Tag Archives: vat-free

VAT: Worldwide rates and registration limits

By Marcus Ward 20 May 2019

It can be difficult finding the answer to simple questions on VAT/GST. So, I provide a summary below of the rates of VAT applicable in the major countries which apply VAT/GST and the amount of income per year that a domestic business may receive before it is required to VAT register. You, or your clients, will need to be aware of these if they have a Place Of Supply (POS) overseas. I hope that it is useful to have this information all in one place – a “cut out and keep” type document!

Worldwide VAT/GST rates			Annual turnover limit for Registration
	Standard rate	Reduced rates	National currency	Limit
Australia	10.0	0.0	AUD	75 000
Austria	20.0	10.0/13.0	EUR	30 000
Belgium	21.0	0.0/6.0/12.0	EUR	25 000
Canada	5.0	0.0	CAD	30 000
Chile	19.0	N/A	CLP	None
Czech Republic	21.0	10.0/15.0	CZK	1 000 000
Denmark	25.0	0.0	DKK	50 000
Estonia	20.0	0.0/9.0	EUR	40 000
Finland	24.0	0.0/10.0/14.0	EUR	10 000
France	20.0	2.1/5.5/10.0	EUR	82 800
Germany	19.0	7.0	EUR	17 500
Greece	24.0	6.0/13.0	EUR	10 000
Hungary	27.0	5.0/18.0	HUF	8 000 000
Iceland	24.0	0.0/11.0	ISK	2 000 000
Ireland	23.0	0.0/4.8/9.0/13.5	EUR	75 000
Israel	17.0	0.0	ILS	99 003
Italy	22.0	4.0/5.0/10.0	EUR	65 000
Japan	8.0	N/A	JPY	10 000 000
Korea	10.0	0.0	KRW	30 000 000
Latvia	21.0	5.0/12.0	EUR	40 000
Lithuania	21.0	5.9/9.0	EUR	45 000
Luxembourg	17.0	3.0/8.0/14.0	EUR	30 000
Mexico	16.0	0.0	MXN	None
Netherlands	21.0	9.0	EUR	1 345
New Zealand	15.0	0.0	NZD	60 000
Norway	25.0	0.0/12.0/15.0	NOK	50 000
Poland	23.0	5.0/8.0	PLN	200 000
Portugal	23.0	6.0/13.0	EUR	10 000
Slovak Republic	20.0	10.0	EUR	49 790
Slovenia	22.0	9.5	EUR	50 000
Spain	21.0	4.0/10.0	EUR	None
Sweden	25.0	0.0/6.0/12.0	SEK	30 000
Switzerland	7.7	0.0/2.5/3.7	CHF	100 000
Turkey	18.0	1.0/8.0	TRY	None
United Kingdom	20.0	0.0/5.0	GBP	85 000

Source National Delegates – position as at 1 January 2019

Notes

Reduced rates include zero-rates applicable to domestic supplies (ie; exemption with right to deduct input tax). They do not include zero-rated exports or other supplies subject to similar treatment such as international transport.

Registration/collection thresholds identified in this table are general concessions that relieve domestic suppliers from the requirement to register for and/or to collect VAT/GST until such time as they exceed the turnover threshold. Thresholds shown in this table apply to businesses established in the country. In most countries, the registration threshold does not apply to foreign businesses ie;. businesses having no seat, place of business, fixed establishment, domicile or habitual residence within the country.

The future of VAT and online marketplaces

By Marcus Ward 7 May 2019

Latest

The Organisation for Economic Co-operation and Development (OECD) recently held a forum which considered how to level the playing field between traditional and online businesses and to collect the correct amount of tax. It is recognised that the current rules and different application of those rules in different countries has led to VAT not being collected in full in respect of online transactions.

OECD

The OECD Global Forum on VAT is a platform for a global dialogue on international VAT standards and key issues of VAT policy and operation.

