EY VAT News week to 22 January 2018

Transcription

1 Click here to view online EY VAT News week to 22 January 2018 Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments. If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact or one of the people below. If you have any feedback or comments on EY VAT News, please contact Ian Pountney. Previous editions of EY VAT News can be found here. In this edition: EY Events EY ReFIT (Retail) Forum Friday 2 February 2018 Developing Tax Practitioners Friday 23 February 2018 Court of Justice of the European Union Judgment: VAT cannot be accounted for at different rates on a single supply New referral Calendar update Court of Appeal Latest appeal updates Legislation SI 2018/41 The Soft Drinks Industry Levy Regulations 2018 The Soft Drinks Industry Levy (Enforcement) Regulations 2018 Draft HMRC Material Revenue and Customs Brief 1 (2018): VAT treatment of affiliation fees for sports clubs Research and analysis VAT partial exemption EY Global Tax Alerts Denmark implements significant changes to excise duties Cyprus issues guidance on implementation of VAT on immovable property Madagascar enacts Finance Act of 2018 Romania amends VAT split payment mechanism Ukraine amends VAT and Excise Tax laws European Commission More flexibility on VAT rates, less red tape for small businesses Commission objects to a derogation request from Latvia Union Customs Code

2 EY Events EY ReFIT (Retail) Forum Friday 2 February 2018 The next EY ReFIT Forum will be held on Friday 2 February 2018 at our More London Place office. ReFIT is our indirect tax forum for people working in Finance/Tax/VAT in a retail environment. The agenda is VAT focussed, but we also include other relevant tax issues. Our aim is to help to make sense of the latest changes, updates and case law and provide you with an excellent opportunity to network with your peers. Details Date: Friday 2 February 2018 Time: 10am arrival for tea/coffee, 10.30am start and 1pm finish with a buffet lunch Location: 1 More London Place, London, SE1 2AF We hope that you can join us there is a lot to update you on, including of course the latest in Brexit developments, and plenty to think about in terms of both UK and overseas indirect tax policies. Agenda Case law update Global VAT/GST update including GCC go live on 1 January 2018 Brexit Update latest thinking on next steps Hot Topics Global VAT update Open Forum If you would like to attend, which is free of charge, please register your interest in the event by contacting Simon Baxter. Developing Tax Practitioners Friday 23 February 2018 EY London Indirect Tax is holding a networking event on Friday 23 February The event is designed for associates working in tax, in order to build their network and develop relationships with those at a similar level. The session will involve some general tax updates as well as tips on personal career development and an opportunity to network. If you would like to nominate someone from your business or discuss further, please speak to your usual EY client handler or contact Olivia D'Silva (contact details below). Details Date: Friday 23 February 2018 Location: EY, 1 More London Place, London SE1 2AF (map) Timings and agenda 08:30 Registration and breakfast 09:00 Tax technical updates 09:15 Managing your career in tax 10:00 Tips on how to expand your network: Panel discussion with Head of London Indirect Tax Jamie Radcliffe and an expert from industry 10:15 Close followed by coffee If you would like to attend or have any questions please contact Olivia D'Silva.

