Tag Archives: EC

Claiming EU VAT refunds after Brexit

By   25 February 2019
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HMRC has confirmed that in the event of a No Deal Brexit businesses belonging in the UK will no longer be able to make claims for VAT incurred in other EU Member States using the electronic refund system.

Businesses claiming via the EU VAT refund electronic system need to submit a refund claim for 2018 by 5pm on 29 March 2019. If claims are submitted after that date HMRC will be unable to send the claim to the relevant EU Member State.

If a business incurs VAT in an EU Member State in 2019 it should not use the EU VAT refund system to make a claim as it is likely to be rejected by that Member State.

After 29 March, a business must claim VAT refunds from EU Member States directly by using the existing process for businesses based outside the EU (similar to the previous EC Eighth Directive claims for those with a good memory and in line with current the EC Thirteenth Directive). This includes outstanding claims that relate to 2018 expenses, and claims relating to 2019.

It is important to understand the process for each EU Member State as it can vary. For example:

  • the deadline for making your claim may be different
  • you may need to supply a certificate of Taxable Status to support a claim
  • you may need to appoint a tax representative in the EU Member State of refund

Check the EU’s Europa website for country specific information on VAT.

This is yet another reason (should one be needed) that a No Deal Brexit will create significant burdens on businesses. It will mean that up to 27 separate claims, in the language of the Member State in which the claim is made, rather than a single application. Good luck everybody!

VAT: Place of supply of “erotic services”

By   19 February 2019
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Latest from the courts

Readers of a nervous disposition may want to look away now.

In the case of Geelen C-568/17 (in French) the advocate General (AG) was asked for an opinion on the supply of what was coyly called webcam sessions.

Background

The defendant in the main proceedings, Mr Geelen, was a VAT registered person in The Netherlands. He provided the services of the organisation and provision of interactive erotic sessions broadcast live over the Internet. The models were located in the Philippines and Mr Geelen provided them with the necessary hardware and software to transmit the sessions over the Internet. Customers contacted the models via a website after creating an account for this purpose. The sessions were broadcast live and were interactive, which meant that customers had the opportunity to communicate with the models and give them instructions. The services provided by the defendant were intended for the Dutch market. I set out the arrangements here, as I am sure that none of my readers will be aware of such things * polite cough *

This is interesting as an example of technology overtaking legislation which was enacted before such services could even be contemplated (well, by the people drafting the VAT legislation anyway).

The issue 

The issue was where was the place of supply of these services. If they were in The Netherlands, then Dutch VAT would apply, but if they were deemed to be outside the EU, no EU VAT would be payable. The tax authorities considered that such services were subject to VAT in The Netherlands and issued a tax assessment notice.

Technical

Generally, the rule is that for B2C services the place of supply (POS) is where the supplier belongs. However, there is an exception for cultural, artistic, and entertainment activities. These are taxed where performed (outside the EU in this case if the exception is applicable).

Opinion

It was the AG’s opinion that, in the first place, there was no doubt that the services in question were entertaining…

However, he opined that the only way to provide cultural activities, entertainment, education, etc. was either to bring service users together at the actual place of service delivery, or to provide a service at the location of the users.

The technological development that has taken place since the relevant legislation was drafted has enabled services in which beneficiaries participate remotely, sometimes even actively, in a cultural, entertainment or other event, without necessarily doing so in real time. In a cultural reference: The “unity of action, time and place”, to refer to the categories of classical theatre, was thus upset.

In the AG’s opinion, these services were not intended to be covered by the exception. Consequently, these were not services “supplied where performed” and the general B2C rules applied, so the POS was The Netherlands and Dutch VAT was applicable.  It was concluded that performance does not take place where the models are based, or where the consumer was located, but where Mr Geelen brought together all elements of the supply.

Summary

The legislation must be interpreted as meaning that the services of organising and providing live interactive webcam sex do not constitute services for entertainment purposes within the meaning of the relevant provisions.

VAT and Brexit – Latest

By   21 January 2019
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HMRC has released additional information on a No Deal Brexit. The so-called Partnership Pack It covers:

  • Customs
  • Excise
  • VAT
  • Regulatory changes
  • Trade Tariff
  • Trading goods regulated under the ‘New Approach’

This is a quite detailed document at 119 pages and it states that:

“The government will work closely with industry to ensure that cross-border activity continues to be conducted in a way which minimises delays and additional burdens for legitimate trade, while robustly ensuring compliance.”