The report

The subsequent report The role of digital platforms in the collection of VAT/GST on online sales focuses on the design of rules and mechanisms for the effective collection of VAT on digital sales of goods, services and intangibles, including sales by offshore digital sellers. It states that it provides “practical guidance to tax authorities on the design and implementation of a variety of solutions for enlisting the platforms economy, including e-commerce marketplaces and other digital platforms, in the effective and efficient collection of VAT/GST on digital sales”.

Background

Tax action is necessary as global B2C e-commerce sales of goods alone are now estimated to be worth in the region of USD 2 trillion annually with projections indicating they may reach USD 4.5 trillion by 2021, USD 1 trillion of which is estimated to be cross-border e-commerce with approximately 1.6 billion consumers buying online. This clearly represents considerable VAT revenue which is at stake.

See details on online evasion here

Issues

The problems which have been identified in previous report are:

imports of low-value parcels from online sales which are treated as VAT free in many jurisdictions, and
the strong growth in the trade of services and intangibles, particularly B2C, on which often no, or an inappropriately low amount of VAT is levied due to the complexity of enforcing VAT payment on such supplies

Exemptions for imports of low-value goods have become increasingly controversial in the growing digital economy. At the time when most of these exemptions were introduced, internet shopping did not exist and the level of imports benefitting from the relief was relatively small. Over recent years, many countries have seen a significant and rapid growth in the volume of low-value imports of goods on which VAT is not collected. This results in decreased VAT revenues and unfair competitive pressures on domestic retailers who are required to charge VAT on their sales.

Summary

The focus was on the rôle of digital platforms. These are capable of collecting a vast amount of data. The report stated that it is reasonable to require this information/data to be shared and that is proportionately relevant for VAT compliance purposes, ie; necessary to satisfy the tax authorities that the tax for a supply has been charged and accounted for correctly by the underlying supplier.

The two potential models are:

to make the digital platform fully liable for the payment and remittance of VAT on the online sales they facilitate
or, alternatively, to limit the responsibility of the digital platforms to simply assisting authorities in the collection of VAT

Implementation

Two options could be considered for the implementation of any information sharing obligation for digital platforms in connection to online sales:

provision of information on request. Under this option, a jurisdiction requires that a digital platform retains records of the sales that are subject to VAT in that jurisdiction, and that this information be made available on request.
systematic provision of information. Via this option, a digital platform is required to systematically and periodically provide information on online sales carried out via the platform to the tax authority of the jurisdiction of taxation.

Overall

The report is a good “solid” and long study (I cannot however, recommend it as holiday reading, although the above précis may assist). The proposed solutions are sensible, considered and workable and are likely to, at least, provide more equality and a better way for tax authorities to collect tax which is due.

VAT: Transactions in Bitcoins

By Marcus Ward 1 May 2019

Further to my articles here and here concerning transactions involving cryptocurrencies, and considering the increased use of them, it seems timely to provide an update on the VAT treatment of certain business activities which use Bitcoins as a value for exchange, or payment for goods or services.

What is cryptocurrency?

Cryptocurrency is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.

What is Bitcoin?

Bitcoin was the first popular cryptocurrency and it first appeared in 2009. The advantage of bitcoin is that it can be stored offline on the owner’s local hardware (a process called cold storage) which protects the currency from being taken by others. If a person loses access to the hardware that contains the bitcoins, the currency is lost forever, and it is estimated that as much as 23% of bitcoin has been mislaid by miners and/or investors.

Exchange between currencies and bitcoin

The VAT treatment of transactions exchanging traditional currencies for Bitcoin, or Bitcoin for currencies carried out for consideration (added by the supplier) are exempt services in a similar way to any other currency transactions via The VAT Directive Article 135(1)(e).

Paying for goods or services using Bitcoin

Similar to any other payment method, simply using Bitcoin to obtain goods or services is outside the scope of VAT and no VAT is due on the value the Bitcoin represents. That is to say that the authorities do not consider that such a transaction is a barter.