3 Court of Justice of the European Union Judgment: VAT cannot be accounted for at different rates on a single supply C-463/16 Stadion Amsterdam On 18 January 2018, the Court of Justice of the European Union (CJEU) released its decision in this Dutch referral asking whether Article 12(3)(a) of the Sixth Directive, is to be interpreted as meaning that where a service, which is a single supply for VAT purposes, is composed of two or more specific elements which, if supplied as separate services, would be subject to different VAT rates, VAT should be charged at the various rates applicable to those elements if the consideration for the service can be split in a proper ratio to the elements? The Amsterdam Arena is home to the football club, AFC Ajax. In addition to operating the venue as a football stadium and occasionally for performances by performing artists, the operators host guided tours of the stadium and its facilities. A single visitor ticket includes the cost of a guided tour of the venue and unguided entrance to the football club's in-house museum. In the Netherlands, entrance to museums is taxed at the reduced VAT rate (6%), while stadium tours are taxed at the standard VAT rate (21%). The parties to the dispute had already established that the operator is providing a single composite supply of a service; therefore, the question arose whether this single service should be taxed at the reduced or the normal VAT rate. After two victories for the Dutch tax authorities before the Dutch Supreme Court, which resulted in a ruling for the standard rate of taxation, the Supreme Court referred the case to the CJEU to settle the further question posed by the taxpayers on whether the consideration for a single supply may be split, in order to apply two different VAT rates (on a proportional basis). The CJEU has held that where two or more elements comprise a single supply, of which one is the principal and the other ancillary, it would run counter to previous judgments of the Court, to interpret the Sixth Directive as to subject such transactions to different rates of VAT. To do so would mean artificially splitting that supply and risk distorting the functioning of the VAT system; even in circumstances where it is possible to identify the price corresponding to each distinct element forming part of the single supply. In conclusion a single supply, comprised of two distinct elements, must be taxed solely at the rate of VAT applicable to that single supply, that rate being determined according to the principal element. Comments: whilst not a surprising result, those following this case will be disappointed by the Court's judgment where there may have been an opportunity for businesses currently accounting for VAT at a single higher rate of VAT where that single supply is composed of distinct elements subject to VAT at lower rates. In the UK, admission to a museum is only exempt when supplied by either a public body or an eligible body, otherwise, such supplies are standard rated. Therefore, there was never a direct read across to similar venues in the UK. For further information, please contact Dermot Rafferty. New referral C-597/17 Belgisch Syndicaat van Chiropraxie and Others A Belgian referral asking whether Article 132(1)(c) of the VAT Directive should be interpreted as meaning that exemption is restricted to practitioners of a medical or a paramedical profession that is subject to national legislation governing the healthcare professions and who meet the requirements laid down by that national legislation? Also, are persons who do not meet those requirements, but who are affiliated to a professional association of chiropractors or osteopaths, and who meet the requirements laid down by that association, excluded from exemption? Should Articles 132(1)(b),(c),(e), 134 and 98 of the VAT Directive, and the principle of fiscal neutrality, be interpreted as meaning that they preclude national legislation which provides for a reduced VAT rate to be applied to medicinal products and medical aids supplied in connection with an operation or treatment of a therapeutic nature, whereas medicinal products and medical aids supplied in connection with an operation or treatment of a purely aesthetic nature, and closely related thereto, are subject to the standard VAT rate?

4 Calendar update Wednesday 24 January 2018 Hearing C-5/17 DPAS Limited A UK referral from the Upper Tribunal asking, in light of Article 135(1)(d) of the VAT Directive and the interpretation of that provision given by the Court of Justice in AXA, Bookit II and NEC, whether: (i) a service consisting of directing, pursuant to a direct debit mandate, that money is taken by direct debit from a patient's bank account and passed by the taxpayer, after deduction of the taxpayer's remuneration, to the patient's dentist and insurance provider, is an exempt supply of transfer or payment services. In particular, do the decisions in Bookit II and NEC lead to the conclusion that the exemption from VAT in Article 135(1)(d) is not applicable to a service which does not involve the taxpayer itself debiting or crediting any accounts over which it has control but which, where a transfer of funds results, is essential to that transfer? Or does the decision in AXA lead to the contrary conclusion? (ii) What are the relevant principles to be applied for determining whether or not a service falls within the scope of debt collection within Article 135(1)(d)? In particular, if (as the Court decided in AXA in relation to the same or a very similar service) such a service would constitute debt collection if provided to the person to whom the payment is due (i.e. the dentists in the present case and in AXA), does that service also constitute debt collection if such a service is provided to the person from whom the payment is due (i.e. the patients in the present case)? For further information please contact Simon Harris. Thursday 25 January 2018 Hearing C-108/17 Enteco Baltic A Lithuanian referral asking whether a member state is prohibited from refusing exemption under Article 143(1)(d) of the VAT directive on imported goods, in circumstances where the goods were to be supplied to a taxable person (and his VAT identification was used on import documentation) but due to a change in circumstances the goods were transported to a different taxable person, with full disclosure to the tax authorities? Tuesday 30 January 2018 Joined cases Opinion C-660/16 Kollroß A German referral asking whether the requirements as to the certainty that a supply will take place, as a condition of the deduction of input tax on a payment on account within the meaning of the judgment of the Court of Justice of the European Union in Case C-107/13 Firin, are to be determined purely objectively or from the point of view of the person having made the payment on account in the light of the circumstances apparent to him? Are Member States, taking into account the fact that the chargeability of tax and the right of deduction arise at the same time, entitled to make the adjustment of both tax and the deduction of input tax subject to a refund of the payment on account? Must the tax office responsible for a person who has made a payment on account refund the VAT to that person where the latter cannot recover the payment on account from the recipient of that payment? If so, must this take place as part of the tax assessment procedure or is a separate equitable procedure sufficient for this purpose? and Opinion C-661/16 Wirtl A German referral asking whether the deduction of input tax on a payment on account is excluded where the occurrence of the chargeable event is uncertain at the time when the payment on account is made? Is that exclusion determined by reference to the objective situation or by reference to the point of view of the person having made the payment on account in light of the circumstances objectively apparent to him? Is an adjustment of the deduction, by a person having made a payment on account for a supply of goods, of the input tax indicated on the invoice issued to that person for that payment conditional upon the refund of the payment on account which has been made, where that supply does not ultimately take place? Wednesday 31 January 2018 Hearing C-664/16 Vădan A Romanian referral asking whether, under a proper construction of the VAT Directive and the principles of proportionality and neutrality, a taxable person who satisfies the substantive requirements for the deduction of VAT can deduct VAT in circumstances where he is unable to provide evidence, by way of invoices. If answered in the

