Category Archives: International

VAT: Are aphrodisiac products food? – The X case

By   1 October 2020
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Latest from the courts

Can products designed to, errr… stimulate sexual desire be treated as foodstuffs?  – Only in VAT do such questions ahem arise eh?

Background

X (the name of the business), sold items in its sex shop which included; capsules, drops, powders and sprays presented as aphrodisiacs that stimulate libido. Those products, which are composed essentially of elements of animal or vegetable origin, were intended for human consumption and were to be taken orally.

X applied the reduced rate to these products (the rate in The Netherlands, certain food in the UK is zero rated) treating the sexual stimulants as foodstuffs.

This was challenged by the tax authorities as it was not considered that they fell within the definitions of ‘foodstuffs for human consumption’. Assessments were issued for the difference between the reduced rate and the standard rate. The case was referred to the ECJ – C-331/19  Staatssecretaris van Financiën vs X

The Gerechtshof den Haag (Court of Appeal, The Hague, Netherlands) found in favour of X, ruling that the use of the products in question as aphrodisiacs did not preclude them from being taxed at the reduced rate applicable to foodstuffs. This was broadly on the basis that the products were intended to be consumed orally and were made from ingredients that may be found in foodstuffs.

The VAT Directive contains no definition of the concepts of ‘foodstuffs for human consumption’ or ‘products normally used to supplement foodstuffs or as a substitute for foodstuffs, so that is, at the least, unhelpful, although it was emphasised that the words must be interpreted in accordance with the usual meaning of them in everyday language.

Decision

It was ruled that any product intended for human consumption which provides the human body with the nutrients necessary to keep the human body alive and enable it to function and develop comes within the scope of the category set out in point 1 of Annex III to the VAT Directive, even if the consumption of that product also aims to produce other effects.

Further; the nutritional role was a decisive factor for a product to be classed as a ‘foodstuff for human consumption’/ The question whether that product has health benefits, its ingestion entails a certain pleasure for the consumer, or its use is part of a certain social context, is irrelevant. Consequently, the fact that consumption of that product has positive effects on the libido of the person ingesting it is irrelevant.

So, aphrodisiacs can be food.

Action

If any business which sell such products which, incidentally, contain nutrients may have a VAT claim based on this case.

VAT and Customs Duties: How to use a Customs Warehouse

By   24 September 2020
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With the reality of Brexit fast approaching, businesses should be planning for a No-deal outcome.

One result of Brexit is likely to be the increase in the number of importers using a Customs Warehouse (CW). If a business imports goods from outside the UK (which will include other EU Member States from 1 January 2020) and it wants to store the goods to delay duty payments, this can be done in a CW.

HMRC has, this month, as a result of the anticipated increase, updated guidance on the use of a CW. Interested parties may wish to consider this publication.

Overview

There are two types of customs warehouse where you can store your goods.

  • Public warehouse

This is a warehouse operated by a business whose purpose is to store other people’s goods. They are the warehousekeeper and you are the depositor.

  • Private warehouse

This is a warehouse operated by a business to store its own goods. That business is the warehousekeeper and the depositor.

Paying duty and import VAT

A business will need to pay any Customs Duty due and import VAT when it removes its goods from a CW to free circulation (not at the time the goods enter the UK).  This a different procedure to duty deferment and often improves cashflow.

Placing goods in a CW

A business is responsible for:

  • correctly declaring the goods – if it uses an agent, it must give them clear written instructions about declaring the goods
  • ensuring that the goods are sent directly to the CW named on your declaration, within five days of Customs clearance
  • providing the warehousekeeper with all the details of the customs declaration
  • ensuring that the CW is approved for the type goods being deposited including chilled, frozen or requiring special storage needs, eg; chemicals
  • goods being correctly declared on removal from the warehouse

Removing goods from a CW

  • when a business releases goods to free circulation, it is ‘discharging’ or removing them from a CW and will pay any VAT and duty due
  • customs declaration will be required to remove the goods or declare them to another procedure
  • a business will be notified electronically of the entry number and it can remove the goods after it has made the declaration

Further details on managing a CW here.

VAT: Changes to duty-free and tax-free goods carried by individuals

By   15 September 2020
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Duty Free extended to the EU from January 2021

HMRC has announced changes to the treatment of excise duty and VAT of goods purchased by passengers for their own use and carried across borders luggage.

Passengers will be able to buy duty-free alcohol and tobacco products in British ports, airports, and international train stations, and aboard ships, trains and planes when travelling to EU countries.

