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1 Page 1 of 6 Click here to view online EY VAT News - Week to 28 September 2015 Welcome to the latest edition of EY VAT News. Headlines include the following: We will be holding a global webcast at 4:00 pm (UK time) on Wednesday, 14 October 2015 to consider the growing trend of indirect tax e-audits. Please contact Andrew Bradford for further information. The European Commission has launched a public consultation to help identify ways to simplify VAT payment procedures for cross-border e-commerce transactions in the EU. Please contact Joanna Crookshank for further information. The European Commission has formally asked Germany to amend its VAT legislation relating to the Tour Operators' Margin Scheme, which may also have implications for the UK. Please contact Martyne Pearson for further information. If you would like to discuss any of the articles in this week's edition of EY VAT News in more detail, please speak with your usual EY indirect tax contact or one of the people below. In this edition: EY Tax Webcast : Are you ready for indirect tax e-audits? : 14 October 2015 HMRC Material : Delay in launch of the Alcohol Wholesaler Registration Scheme Scotland : Consultation outcome : Scottish landfill tax guidance for contaminated soils Wales : Consultation responses : Developing a landfill disposals tax to replace UK landfill tax First Tier Tribunal : Whether alleged intra-eu supplies of goods qualified for VAT zero-rating First Tier Tribunal : Damages settlement agreement : Whether VAT due on transfer of machinery Upper Tribunal : Indirect tax decisions recently appealed to the Upper Tribunal Court of Appeal : Refund Directive claim : Whether claimant made any supply in the UK Court of Appeal : Redemption of vouchers : Whether separate dealings in security for money Court of Justice of the European Union : Calendar update European Commission : Consultation on modernising VAT for cross-border e-commerce European Commission : Infringement proceedings : Germany : Tour Operators' Margin Scheme European Commission : VAT rates applied in the EU Member States as at 1 September 2015 Ireland : Updated guidance on the different rates of VAT currently applicable EY Tax Webcast Are you ready for indirect tax e-audits? : 14 October 2015 We will be holding a global webcast at 4:00 pm (UK time) on Wednesday, 14 October 2015 to consider the growing trend of indirect tax e-audits.

2 Page 2 of 6 As technology and data analysis software evolve, so do indirect tax audits. By harnessing the power of technology, tax and customs administrations are carrying out more audits and uncovering more errors, leading to higher assessments and penalties. The webcast will provide businesses with more information about these trends, as well as how to anticipate and prepare for e-audits and tips on how to leverage e-audit techniques to better manage indirect taxes. To register for the webcast, please click here. Please contact Andrew Bradford for further information. HMRC Material Delay in launch of the Alcohol Wholesaler Registration Scheme HMRC has announced that the launch of the Alcohol Wholesaler Registration Scheme (AWRS) has been postponed from 1 October 2015 to 1 January 2016 due to technical issues. The AWRS will apply to existing and new wholesalers of alcohol, trading at or after the point at which excise duty has become payable. From 1 January 2016, all alcohol wholesalers must apply online to HMRC to register for the AWRS. HMRC will review all AWRS applications to decide whether businesses are fit and proper to be accepted onto the register. Where a business fails the fit and proper test, HMRC will remove its right to trade in wholesale alcohol. From 1 April 2017, all businesses that trade in, or retail, alcohol will need to make sure that any UK wholesalers they buy from are registered with HMRC. Scotland Consultation outcome : Scottish landfill tax guidance for contaminated soils Revenue Scotland recently ran a consultation seeking views on two options for improving its guidance to enable taxpayers (principally landfill site operators) to determine the correct rate of Scottish landfill tax chargeable on contaminated soils. In August 2015, Revenue Scotland published the responses received to this consultation. Revenue Scotland has now published a report on the final outcome of the consultation, which includes an analysis of the responses received. Please contact Julian Bowden-Williams or Paul O'Neill for further information. Wales Consultation responses : Developing a landfill disposals tax to replace UK landfill tax in Wales The Wales Act 2014 sets out new fiscal powers for Wales and devolves a range of tax powers. As part of this package of fiscal measures, landfill tax will be devolved to Wales from April The Welsh Government proposes replacing UK landfill tax with landfill disposals tax. A consultation document was published in February 2015, covering tax rates and taxable disposals, proposals for improving tax compliance and enforcement, options to simplify and modernise tax administration and whether and how a proportion of landfill disposals tax receipts could be used to enhance community wellbeing. Comments were invited by 19 May The Welsh Government has now published a summary of the responses to this consultation. Please contact Julian Bowden-Williams or Paul O'Neill for further information. First Tier Tribunal Summaries of a selection of the latest First Tier Tribunal decisions to be released. Decision : Whether alleged intra-eu supplies of goods qualified for VAT zero-rating TC04618 MFS Fuel Supplies Ltd The Tribunal held that the Appellant's alleged sales of goods to customers in the Republic of Ireland failed to qualify for VAT zero-rating.