5 affirmative, is an assessment by an independent expert and based on the amount of work/labour involved in the construction of buildings, an acceptable and appropriate measure for determining the extent of the right to deduct? Thursday 8 February 2018 Hearing C-153/17 Volkswagen A UK referral from the Supreme Court asking where general overhead costs attributed to hire purchase transactions (consisting of exempt supplies of finance and taxable supplies of cars) have been incorporated only into the price of the exempt supplies of finance, does the taxable person have a right to deduct any of the input tax on those costs? How is C-93/98 Midland Bank, to be interpreted, specifically the statement that overhead costs are part of the taxable person's general costs and are, as such, components of the price of an undertaking's products? For further information please contact Jamie Ratcliffe. Judgment C-380/16 Commission v Germany Action brought by the European Commission against the Federal Republic of Germany. The applicant claims that the Court should declare that, pursuant to the first paragraph of Article 258 of the Treaty on the Functioning of the European Union, the Federal Republic of Germany has failed to fulfil its obligations under Article 73 and Articles 306 to 310 of the VAT Directive by excluding travel services used by taxable persons for their business from the special scheme for travel agents and allowing travel agents, in so far as the special scheme is applicable to them, to determine on a flat-rate basis the tax assessment base for groups of services and for each taxable period. For further information please contact Martyne Pearson. Tuesday 20 February 2018 Opinion C-665/16 Gmina Wrocław A Polish referral asking whether the transfer of ownership of immovable property owned by a municipality of the state in return for payment of compensation, where the property continues to be managed by the municipality, constitutes a taxable supply? Thursday 22 February 2018 Judgment C-396/16 T-2 A Slovenian referral, asking various questions concerning whether arrangements with creditors, which have been approved by judicial decree, result in a requirement to adjust the amount of input VAT to be deducted? Court of Appeal Latest appeal updates Praesto Consulting UK Ltd (Praesto) has applied for permission to appeal the Upper Tribunal's (UT) decision. This case concerns whether VAT was recoverable by Praesto on legal fees, which it paid, in relation to the defence of civil proceedings brought against a Director. Setting aside the First-tier Tribunal's (FFT) decision, the UT held that it had erred in law in distinguishing the facts of this case from those in the European Court decision of Becker. The UT held that at no stage did the FTT make a finding that Praesto was entitled to the legal services or contractually obliged to pay for them. The fact that Praesto might benefit from the successful defence of the claim against the Director or, at a later stage, might become a party to the proceedings, was not sufficient to support a conclusion that it had a contractual entitlement to the legal services in relation to the litigation against the Director. The UT also held that the fact that the invoices were addressed to the Director further supported the fact that Praesto was not a party to the litigation. On this basis, the UT held that there was no direct and immediate link between the supply of legal services and Praesto's taxable supplies or Praesto's taxable activity as a whole. Further, the fact that the legal fees would not have been incurred if Praesto had not undertaken its taxable activities was not in itself sufficient to support the conclusion that there was a direct and immediate link between the supply of legal services and the taxable activities of Praesto as a whole. On this basis, the UT held that VAT was not recoverable on the legal costs of defending the Director.

