Tag Archives: EC

EC clamp down on yacht and aircraft VAT abuse

By   8 November 2018
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The European Commission (EC) has stepped up its agenda to tackle tax avoidance in the yacht and aircraft sectors by implementing infringement proceedings on tax breaks being applied in the pleasure craft industries of the Isle of Man. These provisions can generate major distortions of competition, as highlighted by last year’s ‘Paradise Papers’ leaks.

The EC has sent a formal notice to the UK in respect of the Isle of Man’s abusive VAT practices relating to sales and leasing of aircraft.

Background

Input tax is only deductible when it relates to business use of an asset. The EC says that supplies of aircraft, including leasing services, intended expressly for private use, should not be effectively VAT free. The EC believes that the UK has not taken sufficient action against abusive VAT practices in the Isle of Man on supplies and leasing of aircraft. This perceived abuse is facilitated by UK national rules which do not comply with EU law.

Broadly, arrangements are made such that a (seemingly) artificial leasing businesses is put in place and through which individuals rent their own jets from themselves. The most high-profile example of this structure is one used by Lewis Hamilton for his private jet.

Features of such arrangements are said to be:

  • Users of the scheme recover 100% of import VAT when it appears that an adjustment should be made for the proportion of the amount of private use intended for the aircraft
  • VAT should be declared and paid to any European Member States whose airports are used for leisure flights.
  • The leasing businesses set up for jets usually appear to be a letterbox companies with no real economic purpose. Consequently, it is unlikely that such entities should be entitled to reclaim VAT from the Isle of Man.

It is understood that the Isle of Man government has called in the HMRC which will review of 231 tax refunds issued to private jet owners since 2011 valued at circa $1billion of VAT.

Representatives of the EC are due to visit the Isle of Man this month. Similar action is being taken against Italy in respect of the lease of yachts and excise duty rates for motor boats.

What happens next? 

The UK now has two months to respond to the arguments put forward by the EC regarding VAT on aircraft. If the UK authorities do not act within those two months, the EC will send a reasoned opinion. If the UK does not act within the next two months on the reasoned opinion the EC may bring the case before the Court of Justice of the EU.

Pierre Moscovici, the Commissioner for Economic and Financial Affairs, Taxation and Customs Union, said: “It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like yachts and aircraft. Favourable tax treatment for private boats and aircraft is clearly at odds with our commonly agreed tax rules and heavily distorts competition in the maritime and aviation sectors. With this in mind, the Commission is taking action to clamp down on rules that try to circumvent EU law in these areas.”

For More Information

On the general infringements procedure, MEMO/12/12.

On the EU infringements procedure. 

Commentary

We do not design, sell or advocate such schemes. Our view is that these and similar structures are, quite rightly, open to attack from the relevant authorities. They do not reflect well on those that put these structures in place nor those that benefit from them. Using a leasing scheme as such is not necessarily abusive. However, if one takes the other elements in the targeted schemes into consideration, such as the absence in motive of setting up those companies and the fact that those companies do not seem to have any substance, it is likely to lead to the action we see from the EC and its view that these schemes are abusive.

How Brexit will impact on these and similar situations remains to be seen.

Combined Nomenclature – 2019 version published

By   5 November 2018
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The European Commission (EC) has published the latest version of the Combined Nomenclature (CN) applicable from 1 January 2019.

The CN forms the basis for the declaration of goods

  • at importation or exportation or
  • when subject to intra-Union trade statistics

This determines which rate of Customs Duty applies and how the goods are treated for statistical purposes. The CN is a vital working tool for business and the Member States’ Customs administrations.

The CN is updated every year and is published as a Commission Implementing Regulation in the Official Journal of the European Union.

The latest version is now available as Commission Implementing Regulation (EU) 2018/1602 in EU Official Journal L 273 on 31 October 2018 and applies from 1 January 2019.

Businesses which import, and/or export need to be aware of any changes as they could affect the amount of Customs Duty payable. We recommend that such a business’s import/export agent or carrier should be contacted in the first instance.

Customs Declaration Service (CDS) – Update

By   23 October 2018
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As many will be aware, CDS will fully replace the Customs Handling of Import and Export Freight (CHIEF) system later this year/early next year, full details here.This will affect any business which imports or exports goods from or to countries outside the EU (and possibly will affect businesses which trade with the EU in the event of a No Deal Brexit).

HMRC have provided more information on the implementation of CDS.

They say that the number of businesses making declarations via CDS will grow over coming months. If you have not been contacted by HMRC then your business is not part of this first group. The time your business begins using CDS will depend on its(or its agent’s) software developer or Community System Provider. HMRC expect remaining importers will start to move to CDS early in the New Year. Exporters will migrate to CDS when export functionality becomes available in March 2019. This means that CDS and CHIEF will run in parallel for a short period of time. Import declarations will be made in CDS whilst export declarations will continue to be made in CHIEF.

Not an ideal situation, but it does seem prudent to phase CDS in in this way.