Provision of goods or services in return for Bitcoin payment

The provision of goods or services paid for in Bitcoin are treated in a similar way as any supplied for consideration consisting of

Traditional currencies, or
Non-monetary consideration

and the value is; anything received by the supplier in consideration of that supply.

Should the consideration be in Bitcoin, there two alternatives for the conversion of foreign currencies into the main currency of a Member State (although these were drafted before the introduction of Bitcoin and originally relate simply to foreign currencies)

the latest exchange rate recorded on the most representative exchange market of the Member State, or
the latest exchange rate published by the European Central Bank

However, as above, because Bitcoin is not administered by any bank, this may make valuation difficult. The VAT Committee of the European Commission (EC) has indicated that a potential resolution is to use Open Market Rate (OMR*) as the exchange of the virtual currency. This would be the responsibility of the supplier. This is likely to be commercially available information from the websites of the likes of; coindesk, Cryptocompare or Cointelegraph for eg.

All of the above seems logical, although confirmation provided by the EC VAT Committee is welcome.

* OMR is the amount for which an asset is transferred between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

VAT: Zero rating of prescriptions

By Marcus Ward 29 April 2019

Latest from the courts

The UK is unique in the EU for the zero rating of medicines prescribed by a registered medical practitioner.

In the First Tier Tribunal (FTT) case of Pearl Chemist Ltd (Pearl) the issue was whether the development of new technology and legislation affected the zero rating of prescriptions written by UK registered and non-UK registered doctors and the interpretation of “registered medical practitioner”.

Background

Pearl is authorised to dispense medicines prescribed online by doctors based in countries based in the European Economic Area. It contracted with a third party which operated websites which offered medical screening and services, primarily for conditions such as erectile dysfunction, hair loss and obesity/weight loss.

Customers of the third party could obtain an online consultation with qualified doctors. If the doctor decided to issue a prescription, the written prescription would be sent to Pearl who would then despatch the medicine directly to the individual customer on behalf of the third party. Pearl treated all these supplies as zero-rated. The relevant law covering such prescriptions changed in 2008 such that it was now possible to dispense drugs prescribed by a qualified doctor based outside the UK.

HMRC formed the view that these supplies were not covered by the UK zero rating on the basis that an EU qualified doctor who is not registered with the GMC is not a registered medical practitioner. An assessment for output tax was issued in respect of supplies made against prescriptions written by non-UK doctors.

The issues

The issues, broadly were:

Are qualified doctors based outside the UK covered by the description “registered medical practitioner” in UK legislation?
If not, does this breach of the principle of fiscal neutrality? (Whether there is clear discrimination between identical supplies made on the prescription of UK doctors and doctors from other EU countries)

Decision

The judge ruled that the UK zero rating does not cover prescriptions written by non-UK doctors as they are not within the definition of “registered medical practitioner” Consequently, the supplies must be standard rated in the UK. However, the exclusion of medicines prescribed by overseas doctors from the zero-rating constitutes a breach of the principle of fiscal neutrality. This seemed good news for Pearl, but…the Tribunal stated that it was unable to provide an effective remedy for that breach and accordingly dismissed the appeal and affirmed HRMC’s assessment.

Commentary

This decision seems rather harsh on the appellant. It appears that the judge ruled that she had no power to override UK Parliament’s intention despite the inherent “unfairness” of the outcome of this intention where identical supplies were treated differently depending on where the prescription was written.

Certainly an odd one and I wonder if this is the last of this matter. Any business in a similar situation may need to review its position on the basis of this decision.

VAT: Increased input tax recovery for suppliers of financial services – Brexit

By Marcus Ward 5 April 2019

If the UK leaves the EU in a no-deal scenario there may be a benefit for UK based suppliers of financial and insurance services (so called Specified Supplies) to recipients in the EU. These Specified Supplies attract beneficial input VAT treatment pursuant to the VAT (Input Tax) (Specified Supplies) Order 1999 (the Specified Services Order).

Current position

Currently, these Specified Supplies are exempt and consequently, there is no right to deduct input tax incurred in connection with such services. However, if the Specified Supplies are provided to recipients located outside the EU, they are also VAT free, although any attributable input tax is recoverable; a good VAT position.

