Tag Archives: VAT-CJEU

The interaction between Transfer Pricing and VAT

By   20 February 2024
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Are Transfer Pricing (TP) adjustments subject to VAT? – Usually no, but…

What is TP?

A transfer price is the price charged in a transaction between two parties. The transfer pricing legislation concerns itself with the prices charged in transactions between connected parties as, in such circumstances, the price charged may not necessarily be that which would have been charged if the parties had not been connected.

The UK’s transfer pricing legislation details how transactions between connected parties are handled and in common with many other countries is based on the internationally recognised ‘arm’s length principle’.

The UK allows only for a transfer pricing adjustment to increase taxable profits or reduce a tax loss. It is not possible to decrease profits or increase a tax loss.

The UK’s transfer pricing legislation also applies to transactions between any connected UK entities.

The arm’s length principle applies to transactions between connected parties. For tax purposes such transactions are treated by reference to the profit that would have arisen if the transactions had been carried out under comparable conditions by independent parties.

So, is a TP adjustment additional consideration for a supply?

VAT

Value of the supply – what is the consideration?

TP is a direct tax concept which does not necessarily align with VAT considerations. Unhelpfully, there are no provisions in UK legislation which provides for the VAT treatment of TP adjustments. Additionally, there is no case law on this subject.

As a TP adjustment is solely for direct tax purposes, it does not usually affect the value of the supply for VAT purposes. Consequently, such adjustments are usually outside the scope of VAT.

However, price adjustments of previous supply of goods/services must be recognised for VAT market value rules only when:

  • the supply is taxable
  • the relevant input tax is not fully recoverable and
  • HMRC issues an ‘Open Market Value Notice’ to the parties requiring them to apply market values for VAT.

VAT Act 1994, Schedule 6, Part 2, para 1 gives HMRC the vires to issue such a Notice.

Latest

We understand that a case: Arcomet Romania is due to be heard by the CJEU on whether TP adjustments represent consideration and we await the outcome which may provide clarity. (Although after Brexit, the previous position: that the UK VAT Act is to be interpreted with EU case law and general principles of EU law has ended. UK courts whilst still relying on the UK VAT Act and its EU VAT Directive principles, will be able to deviate from ECJ case law).

 

 

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: Place of belonging. The Berlin Chemie A Menarini case

By   13 April 2022
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Latest from the courts

The place of belonging of a business or other person is an important tenet of the tax. I have considered this issue at length here and recent case law here.

A recent CJEU case involved a situation where a business had a registered office in one country and, potentially (hence the appeal) a fixed establishment in another.

Background

“Berlin” used a “third party” to receive certain services. Does this entry represent a fixed establishment for Berlin if it has a sufficient degree of permanence and a suitable structure in terms of technical and human resources? If yes, is it is necessary for those human and technical resources to belong to the company receiving the services or whether it is sufficient for that company to have immediate and permanent access to such resources through a related company, of which it is major shareholder?

Technical

The wording of Article 44 of the VAT Directive and Article 11(1) of Implementing Regulation No 282/2011 do not provide any details as to whether human and technical resources must belong to the company that receives the services.

Decision

The CEUJ ruled that, simple control or ownership, of another entity is insufficient to create a fixed establishment for VAT purposes. Consequently, a third party location does not inevitably represent a fixed establishment by dint of control/ownership.

Having made that comment, the court impressed that the decision should be made “in the context of the economic and commercial reality”.

The analysis of the place of belonging should recognise that it is not necessary for the fixed establishment to own the resources, but there should be control over these resources in the same way as an “owner”.  A fixed establishment is characterised by a suitable structure which enables a business to receive and use services supplied to them for their own needs and not by the decision power of a certain structure that businesses have put in place.

Commentary

Although an EU case, it could impact UK businesses who make supplies to EU recipients and particularly, if there is a “network” of offices or business locations in various EU Member States. Overseas suppliers to (potentially) UK business with various business premises and structures will need to recognise this ruling in order to establish the place of supply (and hence what country’s VAT and at what rate to apply).

This decision provides some helpful clarity, which may be summarised as: In principle, a subsidiary does not always create a fixed establishment.