exported or will be as soon as is reasonably practicable after the date a business is notified that HMRC is temporarily waiving the tax. An application for HMRC to waive the time limits must be made in writing.

Conditions

HMRC will permit a temporary waiver of time limits if the following conditions are met:

  1. it has not been possible to export goods within the prescribed time limit due to the COVID-19 emergency

Examples include:

  •   the UK or another Government has imposed restrictions on the movement of goods or people due to COVID-19 that prevent the goods          being exported to the intended destination
  •   cancellation of the intended mode of transport for reasons directly related to COVID-19
  •   a participant in the export is ill due to COVID-19 and a substitute cannot be found

This list is not exhaustive.

2. the goods have been/will be exported or removed at the earliest opportunity

3. all other conditions for zero rating exports or removals are met – exporters’ responsibilities here

Expiry

Any waiver will expire

  • one month after any government-imposed restrictions are lifted or
  • one month after any COVID-19 impediment to the export or removal ceases, or
  • there ceases to be an intention to export or remove the goods from the UK (Information on intention here)

whichever is the earlier.

If a business considers there are extenuating circumstances that mean additional time is needed to export goods beyond that permitted by the extension, it should contact HMRC setting out the details in full.

Evidence

A business must retain evidence that supports its case for the waiver (eg; cancellation notes demonstrating that the transport intended to use to take goods out of the UK did not take place, or screen shots of government rules preventing the export or removal of the goods).

Please contact us if you require any further advice or assistance.







VAT: Intention is crucial – The Sonaecom case

By   18 May 2020
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We cannot control the future…

The Sonaecom case

In the opinion* of the CJEU AG (C-42/19) the importance of a taxpayer’s intention was of utmost importance, regardless of whether that intention was achieved.

Background

Sonaecom intended to acquire a telecoms provider company. As is usual in such cases, input tax was incurred on consultancy received, from, amongst others; accountants and legal service providers. The intention post acquisition was for Sonaecom to make certain charges to the acquired co. These would have been taxable supplies.

Unfortunately, the intended purchase was aborted.

 The issue

The issue before the AG was; as no taxable supplies took place as the deal fell through – to what should the input tax incurred on advice be attributed?

Opinion

In the AG’s view the fact that the acquisition was aborted was no reason for the claim for input tax to denied. This was based on the fact that:

  • Sonaecom was not a “pure holding company”
  • There was a genuine intention to make taxable supplies (to the acquired co)
  • There was a direct and immediate link between the costs and the intended supplies
  • Although the acquisition costs would exceed the proposed management charges, this was not a reason to invalidate the claim
  • The above analysis was not affected by the fact that the transaction did not take place

Commentary

There are often issues in relation to intentions of a taxpayer. It is clear, and was emphasised in this case, that intention is all important. Of course, intentions can change over a period of time and commercial and political events may thwart or cause intentions to be re-evaluated. There is often an issue about evidencing an intention. HMRC usually require comprehensive documentary evidence to demonstrate an objective. Such evidence is sometime not available for various reasons. Consequently, it is prudent for businesses to record (board meeting minutes etc at the very least) the commercial reasons for taking a certain course of action. This issue quite often arises in transactions in land and property – which can create additional technical issues.

There is legislation in place to cover situations when intentions, or actual events change and which affect the original input tax position: The Capital Goods Scheme (CGS) and The Value Added Tax Regulations 1995, Regs 108 and 109.

Other areas of VAT which often to raise issues are management charges and holding companies. HMRC apparently continue to be eager to attack taxpayers in these areas and I have looked at the role of holding companies and the VAT treatment here, here and here.

I think it is useful to bear in mind a question which, in itself does not evidence an intention, but provides commercial coherence – Why were the costs incurred if there was no intention to make the acquisition? This does leave aside the future management charges position but goes some way to provide business logic.

It will be interesting to see how this case proceeds, but I would find it very surprising if the court diverges from this AG opinion.

*  AG’s Opinion

The Court of Justice of the European Union (CJEU) consists of one judge from each Member State, assisted by eleven Advocates General whose role is to consider the written and oral submissions to the court in every case that raises a new point of law, and deliver an impartial opinion to the court on the legal solution.







VAT: Where do I belong?

By   7 May 2020
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The place of belonging

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

  • the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
  • if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
  • otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted)

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to a supplier and the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is also not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

  • for suppliers, from which establishment the services are actually provided
  • for recipients; at which establishment the services are actually consumed, effectively used or enjoyed
  • which establishment appears on the contracts, correspondence and invoices
  • where directors or others who entered into the contract are permanently based, and
  • at which establishment decisions are taken and controls are exercised over the performance of the contract

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues.  It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

For more on our International Services







VAT: zero rating of e-publications brought forward – to tomorrow

By   30 April 2020
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Further to the history of objection to reduce rating e-publications, and the 2020 budget announcement which stated that e-publications will be zero rated from 1 December 2020, the Chancellor of the Exchequer has today announced that this date is brought forward and zero rating will now apply from 1 May 2020 – which is of course tomorrow.

Further details of the measure here.