6 Legislation SI 2018/41 The Soft Drinks Industry Levy Regulations 2018 These Regulations set out the detailed legislative framework for the Soft Drinks Industry Levy (the levy) which commences on 6 April In particular, the legislation provides the detailed scope of the levy, including exemptions and administrative obligations such as the requirements relating to registration, returns and record keeping. As announced at Budget 2016, the levy will apply to the production and importation of soft drinks containing added sugar. Following a public consultation in summer 2016, primary legislation introducing the levy was approved by parliament in the Finance Act Earlier, to complete the legislative framework for the levy, a technical consultation sought comments on two statutory instruments: The Soft Drinks Industry Levy Regulations 2017 set out in detail the scope and operation of the levy The Soft Drinks Industry Levy (Enforcement) Regulations 2017 to provide HMRC with specific enforcement and compliance powers This consultation closed on 8 December For further information, HMRC has also issued guidance on the levy to help businesses determine whether they will be liable for registration. The guidance includes details regarding: Liable drinks Exempt drinks Who has to register How and where to register Reporting Rates The Soft Drinks Industry Levy (Enforcement) Regulations 2018 Draft Regulations have also been published which will enable HMRC to use a range of enforcement powers, set out in the Customs and Excise Management Act 1979, for the purposes of preventing and tackling evasion in relation to the levy. For further information please contact Simon Baxter. HMRC Material Revenue and Customs Brief 1 (2018): VAT treatment of affiliation fees for sports clubs HMRC has issued Revenue and Customs Brief 1 (2018): VAT treatment of affiliation fees for sports clubs, which reminds taxpayers that the concession enabling profit making commercial clubs to treat affiliation fees as exempt from VAT will be withdrawn with effect from 1 April The withdrawal of the concession has no impact on the VAT treatment of affiliation fees by non-profit making sports governing bodies, or similar umbrella organisations, and on non-profit making sports clubs to their members. In their case, the charge they make for affiliation fees will continue to be exempt. The concession is currently published in paragraph of VAT Notice 701/45. HMRC consulted and called for evidence on the withdrawal of the concession in January For further information please contact Dermot Rafferty.

7 Research and analysis VAT partial exemption HMRC has released HMRC Report 485 VAT Partial Exemption which explores business knowledge and use of VAT partial exemption, and gathers information on VAT recovery rates in 17 industry sectors. In particular the report considers: Awareness of VAT partial exemption Knowledge of the different methods of calculation How much VAT is being recovered by businesses in different industry sectors The report's conclusions include: There was a high level of awareness about VAT partial exemption among VAT registered businesses in the sample Businesses reported they were more knowledgeable about how VAT partial exemption is calculated and less knowledgeable about the different partial exemption methods Accountants or tax agents and HMRC are important channels for raising awareness and knowledge about VAT partial exemption There was significant variation in levels of knowledge of partial exemption by industry sector Businesses in financial service activities, education, and activities auxiliary to finance were most knowledgeable Businesses in postal courier activities, retail, and construction were least knowledgeable VAT partial recovery rates varied widely by sector and within sectors 68% who were using, or have used in the past, a special or standard method reported that they incurred costs in complying with VAT partial exemption. The most common costs reported were related to staff time and accountants/advisers EY Global Tax Alerts Denmark The Danish Government has agreed to implement significant changes to excise duties, where some charges are completely abolished and planned increases of others are cancelled. The changes have effect from 1 January Cyprus Further to the amending VAT legislation on building land and immovable property leasing, the Cyprus House of Parliament and Tax Department have released Regulations and Circulars respectively, clarifying the application of VAT on non-developed land as well as on the taxation of commercial rents. Transfers of non-developed building land by persons performing an economic activity are subject to 19% VAT as from 2 January 2018 Commercial property leasing, entered into as from 13 November 2017, to those performing taxable business activities is subject to 19% VAT unless an opt-out right is exercised by the lessor See our earlier alert Cyprus amends VAT legislation on building land taxation, commercial rents and loan restructuring. Madagascar Madagascar's Finance Act for 2018 (No ) makes significant changes to the General Tax Code by reforming Corporate Income Tax, the Synthetic Tax, and VAT Laws. The law was promulgated and applies for Any company for which turnover reaches MGA100 million (approx US$30,000) is now subject to VAT. Prior to 2018, the threshold was set at MGA200 million. Romania The Romanian Ministry of Finance published an Ordinance on the implementation of the VAT split payment mechanism in August Taxable persons registered for VAT purposes in Romania according to art. 316 of the Fiscal Code (as well as the public institutions registered according to that article) were required to open separate accounts for the collection and payment of VAT. The VAT split payment applies to all taxable supplies of goods/services, for which the place of supply is in Romania (although some exceptions are provided). Law 275/2017 sets out the rules that now apply and our alert provides further details regarding the changes. Ukraine The Ukraine has introduced a number of VAT and Excise Tax changes effective from 1 January 2018, including: The postponement, until no later than 1 March 2018, of the blocking of VAT invoices which qualify under the risk criteria In addition to the supply of software, VAT exemption will be available to any transactions with software products where the underlying payments do not qualify as royalties. The scope of software products has also been extended Extension of the reduced VAT rate of 7% on the supply and importation of medical devices