3 Page 3 of 6 The Appellant, a distributor of oil and coal, traded from premises in Northern Ireland. The appeal concerned sales of coal which the Appellant said were made to customers in the Republic of Ireland which, consequently, were properly to be treated as zero-rated for VAT purposes. HMRC considered that the disputed supplies did not qualify for zero-rating and assessed the Appellant accordingly. Specifically, HMRC contended that there was no adequate proof that the coal said by the Appellant to have been supplied to its customers in the Republic of Ireland was in fact so supplied. HMRC further contended that the information contained in the Appellant's invoices and the documentary evidence of removal of the goods failed to comply fully with the requirements of Public Notice 725 The Single Market, a notice which had the force of law. The Tribunal held that very considerable doubts were raised as to whether the goods were in fact delivered to the Republic of Ireland customers as claimed by the Appellant. The enquiries revealed what could only be described as a very dubious situation, the truth of which could not be discerned. In these circumstances, the Tribunal held that it was perfectly reasonable for HMRC to rely on strict adherence to the requirements of Notice 725. The Appellant failed to meet the relevant conditions and, accordingly, its supplies could not be zero-rated. On this basis, HMRC was entitled to assess the disputed sales as subject to VAT. Appeal dismissed. Decision : Whether VAT due on transfer of machinery as part of damages settlement agreement TC04631 Phoenix Optical Technologies Ltd The Tribunal held that the transfer of machinery as part of a compromise agreement in settlement of a claim for damages for breach of contract amounted to a supply of goods for VAT purposes. The Appellant carried on business as a manufacturer and supplier of optical components. A difficulty arose with the Appellant's performance of a contract with one of its customers. The customer commenced proceedings against the Appellant seeking damages for breach of contract. The Appellant negotiated a settlement with the customer. The terms of the settlement were that the Appellant was to make certain payments to the customer. In addition, the Appellant was to transfer to the customer an item of machinery. The payments were subsequently made and the machinery was transferred. The Appellant had previously incurred VAT on its purchase of the machinery and recovered this as input tax. HMRC considered that the Appellant was required to account for VAT on the transfer of the machinery by virtue of paragraph 5(1) of Schedule 4 to the VAT Act The value of the machinery was duly agreed and the output tax due on the supply was assessed accordingly. The Appellant disputed that it was liable to account for output tax on the transfer of the machinery. Specifically, the Appellant contended that the transfer of the machinery and the payments of cash were all compensation to settle the dispute with the customer arising from the alleged breach of contract. In the same way that HMRC accepted the payments of cash were outside the scope of VAT, the transfer of the machinery was also outside the scope of VAT. Essentially, the Appellant's argument was that if the payments were not consideration for a supply then, by the same token, the transfer of an asset as part of a compromise agreement did not amount to a supply. The Appellant contended that a transfer of assets pursuant to a compromise agreement was an exception to the general rule under paragraph 5(1). The Tribunal held that there was a transfer of the machinery to the customer. On any view, whether under paragraph 1(1) or paragraph 5(1) of Schedule 4, that transfer amounted to a supply of goods. The consideration was the customer's agreement not to pursue its claim for damages. There was no basis upon which to say that the transfer of an asset pursuant to a compromise agreement fell outside paragraph 5(1) or indeed paragraph 1(1). Accordingly, the Tribunal held that the Appellant made a supply of the machinery for VAT purposes. Appeal dismissed. Upper Tribunal Indirect tax decisions recently appealed to the Upper Tribunal The Upper Tribunal has updated its listing of forthcoming hearings and pending cases. Brief details of those indirect tax cases recently appealed to the Upper Tribunal which may be of wider interest are provided below. Oak Tree Motor Homes Ltd has appealed against First Tier Tribunal decision TC04445 in favour of HMRC. This case concerns whether the VAT zero rate for caravans exceeding a certain size, contained in Item 1 of Group 9 of Schedule 8 to the VAT Act 1994, also applies to motor caravans, motor homes or camper vans. The First Tier Tribunal answered this in the negative. Court of Appeal Finmeccanica : Claim under the Refund Directive : Whether claimant made any supply in the UK