Checklist

  • Visit Customs Declaration Service to understand how the changes affect your business and what you will need to do to prepare for the introduction of CDS and when. This includes making sure you have a Government Gateway account and an EORI number.
  • A new Trade Tariff will be used for declarations on CDS to comply with the Union Customs Code (UCC) so it is important you take the time to understand how the information you provide as part of your declarations will change. The imports tariff can be found on the link above. The exports Tariff will be available later in the year.
  • If you use a software provider or agent, you may also want to check they are aware and are preparing for the new CDS.
  • If you use a C88 form or the National Export System to make declarations, please visit the web page above where you can find more information.

If you have any queries we will be pleased to help.

VAT e-books to be reduced rated?

By   10 October 2018
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The EC will put forward a proposal to permit EU Member States to introduce a reduced rate for the supply of e-books to bring them into line with traditional books (which, uniquely, are zero rated in the UK). Details of the latest court decision and reasoning here and an ECJ decision on the matter here

What are e-books for this proposal?

e-book is short for “electronic book.” It is a digital publication that can be read on a computer, e-reader, or other electronic device. e-books are available in several different file formats. There are many types of e-book formats, all of which support text, images, chapters, and page markers . An e-book may be a novel, magazine, newspaper, or other publication. However, the electronic versions of magazines and newspapers are often called “digital editions” to differentiate them from electronic books. It is likely that digital editions will be included in the proposed reduce rate proposal.

Timeframe

It is likely that the proposal will be adopted quite quickly once the formalities have been completed, so watch this space.

HMRC stance

Previous cases have underlined HMRC’s position that they view traditional physical books and online supplies as two different supplies, even if the content is similar, or even identical. It will be interesting to see how they react to the EC’s adoption of these proposals, especially in the current political environment.

Action

If you, or your clients, supply e-books, it is important to monitor this position. Failure to respond to any changes may mean too much VAT being accounted for and an EU-wide commercial competitive disadvantage. We will report on the latest on e-books as soon as possible any final decisions are made.

VAT Import documents – delays with paperwork

By   24 September 2018
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We understand that HMRC is having difficulties after outsourcing the issuing of C79 forms.

What are C79s?

A C79 form is issued to businesses which import goods into the UK from countries outside the UK. It is used to reclaim VAT charged at the point of import. It is an important document because, unlike usual VAT claims, it is not sufficient to claim on an invoice from the supplier.

Impact

Technically, without a C79 form, the VAT on import cannot be claimed. So, a delay in issuing the documentation can have serious consequences for a business’ cashflow. It is possible to request a duplicate form, but the department which deals with these has been overwhelmed with applications and does not appear to be able to help in a timely manner. It looks like taxpayers will have to be patient and tolerate yet another HMRC “problem”. With a very long overdue move to electronic import documentation businesses may be in a better position, but, in the future…

Compare this with the implementation of MTD where something which benefits HMRC and will cause grief to taxpayers has been pushed ahead with despite the difficulties.

Brexit

Of course, early next year, we may be looking at the requirement of C79s for goods “imported” from other EU Member States, which does beg the question; if HMRC cannot cope now, how will it when the number of forms increases significantly? I strongly suspect delays at borders (for many, various reasons), delays with documentation (whether it be electronic or good old dead trees) and delays with any system operated by any of the UK authorities with responsibility, in capacity, for cross-border movement of goods and people.

Good luck everybody…

The EU VAT GAP 2018

By   24 September 2018
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VAT GAP Report 2018: EU Member States still losing almost €150 billion in revenues according to new figures.

What is the tax gap?

The VAT gap is the difference between the amount of VAT that should, in theory, be collected by EU authorities, against what is actually collected. The ‘VAT total theoretical liability’ (VTTL) represents the VAT that should be paid if all businesses complied with both the letter of the law and the EU bodies’ interpretation of the intention of the lawmakers (commonly referred to as the spirit of the law).

In nominal terms, the VAT Gap decreased by €10.5 billion to €147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before. The individual performance of the Member States still varies significantly.

The VAT Gap decreased in 22 Member States with Bulgaria, Latvia, Cyprus, and the Netherlands displaying strong performances, with a decrease in each case of more than 5% in VAT losses. However, the VAT Gap did increase in six Member States: Romania, Finland, the UK, Ireland, Estonia, and France.

VAT MOSS – Changes to digital services 2019

By   14 September 2018
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HMRC has announced new measures affecting digital services

An introduction to the Mini One Stop Shop (MOSS) here

The measures make two changes to the rules for businesses making sales of digital services to consumers across the EU. They will:

  1. Introduce a (sterling equivalent) €10,000 threshold for total supplies to the EU in a year of sales of digital services. This change means that businesses will only be subject to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) falls below this threshold. If the businesses total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT. Businesses can continue to apply the current rules if they so choose.
  2. Allow non-EU businesses, which are registered for VAT for other purposes, to use the MOSS scheme to account for VAT on sales of digital services to consumers in EU Member States. This group are currently excluded from using MOSS.

Operative date

The measure will have effect from 1 January 2019.

Current law

Introduction of a threshold – current law is contained in Schedule 4A, para 15(1) of the VAT Act 1994.

Inclusion of Non-Established Persons in MOSS – current law is contained in Section 3A of the VAT Act 1994 and in Schedule 3B of the VAT Act 1994.