8 Customs may allow payment of VAT by instalments for a period of up to 24 months for the importation of certain goods The VAT exemption without credit will be applied to the export of soya beans (from 1 September 2018 until 31 December 2021) and rapeseed and colza seeds (from 1 January 2020 until 31 December 2021) European Commission More flexibility on VAT rates, less red tape for small businesses The European Commission has proposed new rules to give Member States more flexibility to set VAT rates and to improve the tax environment for SMEs. The proposals are the final steps of the Commission's overhaul of VAT rules, with the creation of a single EU VAT area aimed at reducing the estimated 50 billion lost to VAT fraud each year in the EU, while supporting business and securing government revenues. The Commission has also addressed the problem of smaller companies suffering from disproportionate VAT compliance costs. The Commission has estimated that businesses trading cross-border face 11% higher compliance costs compared to those trading only domestically. This is proving to be an obstacle to growth, as small businesses make up 98% of companies in the EU. The Commission has proposed to allow more companies to enjoy the benefits of simpler VAT rules which are at the moment available to only the smallest firms. Flexibility Member States can currently apply a reduced rate of as low as 5% to two distinct categories of products in their country. A number of Member States also apply specific derogations for further reduced rates. In addition to a standard VAT rate of a minimum 15%, Member States would now be able to put in place: Two separate reduced rates of between 5% and the standard rate chosen by the Member State One exemption from VAT (or zero rate) One reduced rate set at between 0% and the reduced rates The current, complex list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list of products (such as weapons, alcoholic beverages, gambling and tobacco) to which the standard rate of 15% or above would always be applied. To safeguard public revenues, Member States will also have to ensure that the weighted average VAT rate is at least 12%. The new regime also means that all goods currently enjoying rates different from the standard rate can continue to do so. Reducing VAT costs for SMEs Under current rules, Member States can exempt sales of small companies from VAT provided they do not exceed a given annual turnover, which varies from one country to the next. Growing SMEs lose their access to simplification measures once the exemption threshold has been exceeded. Also, these exemptions are available only to domestic businesses. This means that there is no level playing field for small companies trading within the EU. While the current exemption thresholds would remain, today's proposals would introduce: A 2 million revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT The possibility for Member States to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns A turnover threshold of 100,000 which would allow companies operating in more than one Member State to benefit from the VAT exemption

9 These legislative proposals will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption. The amendments will become effective only when the switch to the definitive regime effectively takes place. For further information please refer to: The European Commission Press Release More flexibility on VAT rates, less red tape for small businesses Explanatory Memorandum Annex to the proposals Impact Assessment European Commission fact sheet, Q&A document on the VAT package European Commission fact sheet, Q&A document for modernising VAT for e-commerce Action Plan on VAT Towards a single EU VAT area Commission objects to a derogation request from Latvia The European Commission has objected to a request from Latvia, under Article 395 of the VAT Directive, to apply a special measure derogating from Article 193 of the VAT Directive as regards the application of the reverse charge mechanism in relation to domestic supplies of construction products. Latvia had submitted the request for the purpose of combatting VAT fraud. In objecting to the request, the Commission considered that such a derogation could have adverse impacts on fraud at the retail level and on other Member States and the requested measure does not seem to be able to deal with the complex fraud situation in this sector. Therefore, it is not considered an appropriate solution. Union Customs Code On 22 January 2018, the European Commission (Commission) published a report on the operation of the Union Customs Code (UCC) since its entry into force on 1 May The report also considers how the Commission has exercised its powers to adopt delegated acts supplementing the UCC. The UCC provides a framework of EU customs rules that are adapted to a more globalised trade environment and modern communication tools, so as to facilitate cross-border flows of goods while protecting the financial and economic interests of the EU and Member States and the safety and security of EU consumers. Considering the implementation of the UCC, the report concludes: The UCC has not encountered any major legislative problems Any technical errors have been rapidly solved The Commission and Member States are working intensively to implement the 17 electronic systems envisaged within the UCC, under which all contact between economic operators and customs authorities, and between customs authorities, will be carried out electronically While most of these systems will be deployed by 2020, some will not be ready for full deployment before Therefore the Commission is considering a legislative proposal to prolong the application of transitional rules to customs processes The Commission will evaluate in the future whether the UCC has met the goals for which it was designed or whether any policy adjustments are needed. Considering the use of the power to adopt delegated acts conferred by the UCC, the Commission believes that it has exercised these powers actively and appropriately. At the same time, the Commission considers that this delegation of power should be extended in order to enable it to propose any further measures necessary to adapt customs legislation to technical and technological progress as well as to the dynamics of trade. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transactions and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In doing so, we play a critical role in building a better working world for our people, for our clients and for our communities.

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