Post Brexit position

If the UK leaves the EU, the VAT treatment of supplies to non-EU countries is also applicable to the EU 27 countries; the EU would essentially become a “third country”.

Example

A City of London based bank supplies financial services to both Germany and the US clients. Income from these two clients is 50:50. At the current time the bank would be restricted to a claim of circa half of the VAT it incurs on expenditure in the UK. After Brexit, via The Value Added Tax (Input Tax) (Specified Supplies) (EU Exit) (No. 2) Regulations 2019 all input tax incurred will be recoverable in full.

What are Specified Supplies?

Specified Supplies are broadly:

the issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.
granting of credit
dealing in; shares, stocks, bonds, notes (other than promissory notes), debentures, debenture stock
the operation of any current, deposit or savings account.
the management of certain investment funds/schemes
insurance
and intermediary services in respect of the above supplies

This list is not exhaustive and is only a very general example of types of supplies which may be considered as Specified Supplies. Please seek advice on specific services.

Other matters

The government says that this change will ensure that UK businesses compete for business in the EU on an even footing with businesses in other non-EU countries.

The proposed legislation also provides that partial exemption special methods (PESM) agreed before a no-deal Brexit will be honoured so businesses will not need to apply to HMRC for approval of a new PESM. Please see guide to partial exemption here

NB: If a deal is agreed between the UK and the EU, the above legislation will not be enacted, and the current VAT treatment will continue throughout the implementation period set out in a withdrawal agreement.

VAT – EORI numbers to become invalid if No-Deal Brexit

By Marcus Ward 5 April 2019

If the UK leaves the EU on a no-deal basis, which, despite the apparent will of parliament, is still a likely outcome, all Economic Operators Registration and Identification (EORI) numbers currently used by UK VAT registered businesses will become invalid in other EU Member States.

A guide to EORI here

Businesses are obliged to use an EORI number when undertaking customs activities in the EU. Such UK businesses will be required to obtain a new EU EORI number after the date of a No-Deal Brexit. This is because if the UK leaves via a no-deal Brexit EORI numbers recorded in the UK will no longer be deemed as obtained and registered in an EU Member State. Businesses importing or exporting (currently acquiring or dispatching) from/to the EU will need to request a replacement EORI from a Member State in the EU.

The same rules will apply to businesses in the EU 27 doing business with the UK. Their EORI numbers will also be invalid and will require replacement after a no-deal Brexit date.

We understand that EORI number applications will increase immediately after Brexit and it is very likely to take significantly more time to obtain a new one. It is further probable that filing customs declarations could be disrupted, with the result that the movement of goods cross-border will be delayed.

It is possible that some Member States may be flexible in their approach to existing/new EORI numbers. However, this cannot be guaranteed and there does not appear to be any impetuous between the 27 MS to agree a common approach.

This is yet another reason, should further evidence be required, that a no-deal Brexit will have profound and long-lasting negative impact on UK business. Those who voted Leave to reduce “red tape” will become increasing surprised at the amount of additional administration required post Brexit.

VAT Success Stories

By Marcus Ward 1 April 2019

I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

Investment company

HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

We were able to persuade HMRC that our client had a right to be VAT registered because It intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £200,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

Developer

Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

Charity

A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome. We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way. If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

Shoot

A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

Chemist

We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years. We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due. We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

The message? Never accept a HMRC decision, and seek good advice!

VAT: Property – The Option To Tax

By Marcus Ward 13 March 2019

Opting To Tax commercial property

Opting to tax provides a unique situation in the VAT world. It is the only example of where a supplier can choose to add VAT to a supply….. or not.

What is an option to tax?

The sale or letting of a property is, in most cases, exempt (VAT free) by default. However, it is possible to apply the option to tax (OTT) to commercial property. This has the result of turning an exempt supply into a taxable supply at the standard rate. It should be noted that an OTT made in respect of a residential property is disregarded and consequently, the supply of residential properties is always exempt.