Zero rating

This brings electronically supplied sales in line with traditional printed matter. The zero rate will apply to:

  • books
  • booklets
  • brochures
  • pamphlets
  • leaflets
  • newspapers
  • journals and periodicals (which include magazines)
  • children’s picture and painting books

What supplied electronically means

The term ‘supplied electronically’ is not defined in legislation. It falls to be interpreted in accordance with its generally accepted meaning and includes supplies made over the internet and by e-mail.

Excluded items

Items that are not entitled to the VAT zero rate:

  • Advertising

If more than half of an e-publication is devoted to advertising, audio or video content, its supply will remain standard rated for VAT purposes.

  • Audiobooks

The zero rating extension only applies to the supply of electronic versions of books already zero rated in UK law. As such, zero-rating is limited to electronic versions of books that can be read or looked at. Supplies of audiobooks remain taxable at the standard rate whether supplied in a physical or digital format.

  • Intellectual property
  • e-book readers

e-book readers are one form of hardware to which e-books can be downloaded before being read but are not in themselves e-books. Therefore, supplies of e-book readers are standard rated

  • Software

Software, eg: an app is used to access e-publications but is not in itself an e-publication. Therefore, supplies of such software are standard rated.

Lending of electronic publications

The lending of any of the zero rated e-publications for a charge (for example, by a library) is zero rated.

Summary

Although welcome, as zero rating is VAT nirvana, the short lead in time could catch out some business which make such online supplies. Businesses which provide e-publications may want to consider making a retrospective claim as a result of the News Corp case.







VAT: Zero rated books? The Thorstein Gardarsson UT case

By   14 April 2020
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Latest from the courts

In The Thorstein Gardarsson T/A Action Day A Islandi Upper Tribunal (UT) case the issue was whether supplies of an “Action Day Planner” (ADP) were zero-rated as supplies of a book.

Legislation

The VAT Act 1994, Schedule 8, Group 3, item 1 zero rates – “Books, booklets, brochures, pamphlets and leaflets.”  The words in Group 3 are used in their ordinary, everyday sense.

Background

The Appellants (HMRC) appealed against a decision of the First Tier Tribunal (FTT) which determined that the ADP is a “book” with the result that supplies of it made by Thorstein Gardarsson (TG) were zero-rated for VAT purposes. TG belonged outside the EU but sold its products B2C via the Amazon platform to consumers in the UK.

HMRC argued that the ADP was properly to be considered a ‘diary’ and thereby stationery which is standard rated. Predictably, TG asserted that the ADP is not a diary and despite it having space in which the ‘student’ seeking to master skills of time management may enter information, doing so is merely part of the learning taught through the narrative sections of the book.

The FTT allowed TG’s earlier appeal and considered the judgment of the High Court in Colour Offset Ltd. [1995] BVC 31 to be binding. The FTT concluded that the main function of the ADP is to teach the user how to better or more effectively manage time. The writing space was no different from a student filling out answers to practice papers or someone completing a crossword puzzle. The ADP was therefore a book and zero rated.

Appeal

In this UT case HMRC appealed the FTT decision on the grounds that whilst Colour Offset was binding on the FTT, it failed to:

  • identify the correct test set out in Colour Offset
  • apply the test correctly to the facts it had found

The Product

The external appearance if the ADP is that of a black leather covered book. It had an elastic strap attached to the inside of the back cover that can be wrapped around the front to hold it closed. Inside it has 115 pages. The ADP is described as a time management tool developed to “help people to grow; to teach and instruct people time management skills”. The first 16 pages contain text setting out a narrative of the ethos articulated by the appellant for effective time management. The remainder of the ADP is taken up with 52 double page planners. At the back is a cardboard slip pocket.

Decision

The UT noted that the FTT had quoted from VAT Notice 701/10 and this had led the FTT into error. In the Notice ‘crossword books, exam study guides etc.’ are considered books although the statutory provisions do not mention these at all. The Notice only records HMRC’s practice in this regard and does not have force of law. However, the FTT concluded that because crossword books and exam study guides are referred to as books, it should follow that any item with the necessary physical characteristics ‘which has as its main function informing/educating or recreational enjoyment’ is also a book. The tests in Colour Offset do not refer at all to whether the main function of an item is to inform or educate; nor does it refer to recreational enjoyment.

The UT considered that the FTT approached its task by applying a test that was different from that articulated in Colour Offset and this had the ability to produce a different outcome from the correct test. In doing so, he FTT made an error of law. It also concluded that the ADP is not a book as its main function is to be written in (as distinct from being read or looked at) and that the comparison to crossword puzzles or revision guides is irrelevant. Therefore, ADPs were standard rated and output tax was due on the sale of them.

HMRC’s appeal was allowed, the FTT decision is set aside and directed the matter back to the FTT for reconsideration. It was directed that the FTT makes a decision predicated on the basis that the ADP is not a book.

Commentary

The zero rating of printed matter has long been a moot point in VAT and the amount of detail that the guidance goes into demonstrates this. It should be noted that HMRC guidance set out in Public Notice 701/10 is purely that, and does not have the force of law. This logic extends to all HMRC published guidance unless the narrative specifically states that it has the force of law. A lot of the guidance is based on case law, but certain definitions are unhelpful.

Even the FTT can get it wrong and apply the wrong tests, so if you or your clients have any doubts about the VAT liabilities of supplies made, it is worthwhile having these reviewed by a specialist.