Currently, the UK applies EU rules to these goods and there are differences between passengers traveling to and from EU member States and to and from countries outside the EU. From 1 January 2021 post Brexit the rules will change. These apply to GB rather than Northern Ireland and are:

  • the amount that passengers can bring back with them from non-EU Countries will also be increased, and extended to EU countries
  • tax-free sales in airports of goods such as electronics and clothing for passengers will end
  • VAT refunds for overseas visitors in British shops (the Retail Export Scheme – RES) will be removed. Currently, non-EU individuals can reclaim VAT incurred on retail purchases via the RES
  • however, overseas visitors will be able to buy items VAT-free in store but only if they have them sent direct to their overseas address. After 1 January 2020 this will be extended to EU countries
  • personal allowances will be:
    • 18 litres of still wine
    • 4 litres of spirits or 9 litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV
    • 200 cigarettes or
    • 100 cigarillos or
    • 50 cigars or
    • 250g tobacco or
    • 200 sticks of tobacco for heating
    • or any proportional combination of the above smoking products
  • UK excise duty will no longer be due on alcohol and tobacco bought when leaving GB. For example, alcohol purchased duty-free on the way to the EU

Commentary

Although sold by the government as applying our new freedoms and extending duty free, in reality, the current system permits bringing in alcohol and tobacco which was purchased for a cheaper price in other EU Member States (the duty being greatly lower than the UK and the goods themselves often cheaper) in almost unlimited quantities, so it is unlikely to be very beneficial for passengers.

Retailers will need to recognise the changes, particularly the removal of the RES and the end of tax-free sales of certain goods at airports.

VAT: Staff costs – The San Domenico Vetraria SpA case

By   24 August 2020
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Latest from the courts

In the San Domenico Vetraria SpA CJEU case the issue was the treatment of the secondment of staff by an Italian parent company to its subsidiary and the reimbursement by the subsidiary company of the costs incurred. Was there a VAtable supply?

Background

The issue was whether the relevant payment represented a supply of services ‘for consideration’. The parent company seconded one of its directors to its subsidiary and a charge was made based solely on a reimbursement of actual costs. The Italian domestic court ruled that the transaction was outside the scope of VAT on the basis that there was no consideration paid or received and therefore no supply of services.

Decision

The court ruled that despite the fact that the value of the payment to the parent company was limited to the parent company’s costs this did not mean that consideration for the director’s secondment was absent. Therefore, as consideration flowed in both directions, a taxable supply took place such that VAT was due, the claim of input tax made by the subsidiary was correct and the Italian authorities were incorrect to deny credit for it.

The President of the Chamber stated in the ruling that “The amount of the consideration, in particular the fact that it is equal to, greater or less than, the costs which the taxable person incurred in providing his service, is irrelevant in that regard”. It was immaterial that no profit was made, and the absence of such profit did not affect the VAT treatment.

There was a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.

Commentary

This is a useful clarification/confirmation. The supply was not a disbursement (details here) so it was a supply by the parent company. More on inter-company charges here.

Planning

If the recipient company was partly exempt or unable to reclaim the input tax for any reason, the VAT would have represented a real cost. So, would there be a way to avoid this charge? The answer (in the UK at least) is yes. If the director had a joint contract of employment with both companies, there would be no supply. Also, if the two companies were part of the same VAT group, the “supply” would be disregarded, so there would be no VAT cost for the subsidiary.

VAT Planning – Why?

By   20 August 2020
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Why? How? Where? When? What? Who?

Why?

It is impossible for any business to do such a basic thing as set its prices properly unless it understands its VAT position and ensures that this is reflected in those prices, terms and contract terms etc. The aims of tax planning are:

  • compliance
  • business planning
  • avoiding unnecessary tax costs
  • maximising input tax claims
  • minimising VAT payable where possible
  • obtaining any refunds and retrospective claims due
  • avoiding penalties and interest

How?

The “How?” is dependent on the specific business and its needs. We offer a flexible and tailored service from start-ups to multi-national companies. We offer:

  • solutions to ad hoc issues
  • negotiation
  • structuring and restructuring
  • contractual arrangements
  • Dispute resolution (with HMRC, suppliers, customers etc)
  • full reviews and health checks
  • training of staff and management
  • assistance with international/cross-border supplies and purchases
  • due diligence
  • cost reduction exercises
  • income maximisation programmes
  • comprehensive land and property advice
  • advice on overseas indirect/GST matters both EC and non-EC
  • accounting and documentation advice

The VAT planning process – “The four As”

  • Ascertainment
  • Analysis
  • Alternatives
  • Action

More details of this approach here.

Where?

VAT, or its derivations applies in most countries around the world. So, the answer is probably “everywhere”. This is particularly relevant with cross-border transactions. A common issue is the “Place Of Supply” (POS) rules which dictate where a supply takes place and thus the VAT liability of it.

