Indirect tax news from the past week
WR: innocent agents assessed for excise duty – CJEU
In October 2013, WR drove a lorry loaded with 25,000 litres of beer into the UK at Dover, using an Administrative Reference Code ("ARC") number copied from a previous consignment. HMRC took the re-use of the ARC number as an indication of an attempt to evade excise duty, and they seized the beer, confiscated the lorry, and assessed WR for duty and penalties. WR was not responsible for the paperwork (which he had no way of checking), and was hauling the beer on behalf of someone he knew only as "Des", whom he met rarely, who paid him in cash, and who did not appear to help with any further enquiries. The CJEU has ruled that WR was “holding” the goods within the meaning of the Excise Duty Directive because he was in physical possession of them, and he could therefore be assessed despite being an “innocent agent”. Where the Directive considers intention or culpability relevant, it says so expressly. The Directive was deliberately broad, because it would be practically very difficult for tax authorities to collect duty if they had to prove that a driver was complicit in an attempted fraud. Based on the CJEU’s response, the Court of Appeal is likely to allow HMRC’s appeal and uphold the assessment on WR. (Contact: Eleanor Caine).
Poundland: no closing stock adjustment in VAT retail scheme – FTT
In 2002, Poundland agreed a bespoke VAT retail scheme with HMRC which did not (like the scheme it replaced) require adjustments for opening and closing stocks of zero-rated goods when calculating output tax due. In 2017, Poundland moved to another scheme based on its electronic point of sale system. Some zero-rated goods might therefore have been taken into account in calculations under the 2002 scheme (which operated by reference to stock purchases) as well as the 2017 scheme (which included their sale). HMRC considered that Poundland should have made a closing adjustment for stocks of zero-rated goods on hand when the 2002 scheme ended, to prevent what they saw as double-counting zero-rating, and issued an assessment for £2.1m. The FTT has allowed Poundland’s appeal. The 2002 scheme was a mechanism for estimating output tax due, and did not mean that the stock was actually being zero-rated when it was recognised in the scheme calculations. If HMRC had considered a closing stock adjustment appropriate, then they should have required it to be set out in the 2002 scheme. It was not possible to infer the need for such an adjustment in 2017, when it became apparent that a considerable potential adjustment had arisen over the 15 years that the scheme had been operating for. On that basis, and on the basis of other errors in HMRC’s approach to issuing the assessment, Poundland’s appeal was allowed. (Contact: Donna Baker).
Indirect tax legislation
The Finance Act 2021 received Royal Assent on 10 June. Indirect tax measures include the plastic packaging tax, the extension of the temporary reduced VAT rate, and new rules on distance sales involving Northern Ireland. The Act also addresses penalties for failure to repay VAT which was deferred in response to COVID-19, and sets out the new points-based penalty system which will apply to VAT from April 2022. There have also been various new statutory instruments relating to indirect tax. SI 2021/675 and 676 update climate change levy and excise duty regulations which provide relief for combined heat and power plants, which some operators have had to operate differently in response to COVID-19. SI 2021/661 corrects errors in the UK tariff relating to chemicals, vulcanised rubber gaskets, and tropical fruit. SI 2021/697 and an accompanying tax information and impact note relate to the extension of business’ ability to delay customs declarations (originally scheduled to expire on 30 June) until 31 December 2021, and also increases the threshold below which exporting goods using Royal Mail can be declared by conduct from £900 to £1,000. SI 2021/693 relates to tariff quota volumes and SI 2021/695 addresses entry summaries and pre-departure declarations for travellers carrying high value commercial goods in a goods vehicle. (Contact: David Walters).
Renesola: duty and the origin of solar panels – CJEU
Making a solar panel involves producing silicon wafers; processing them into photovoltaic cells; and assembling several cells into modules or panels. Chinese solar panels are subject to anti-dumping duty and countervailing duty, so it is important to understand where panels originate. The general rule is that products originate where they undergo their last substantial, economically justified processing. According to Implementing Regulation 1357/2013, production of the solar cells is the decisive phase in producing solar panels. However, the Upper Tribunal in Renesola was unsure. It thought that assembling the cells into panels was a technically complex, delicate, and significant process (that protected the solar cells from damage and corrosion, and joined them together to generate a useful amount of electricity), and referred questions to the CJEU in May 2020. The CJEU has ruled that there was nothing wrong with the Regulation. The objective of the Regulation was justified, adequate reasons had been given, and the Commission had considered all production stages in proposing the Regulation. There was no error of law in the way that the Regulation determined origin and no manifest error of assessment. Based on the CJEU’s conclusion, solar panels imported by Renesola originated in China, and it was liable for duty of approximately £1m. (Contact: Caroline Barraclough).