Why opt?

Why would a supplier then deliberately choose to add VAT on a supply?

The only purpose of OTT is to enable the optor to recover or avoid input tax incurred in relation to the relevant land or property. The OTT is a decision solely for the property owner or landlord and the purchaser or tenant is not able to affect the OTT unless specific clauses are included in the lease or purchase contracts. Care should be taken to ensure that existing contracts permit the OTT to be taken. Despite a lot of misleading commentary and confusion, it is worth bearing in mind that the recovery or avoidance of input tax is the sole reason to OTT.

Once made the OTT is usually irrevocable for a 20-year period (although there are circumstances where it may be revisited within six months of it being taken – see below). There are specific rules for circumstances where the optor has previously made exempt supplies of the relevant land or property. In these cases, HMRC’s permission must usually be obtained before the option can be made.

What to consider

The important questions to be asked before a property transaction are:

Was VAT incurred on the purchase price?
Is the purchase with the benefit of an existing lease (will the tenant remain?) if so, it may be possible to treat the transaction as a VAT free TOGC (see below)
Is the property subject to the Capital Goods Scheme (CGS here)?
Is it intended to spend significant amounts on the property, eg; refurbishment?
What other costs will be incurred in respect of the property?
If renting the property out – will the lease granted be full tenant repairing?
Will the tenant or purchaser be in a position to recover any or all VAT charged on the rent/sale?

These are the basic questions to be addressed; further factors may need to be considered depending on the facts of a transaction.

Input tax recovery

Input tax relating to an exempt supply is usually irrecoverable. In fact, a business only making exempt supplies is unable to register for VAT. A guide to partial exemption here. So input tax incurred on, say; purchase, refurbishment, legal costs etc would be lost if a property was sold or rented on an exempt basis. In order to recover this tax, it must relate to a taxable supply. If an OTT is taken, the sale or rent of the property will be standard rated which represents a taxable supply. VAT on supply = input tax claim.

Two-part process

The OTT is a two-part process.

The first part is a decision of the business to take the OTT and it is prudent to minute this in Board meeting minutes or similar. Once the decision to OTT is taken VAT may be added to a sale price or rent and a valid tax invoice must be raised.
The second part is to formally notify HMRC. If the OTT is straightforward the form on which this is done is a VAT1614A. Here. In some cases, it is necessary to obtain HMRC’s permission in which case separate forms are required. HMRC guidance here – para 5.

There can be problems in cases where the OTT is taken, but not formally notified.

Timing

It is vital to ensure that an OTT is made at the correct time. Even one day late may affect the VAT treatment. Generally speaking, the OTT must be made before any use of the property, eg; sale or rent. Care should also be taken with deposits which can trigger a tax point before completion.

Disadvantages

As mentioned above (and bears repeating) the benefit of taking the OTT is the ability to recover input tax which would otherwise fall to be irrecoverable. However, there are a number of potential disadvantages.

opting a commercial property may reduce its marketability. It is likely that entities which are unable to recover VAT would be less inclined to purchase or lease an opted property. These entities may be; partly exempt business, those not VAT registered, or charities/NFP organisations.
the payment of VAT by the purchaser may necessitate obtaining additional funding. This may create problems, especially if a VAT charge was not anticipated. Even though, via opting, the VAT charge is usually recoverable, it still has to be paid for up-front.
an OTT will increase the amount of SDLT payable when a property is sold. This is always an absolute cost.

Transfer of a Going Concern (TOGC)

I always say that advice should be taken in all property transactions and always in cases of a TOGC or a possible TOGC. This is doubly important where an opted building is being sold, because TOGC treatment only applies to a sale of property when specific tests are met. A TOGC is VAT free but any input tax incurred is recoverable, so this is usually a benefit for all parties.