When?

Planning needs to be done in advance of transactions.  Once a contract has been entered into without thought for the VAT consequences, the damage may have already been done.

Where there is a one-off transaction (eg; sale of premises, sale of know-how, issue of shares), this is, by definition, something of which the business has little experience.  It is an occasion to assume that advice is needed, rather than to assume that the most obvious treatment is correct.

Since the impact of a change in the pattern of a business’ activities will continue down the years, rather than being restricted to a single occasion, it is doubly important to ensure that the correct treatment is identified from the outset.

Periodic reviews are a good time to look, not only at the future, but also at the past, to see whether developments in case law reveal past overpayments which may be reclaimed.  This is particularly important since repayments are subject to the four-year capping provisions.

The essential step is to have some means of becoming aware of changes and monitoring these with VAT in mind.  The means to be adopted are various and will depend on the size and type of the business.

What?

“Right tax, right time”. This means compliance with the relevant legislation but not paying any more VAT than is necessary. As one wag once said; “You must pay taxes. But there’s no law that says you have to leave a tip.”

Since VAT is a transaction-based tax, timing is often crucial and the objective is to legitimately defer payment to HMRC until the latest time possible, thus improving cash flow and retaining the use of VAT monies for as long as possible. The converse of this of course, is to obtain any repayments of VAT due from HMRC as soon as possible. We must also consider avoiding VAT representing an actual cost and taking advantage of any beneficial UK and EC legislation, determinations, guidance, case law and Business Briefs etc available.

VAT Planning objectives

  • improve cash flow
  • improve competitive position
  • legitimately reducing VAT payments or increasing repayments
  • minimise administration/management
  • avoid unnecessary tax or compliance costs
  • avoid penalties and interest

Who?

Marcus Ward Consultancy of course!

VAT: Post Brexit – low value consignments. New rules

By   27 July 2020
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From 1 January 2021 there will be changes to the VAT treatment of low value consignments (LVC). These are goods with a value up to £135 – the threshold for customs duty liability. The HMRC guidance states that VAT will be collected at the point of sale rather than on import.

The changes are intended to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports.

Brief summary

  • LVC Relief, which relieves import VAT on consignments of goods valued at £15 or less will be abolished
  • Online marketplaces, where they are involved in a sale, will be responsible for collecting and accounting for VAT
  • If no online marketplace is involved, the overseas seller will be required to register in the UK
  • LVC B2B sales will be subject to the new rules. However, where the business customer is VAT registered in the UK VAT will be accounted for by the customer by a reverse charge
  • Although the new rules mean that there will no longer be any VAT to collect at the border, Customs declarations will still be required at import, although these will be simplified
  • For goods imported by UK VAT registered businesses which are not covered by the provisions will be able to use postponed VAT accounting
  • Sales made by persons who are not in business are outside the scope of the new measures. This includes gifts and consignments sent from consumer to consumer

VAT: New government guide to imports and exports from/to the EU post Brexit

By   20 July 2020
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On 13 July 2020 the Government published new guidance which sets out procedures for businesses moving goods between GB and the EU from 1 January 2021. These do not cover the movement of goods between GB and Northern Ireland which are covered by different rules.

On 1 January 2021 the transition period with the EU will end, and the UK will become a “third country” and as such, it will be required to operate a full, external border, in a manner similar to the UK’s current position with the Rest of World (ROW). This means that controls will be placed on the movement of goods between GB and the EU for the first time in decades.

The principles of the so-called “Core Model” will apply to all goods movements between GB and the EU, regardless of the mode of transport of the movement.

HMRC has stated that, to afford industry extra time to make necessary arrangements, it has taken the decision to introduce the new border controls in three stages up until 1 July 2021.

The guidance covers the core process of;

  • customs declarations
  • customs duty
  • import VAT
  • safety and security declarations (imports and exports)

It sets out actions that businesses should take now (especially in light of the coronavirus position), as they will be required regardless of the outcome of continuing negotiations (which, let’s face it, are likely to amount to nothing).

Some other changes will affect only specific goods movements, eg; foodstuffs which will include the need for special certifications, entering the country via specific locations, and undergoing
additional checks at the border.

If not already in place, businesses need to:

  • apply for a GB eori number
  • apply for a duty deferment Account
  • prepare to pay or account for VAT on imported goods
  • ensure drivers have correct International Driving Permits
  • consider commercial arrangements
  • consider incoterms
  • obtain the Commodity Code of goods
  • establish the customs value of goods
  • consider how customs declarations to HMRC systems will be made and the use of an Customs intermediary

The EC has published a new version of the Guidance on Customs on 14 July 2020.