Please contact us should you have any queries.

VAT – deadline for EU refunds

By   31 August 2018
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A reminder

The refund scheme

If a UK VAT registered business incurs VAT in other EU Member States it is not possible to recover this on a usual UK VAT return. However, it is possible to make such a claim via a specific mechanism. This scheme is outlined in detail here and what may be claimed is considered in detail here

Any applicant must not be registered or registrable in the Member State from which they are claiming a refund, nor must they have a permanent business establishment in that EU country. There are a number of other rules to be considered as well, so it pays to ensure that the claim is valid before time and effort is expended in compiling a claim.

Deadline

For VAT incurred overseas in the 2017 calendar year must be claimed by 30 September 2018

This is less than a month away and UK business must allow time to register for the refund portal as an activation code is sent via hard copy in the post. That’s HMRC moving with the time folks. No sending by text or anything similarly helpful.  There is no leeway to extend this deadline.

Please contact us if you have any queries or would like assistance on making a claim.

Changes to the import of goods

By   10 August 2018
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If a business imports goods from countries outside the EU, there are changes being made by HMRC which it needs to beware of. If a business currently uses the UK Trade Tariff to make Customs declarations it will be affected by these changes.

The changes are set out here for imports. We understand that the changes for exports will be made available later in the year.

If a business’ agent or courier completes its declarations on its behalf, it may be prudent for a business to contact them discuss the impact of the changes.

Background

An overview of the changes may be found here

And a general guide to importing here

Why is the Tariff changing?

HMRC is phasing in the new Customs declaration Service (CDS) here from August to replace the current Customs Handling of Import and Export Freight (CHIEF) system. As well as being a modern, digital declaration service, CDS will accommodate new legislative requirements under the Union Customs Code UCC here In order to comply with the UCC, a business will need to provide extra information for its declarations which can be found in the tariff.

When will a business be required to use the new Tariff?

The majority of importers will start using CDS after November 2‌018, once their software provider or in-house software team has developed a CDS compatible software package. Some importers will start making declarations on CDS before this, but there is no action for a business to take unless it has been contacted by HMRC to be part of this group.

Brexit

As is very common with Brexit, it is unknown how the UK leaving the EU will affect this position. With a No-Deal Brexit seeming likely, the above rules are likely to apply to goods brought into the UK from other EU Member States after next March.

Please contact us should you have any queries.

Beyblades – a Customs Duty case

By   17 July 2018
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Latest from the courts

In the Court of Appeal (CA) case of Hasbro European Trading BV (Hasbro) the issue was whether Customs Duty (CD) was due on the import of Beyblades. If they fall within the definition of a toy CD is payable at 4.7%. However, if they are more accurately classified as a game they are treated as duty free – so a significant difference in import cost dependent on what, superficially, appears to be a somewhat question of semantics.

Beyblades 

For the purposes of the case, it is important to understand what a Beyblade is and how it is used.

Beyblade is the brand name for a line of spinning tops originally developed and manufactured by Tomy in Japan. The main novelty is that they are a series of items which are customisable, with interchangeable parts. A Beyblade is set in motion by means of a rip-cord powered launcher.

A “game” is played with two players. Each player is allowed  a number of Beyblades to choose from during a match. Players may use any parts available to them to make their Beyblades), but may not switch parts once a match has started. The first player to reach seven points wins. Points are awarded to the player based on how their Beyblade knocks out the opponent’s

  • One point is awarded if the opponent’s Beyblade stops spinning
  • One point is awarded if the opponent’s Beyblade is knocked out of the stadium or into a pocket on the edge of the ring
  • Two points are awarded if the opponent’s Beyblade breaks during a game

The Arguments

The case concerned the classification of Beyblades’. The appellant, Hasbro contended that Beyblades are correctly classified as “articles for … table or parlour games” under heading 9504 of the Combined Nomenclature. In contrast, HMRC maintained that Beyblades should be classified as “other toys” under heading 9503,  The First-tier Tribunal FTT and the Upper Tribunal (U’) both previously agreed with HMRC’s analysis.

Classification

There are “explanatory notes” to the Harmonised System (HSENNs). The CA ruled that the classification rule which prefers the most specific description does not apply at the level of the HSENs: they are an important guide to interpretation, but do not have force of law.

The Decision

The CA allowed the appeal and went against the decisions in the FTT and UT. The judge concluded that “In the circumstances, it seems to me to fall to us to decide which of the alternative headings provides the more specific description. In my view, it is heading 9504. As I see it, “articles for … parlour games” encompasses a more limited range of goods than “toys” and “more clearly identifies Beyblades”, particularly since, as I say, “articles for … parlour games” reflects the fact that Beyblades are meant to be used in games…”. The fact that Beyblades are used in a competitive scenario seems to have swung the decision which knocked out HMRC. Consequently, there was no CD payable as they fell to be duty free.

Commentary

It does beg the question; why did this issue need to get to the CA for the appellant to finally win (but of course, this isn’t the first case which has raised that question). Perseverance was clearly the key word here. If you are convinced that HMRC is wrong on ay matter, it really does pay to challenge any ruling.