We shall see how well this works in practice in the event of a No Deal Brexit.

Specifically, there are details for the following matters:

  • Businesses importing from the EU only
  • Businesses exporting to the EU only
  • Trading with the EU and the rest of the world
  • Trading with the rest of the world only
  • Service industries
  • Businesses supplying services to the EU
  • Express courier industry and postal services
  • Tour operators
  • Creative, cultural and sport
  • Agrifood, animals and plants
  • Business importing and exporting plants and plant products from/to the EU and elsewhere
  • Businesses buying and selling timber or timber products in the EU Updates to this pack
  • Businesses selling duty-suspended alcohol, tobacco or fuel in the UK
  • Businesses and individuals exporting controlled goods
  • Businesses supplying medicines and medical devices
  • Businesses producing and exporting chemicals from outside the European Economic Area (EEA)
  • Businesses shipping waste into and out of the EU
  • Transporters
  • Haulage companies operating between the UK and the EU
  • Ferry or Channel Tunnel operators moving goods between the UK and the EU
  • Freight forwarders
  • Other operators at the UK border
  • Customs agents
  • Ports and airports
  • Customs warehouses
  • Temporary storage operators
  • Communication resources

This list is not exhaustive.

It is a useful document for any business to read but I hope that it is never required.

VAT: No Deal Brexit – new regulations for “imports”

By   14 January 2019
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A new Statutory Instrument (SI) SI 2018/1376 has been issued which sets out certain measures to be adopted in the event of a No Deal Brexit in respect of postal packets. A background to VAT and Brexit here

If the UK leaves the EU without a deal it will be unable to treat the movement of goods between EU Member States in the same way as previously. Such a movement of goods now become an import – similar to any other goods currently entering the UK from outside the EU. A guide to imports here

These regulations mean that certain overseas businesses will be required to register in the UK and pay import VAT on a consignment of goods up to the value of £135.

I have summarised below the most salient parts of the SI.

What is a qualifying import?

The regulations state that a “qualifying importation” is made where—

  • A supplier supplies goods for a consideration to a recipient in the course or furtherance of a business carried on by the supplier
  • the supplier is not established in the UK
  • the goods are dispatched from a place outside the United Kingdom to the United Kingdom in a postal packet
  • the value of the contents of the postal packet is £135 or less
  • the postal packet does not contain goods of a class or description subject to any duty of excise

There are two exceptions (there always appear to be exceptions in VAT…)

  • the supplier ensures that a UK-established postal operator has a legally binding obligation to pay any import VAT that is chargeable on that qualifying importation to the Commissioners
  • a non UK-established postal operator has an obligation under an agreement with the Commissioners to pay any import VAT that is chargeable on that qualifying importation.

Requirement to register

A supplier must be registered under the new regulations with effect from the date on which the first qualifying importation is dispatched by the supplier. There is no de minimis limit.

Application for registration

  • a notification of a requirement to be registered and an application to be registered must be made using electronic communications in such form and manner to be specified by HMRC
  • it must provide such information as specified by HMRC

Returns

Returns will be known as “Postal Packet Returns” and will be quarterly and will be due on the first calendar day after the last day of the month next following the end of the period.

Penalties

This being VAT – of course there are penalties for getting wrong.

The penalty for failure to register is a flat rate of £1000.

The SI also contains regulations for others to be jointly and severally liable for that import VAT in certain circumstances. Further, as expected, (see here) the SI also removes Low Value Consignment Relief (LVCR) for the import of commercial goods with a value of £15 or less.

A No Deal Brexit will undoubtedly increase administration, red tape and cause delays and uncertainties, and VAT is only one aspect of that. Let us hope that this SI is not needed…

VAT: Changes to EU 13th Directive claims

By   17 December 2018
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HMRC has announced procedural changes to overseas businesses reclaiming VAT incurred in the UK RCB 12 (2018)

The main changes are in relation to HMRC’s firmer stance on what constitutes an acceptable Certificate Of Status (CoS).

CoS

HMRC issues form VAT66A which can be used by overseas claimants to prove that they are engaged in business activities at the time of the claim.