Revoking an Option To Tax

The cooling off period – If an OTT has been made and the opter changes his/her mind within six months it can be revoked. This is as long as no tax has become chargeable on a supply of the land, that no TOGC has occurred, and the OTT has actually been notified to HMRC. There are additional considerations in certain cases, so these always need to be checked.
No interest has been held for more than six years – An OTT is revoked where the opter has not held an interest in the opted building for a continuous period of six years. The revocation is automatic, and no notification is required.
20 years – It is possible to revoke an OTT which was made more than 20 years ago. Certain conditions must be met, and advice should be taken on how such a revocation affects future input tax recovery.

Summary

Property transactions are high value and often complex. The cost of getting VAT wrong or overlooking it can be very swingeing indeed. I have also seen deals being aborted over VAT issues. of course, if you get it wrong there are penalties to pay too. For these reasons, please seek VAT advice at an early stage of negotiations.

More on our land and property services here

VAT: Place of supply of “erotic services”

By Marcus Ward 19 February 2019

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: Yet more cases on food

By Marcus Ward 11 February 2019

Latest from the courts

Like London buses, few cases on the VAT liability of food, then a veritable deluge (although I am unsure whether there can be a deluge of buses…).

Following Eat Ltd and my summary, two further food cases have been heard at First Tier Tribunal (FTT). These are on the subjects of juicing and brownies.

Juice

In The Core (Swindon) the issue was whether fruit and vegetable juices sold as meal replacements were beverages and therefore standard rated or whether they were not beverages and therefore zero-rated as food.

Background

The appellant provides “juice cleanse programmes” (JCPs) which consist of fresh drinkable products made from juicing raw fruits and vegetables and are intended to replace normal meals. The relevant test was how the product was objectively “held out for sale” by the supplier.

What needed to be considered was:

How is the product marketed?
Why it is consumed by the customer?
What is the use to which it is put?

Case law

Similar products were considered in Fluff, Ltd. Roger Skinner and Bioconcepts where the above tests were set out.

Decision

Judging the JCPs by reference to the above tests the Tribunal found that the purchasers of the JCPs purchase them as meal replacements. Customers do not purchase them as beverages (they drink water in addition to consuming the products). They do not therefore purchase them in order to increase their bodily fluid, or to slake their thirst, or to fortify themselves or to give pleasure. The products are deliberately made palatable, in order not to deter consumers from drinking them, and they are not unpleasant to drink, but they are not consumed for pleasure. Customers purchase and consume them as a meal replacement, not as a beverage. As a consequence, they were zero rated food.

Brownies

In Pulsin’ Ltd the issue was whether a raw choc brownies was a cake (zero rated) or a biscuit (standard rated). So, shades of the infamous Jaffa Cake case.

Background

The products in question were individually wrapped bars produced by cold compression of predominantly: dates, cashews, cacao, various syrups, concentrated grape juice and brown rice bran. All ingredients used are intended to be as natural, unprocessed, hypoallergenic and as nutritionally beneficial as possible.

Case law

The cases set out above were also referred to in this case, along with Kinnerton which I considered here although the judge dismissed HMRC’s contention that the decision in that case was helpful in this.

Decision

The judge formed the view that the products do show enough characteristics of cakes to be so categorised. Therefore, all variants of the raw choc brownies were properly classified as cakes and are therefore eligible to be zero rated.

Commentary

What was interesting here was the judge’s comments on the current position regarding food and VAT.

“It is the Tribunal’s view that the current state of the law on the taxation of food items is not fit for purpose and will necessarily present apparently anomalous results as tastes and attitudes to eating change. The Tribunal fundamentally disagrees with HMRC’s guidance that the borderline between cake and confectionary presents few problems. The lines set and perceived by HMRC in the application of this out of date provision (as recognised by them in their anguished consideration of flapjacks and cereal bars) drives anomalous outcomes….”

And so say all of us…

The zero rating of food is complicated as the provision under VAT Act 1994, Schedule 8, Group 1 provide for a wide general description (qualifying for zero rating) subject to excepted items (which must therefore be standard rated) with exclusions and overriding items to those exceptions (which then requalify to be zero rated).