4 Page 4 of 6 Finmeccanica Group Services SpA has appealed the Upper Tribunal's decision in favour of HMRC to the Court of Appeal. This case concerns whether the taxpayer, an Italian company, was entitled to make a claim under the Refund Directive for the repayment of the UK VAT charged to it on supplies relating to the provision of an enclosure at the Farnborough air show. The taxpayer invoiced its sister companies, also established in Italy, for its services of arranging the enclosure. The First Tier Tribunal held that the taxpayer's supply was made in Italy so that it was entitled to the VAT refund. However, the Upper Tribunal overturned this decision and allowed HMRC's appeal, holding that the taxpayer's supply was made in the UK at the air show so that it was not entitled to the VAT refund. Secrets : Redemption of vouchers : Whether separate dealings in security for money Wilton Park Ltd and others have appealed the Upper Tribunal's decision in favour of HMRC to the Court of Appeal. The taxpayers, five companies forming the Secrets group of companies, operated licensed lap/table dancing clubs where dancers performed stage and table side dances for the entertainment of club patrons, who paid the dancers for their services. The appeals concerned the correct VAT treatment of transactions involving Secrets money, being vouchers issued by the taxpayers which enabled club patrons to continue spending money in a club when they had run out of cash. The taxpayers contended that the disputed transactions were exempt from VAT. The Upper Tribunal held that, whilst the taxpayers' vouchers constituted a security for money within the meaning of the financial services exemption, their services of redeeming those vouchers formed part of a composite taxable supply of performance facilitation services. Court of Justice of the European Union (CJEU) Calendar update Tuesday 29 September Judgment C-276/14 Gmina Wrocław - Polish referral asking whether an organisational entity of a local authority may be regarded as a taxable person for VAT purposes when it engages in activities other than as a public authority within the meaning of Article 13(1) of the VAT Directive. Thursday 15 October Opinion C-128/14 Het Oudeland Beheer BV - Dutch referral concerning the acquisition by a taxable person of an interest in land together with a building under construction, and the issue of which related costs should be included in the value of any taxable deemed (or self) supply arising under Article 5(7)(a) of the Sixth Directive. Thursday 22 October Judgment C-277/14 PPUH Stehcemp Sp. j. Florian Stefanek, Janina Stefanek, Jarosław Stefanek - Polish referral asking whether a taxable person is entitled to deduct input tax in respect of a supply of goods in circumstances where the identity of the actual supplier of the goods and/or the person who issued the invoice is unknown (case proceeding to judgment without a written Advocate General's opinion). European Commission Consultation on modernising VAT for cross-border e-commerce On 25 September 2015, the European Commission issued a press release announcing the launch of a public consultation to help identify ways to simplify VAT payment procedures for cross-border e-commerce transactions in the EU. In May 2015, the European Commission published details of its strategy to create a Digital Single Market. From a VAT perspective, the Commission undertook to make legislative proposals in 2016 to reduce the administrative burden on businesses arising from the different VAT regimes applicable to cross-border sales, including: extending the current Mini One Stop Shop regime to cover cross-border online sales of physical goods (i.e. distance sales) introducing a common EU-wide VAT threshold to help online start-ups and small businesses allowing cross-border businesses to be audited only by their home country for VAT purposes removing the VAT exemption for the importation of small consignments from suppliers in third countries (i.e. low value consignment relief). Against this background, the consultation seeks the views of businesses and other interested parties on: the current VAT rules for business-to-consumer (B2C) cross-border supplies of goods and services the implementation of the 2015 changes to the EU VAT place of supply rules for B2C supplies of digital services and the Mini One Stop Shop

5 Page 5 of 6 the aforementioned legislative proposals. The consultation runs until 18 December Please contact Joanna Crookshank for further information. Infringement proceedings : Germany : Application of the Tour Operators' Margin Scheme The European Commission has formally asked Germany to amend its VAT legislation relating to the special scheme for travel agents, better known in the UK as the Tour Operators' Margin Scheme (TOMS). According to current German VAT law, the TOMS only applies to travel services sold to final consumers (i.e. the actual traveller). It also allows businesses to set one single profit margin for all supplies of travel packages sold during a tax period. In September 2013, following infringement proceedings brought by the Commission against eight EU Member States in relation to their application of the TOMS, the CJEU held that the TOMS is not limited to private travellers, but applies to travel packages sold to all customers, including businesses. Further, the amount of VAT due under the TOMS must be determined on a transaction-by-transaction basis, not by reference to all transactions performed within a tax period. The Commission consequently takes the view that Germany's application of the TOMS is not compatible with EU law. The Commission's request takes the form of a reasoned opinion, the second stage of infringement proceedings. In the absence of Germany providing a satisfactory response within two months, the Commission may decide to refer the matter to the CJEU. Comment: In the UK, the TOMS only applies to supplies to final consumers or to businesses for their own consumption (e.g. business travel for employees). Travel services supplied to another business for onward sale (wholesale supplies) are subject to normal VAT rules. The UK also requires businesses to carry out their TOMS calculation annually using global figures for the year as a whole. Despite the CJEU's findings that wholesale supplies should be covered by the TOMS and the TOMS calculation should be carried out on a transaction-by-transaction basis, in January 2014, HMRC announced that no changes would be made to the operation of the TOMS in the UK, although the position would be reviewed again after a year. HMRC has yet to make any further public announcement on this subject (i.e. the status quo remains unchanged). However, the concerns raised at the time of the CJEU judgment about the operation of the TOMS in the UK are likely to resurface in light of these latest infringement proceedings. Please contact Martyne Pearson for further information. VAT rates applied in the EU Member States as at 1 September 2015 The European Commission has published an updated document reflecting the various VAT rates applied in the EU Member States as at 1 September Ireland Updated guidance on the different rates of VAT currently applicable The Irish Revenue has issued updated guidance on the different rates of VAT currently applicable in Ireland and the circumstances in which they apply. Further information: EY has a global indirect tax practice which is experienced in providing support in relation to technical VAT issues. If you would like to discuss any case generally or in relation to your own circumstances, please speak with your usual EY indirect tax contact. 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. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

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