The CoS must be the original and contain the:

  • name, address and official stamp of the authorising body
  • claimants name and address
  • nature of the claimant’s business
  • claimant’s business registration number

The CoS is only valid for twelve months. Once it has expired you will need to submit a new CoS.

What is a 13th Directive claim?

A non-EU based business may make a claim for recovery of VAT incurred in the UK. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, imports of goods, training, purchases of goods in the UK, and clinical trials etc.

Who can claim?

The scheme is available for any businesses that are not VAT registered anywhere in the EU, have no place of business or other residence in the EU and do not make any supplies in the UK.

What cannot be claimed?

The usual rules that apply to UK business claiming input tax also apply to 13th Directive claims. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.

Process

The business must obtain a CoS from its local tax or government department to accompany a claim. The application form is a VAT65A and is available here  Original invoices which show the VAT charged must be submitted with the claim form and business certificate. Applications without a certificate, or certificates and claim forms received after the deadline are not accepted by HMRC. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.

Deadline

Claim periods run annually up to 30 June and must be submitted by 31 December of the same year. Consequently, any UK VAT incurred in the twelve months to 30 June 2018 must be submitted by 31 December 2018. With the usual Christmas rush and distractions, it may be easy to overlook this deadline and some claims may be significant. Unfortunately, this is not a rapid process and even if claims are accurate and the supporting documents are in all in order the claim often takes some time to be repaid. Although the deadline is the end of the year HMRC say that it will allow an additional three months for submission of a CoS.

Note

There is a similar scheme for businesses incurring VAT in the UK which are based in other EU Member States. However, the process and deadlines are different. Additionally, if you are a UK business incurring VAT (or its equivalent) overseas, there are mechanisms for its recovery. Please contact us if you would like further information.

Excise Duty: Your Christmas drink of choice, or perhaps not

By   17 December 2018
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Advocate General (AG) Manuel Sanchez-Bordona has released his opinion in the Bene Factum case (The link is to Lithuanian, so you ‘may” need to translate…).

A curious matter and one which brings into focus the drinking habits of people across the EU. Now, as those who know me will be aware, I am not adverse to a good single malt, nor a decent claret, but I do wonder sometimes where people draw the line.

Background

It transpires that in Lithuania people who choose not to drink, or cannot afford, even the cheapest alcoholic items have turned to drinking perfume and mouthwash which contain isopropyl alcohol. This has a similar effect on the human body to what most people would regard as being from more usual beer, wine or spirits etc. Sounds delicious eh?

Issue

The issue was whether these products where subject to Excise Duty, or, as the appellant contended, they were duty free as cosmetic products.

Decision

The AG found that isopropyl alcohol is almost unpalatable to most people. The fact that Bene Factum held out, advertised and marketed to people to drink the products did not affect the fact that the main purpose of the goods was for their use as cosmetics and mouthwash. What must be considered is Excise Duty depends on an objective classification to determine whether it is intended for human consumption. This classification is not affected by the fact that Bene Factum actively encouraged people to drink these products rather than use them for cosmetic purposes.

Consequently, the goods where not subject to Excise Duty. Good news for Lithuanian alcohol connoisseurs! It remains to see if the court follows this opinion, in most cases they do, but one never knows.

Commentary 

If there is anybody out there who is getting ready for their Christmas party, looks at some cosmetic products and considers taking a swig, I make the following comments:

  • Probably best to stick supermarket own brand booze if money is an issue
  • I expect that these things taste absolutely terrible (although I have not sampled them)
  • I tend to stick to things that are to be applied externally doing just that with them without ingestion
  • If you can’t decide whether to gargle with something or drink it, I counsel spitting it out
  • If these goods come to the UK, at least they will be even cheaper being duty free. I am not sure that is a good thing.

VAT: EC adopts short term fixes

By   5 December 2018
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The European Council (EC) will adopt short-term fixes to the current VAT system.

The EC agreed three short legislative acts aimed at adjusting some of the EU’s VAT rules in order to fix four specific issues pending the introduction of a new VAT system. These relate to:

  • call-off stock. The text provides for a simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state
  • the VAT identification number. To benefit from a VAT free treatment for the intra-EU supply of goods, the identification number of the customer will become an additional condition
  • chain transactions. To enhance legal certainty in determining the VAT treatment of chain transactions, the texts establish uniform criteria
  • proof of intra-EU supply. A common framework is established for the documentary evidence required to claim a VAT exemption for intra-EU supplies

These adjustments are due to apply from 1 January 2020.