This a comprehensive guide is absolutely essential reading for any business which imports or exports goods cross border (transactions known as acquisitions and dispatches from/to the EU pre-Brexit). The publication demonstrates that there will be considerably more red tape and delays which will not reduce in the future. The marketability of GB goods in the EU is unlikely to increase and, if there is no alternative to importing goods from the EU, the cost and time taken to purchase will grow.

Good luck everybody!

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VAT: New EU Action Plan – The “Tax Package”

By   16 July 2020
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The EU has announced on 15 July 2020 a new Action Plan for fair and simple taxation. The Tax Action Plan is a set of 25 initiatives the European Commission will implement between now and 2024 to make tax “fairer, simpler and more adapted to modern technologies”. Full details of the ‘Tax Package” here.

The main areas may be summarised as:

  • a single EU VAT registration to replace non-resident registrations to eliminate the need for non-resident VAT registrations. The registration number would enable a taxpayer to provide services and/or sell goods anywhere in the EU
  • plans to complement existing national and international programmes on co-operative compliance including agreements with third-countries (including the UK post Brexit)
  • reforms of VAT on Financial Services including measures for e-digital economy (Fintech) and financial and insurance outsourcing
  • proposals to change Tour Operators Margin Scheme (TOMS) rules to simplify what is recognised as a complex and distortive VAT area
  • platform economy; a review of the role of marketplaces in collecting VAT on behalf of individuals on their platforms
  • simplification of the place of supply of passenger transport services (said to be for for greener taxation)
  • advances in e-payment facilities for VAT for small and medium sized businesses
  • extension of MOSS to all B2C sales across the EU (in addition to the proposals announced in respect of the 2021 extension for Distance Selling)
  • measures to combat cross-border VAT fraud including improved analysis of EU level data and a move to automated VAT data sharing
  • a reduction of the regulatory burden for e-commerce Distance Sales of goods subject to excise
  • consideration of the treatment of crypto-assets and e-money which is considered a threat to tax transparency and which poses “substantial risks for tax evasion”
  • proposals for reducing tax disputes and monitoring the effectiveness of the dispute resolution mechanisms in Member States

This list is not exhaustive and is a guide only.

The Commission says it aims “to lead the transition into a greener and more digital world that is compatible with the principles of our social market economy”. And that “Fair, efficient and sustainable taxation is central in delivering on those ambitions”. It added that this “will be even more important in the months and years ahead, as the EU and the global community seek to recover from the fallout of the COVID-19 crisis”.

Comment

How these intended changes impact the UK after Brexit remains to be seen, however, in an increasingly worldwide marketplace lead by technology, it is difficult to understand how the UK can live in isolation.

#VAT #Value-Added-Tax #marcus-ward #Marcus-ward-vat #VAT-business #VAT-place-of-supply #VAT-POS #business #VAT-supply #VAT-supply #penalty #VAT-penalty #VAT-penalties #VATable #HMRC #EC #EU #European-Union #VAT-Law #VAT-legislation #tax #GST #SME #start-up #new-business #newbiz  #VAT-registration #tax-law #VAT-invoice #VAT-return #VAT-declaration #VAT-return #VAT-reporting #VAT-rules #EC-sales-list #VAT-cross-border #VAT-services #VAT-goods #VAT-international #International-tax #export #import #customs-duty #excise-duty #VAT-fraud #VAT-guide #VAT-MOSS  #tax- digital #indirect-tax #tax-refund #VAT-refund #VAT-planning #tax-planning #VAT-compliance #tax-claim #VAT-claim #tax-legislation #VAT-financial-services #VAT-FS #VAT-agent #VAT-principal #VAT-agent-principal #VAT-input-tax #VAT-output-tax #VAT-underdeclaration #VAT-overclaim #VAT-online #VAT-digital #VAT-distance-selling #VAT-HMRC #Brexit

VAT: Latest on overseas claims from the UK

By   15 July 2020
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HMRC has announced in Revenue and Customs Brief 9 (2020) that there are delays in processing and refunding claims submitted under the Overseas Refund Scheme (EU 13th directive claims). These refunds are for VAT incurred in the UK by businesses belonging outside the EU and relate to the period ending 30 June 2019.

The delays are as a result of the COVID19 pandemic. HMRC say that they hope to make all payments 30 September 2020.

Certificate of status

HMRC says that it is aware that some overseas businesses may not be able to obtain the required certificate of status from their official issuing authorities due to the coronavirus.

If a business has submitted a claim without a certificate of status, it will not be rejected, but it will be put on hold until 31 December 2020.

If, in these circumstances, a business is unable to obtain the relevant certificate of status by 1 October 2020, it needs to write to HMRC to let them know and the specifics of the case will be considered.