In parallel, discussions are ongoing on a definitive VAT system to replace the current ‘transitional’ VAT arrangements, applied since 1993. Pending introduction of the new system, the four short-term quick fixes are proposed.

VAT: Time of supply (tax point). Baumgarten Sports case

By   4 December 2018
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Latest from the courts

In the Baumgarten Sports EJEU case, the matter was the time of supply of a German football agent’s services.

Background

As is common in the football world, clubs make payments to agents in order to obtain the services of footballers. When the agent places a player with a football club, it receives commission from that club, provided that the player subsequently signs an employment contract and holds a licence issued by the Deutsche Fußball Liga GmbH (German Football League). The commission is paid to the company in instalments every six months for as long as the player remains under a contract with that club.

The arguments

The German tax authorities took the view that a tax point was created when Baumgarten Sports services were complete – when the contract was signed, and that output tax was due in full at that time The appellant contended that the rules for “successive payments” applied and that VAT was due on each six monthly payment.

Legislation

The issue is covered by Articles 63 and 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’).

Decision

The supply of services gave rise to successive payments, the chargeable event for VAT occurs and VAT becomes chargeable on expiry of the periods to which those payments relate (re; Asparuhovo Lake Investment Company, C‑463/14).

The chargeable event (tax point) and chargeability of a tax on the supply of the agent’s services must be regarded as occurring, not when the player is placed, but on expiry of the periods to which the payments made by the club relate.

Commentary

It is useful to look at the UK tax point rules for services, which I have summarised here:

VAT must normally be accounted for in the VAT period in which the tax point occurs and at the rate of VAT in force at that time. Small businesses may, however, account for VAT on the basis of cash paid and received.

Although the principal purpose of the time of supply rules is to fix the time for accounting for, and claiming VAT, the rules have other uses including

  • calculating turnover for VAT registration purposes
  • establishing the period to which supplies (including exempt supplies) are to be allocated for partial exemption purposes, and
  • establishing when and if input tax may be deducted

The tax point for a transaction is the date the transaction takes place for VAT purposes. This is important because it crystallises the date when output tax should be declared and when input tax may be reclaimed. Unsurprisingly, get it wrong and there could be penalties and interest, or VAT is declared too early or input tax claimed late – both situations are to be avoided, especially in large value and/or complex situations.

The basic tax point for a supply of services is the date the services are performed.

Actual tax point

Where a VAT invoice is raised or payment is made before the basic tax point, there is an earlier actual tax point created at the time the invoice is issued or payment received, whichever occurs first.

14 Day Rule

There is also an actual tax point where a VAT invoice is issued within 14 days after the basic tax point. This overrides the basic tax point.

Continuous supply of services 

If services are supplied on a continuous basis and payments are received regularly or from time to time, there is a tax point every time:

  • A VAT invoice is issued
  • a payment is received, whichever happens first

Deposits

Care should be taken when accounting for deposits. The VAT rules vary depending on the nature of the deposit. In some circumstances deposits may catch out the unwary, these could be, inter alia; auctions, stakeholder/escrow/solicitor accounts in property transactions, and refundable/non-refundable deposits. There are also other special provisions for particular supplies of goods and services, for eg; TOMS.

Summary

The tax point may be summarised (in most circumstances) as the earliest of:

  • The date an invoice is issued
  • The date payment is received
  • The date title to goods is passed, or services are completed.

Planning

Tax point planning can be very important to a business. the aims in summary are:

  • Deferring a supplier’s tax point where possible
  • Timing of a tax point to benefit both parties to a transaction wherever possible
  • Applying the cash accounting scheme (or withdrawal from it)
  • Using specific documentation to avoid creating tax points for certain supplies
  • Correctly identifying the nature of a supply to benefit from certain tax point rules
  • Generating positive cashflow between “related” entities where permitted
  • Broadly; generate output tax as early as possible in a VAT period, and incur input tax as late as possible
  • Planning for VAT rate changes
  • Ensure that a business does not incur penalties for errors by applying the tax point rules correctly.

As always, please contact us if you have any queries.

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.