Weekly VAT News

Bottled Science Ltd: collagen drink product is not food – FTT

Bottled Science Ltd sold Skinade, marketed as “a uniquely formulated drink using advanced technology and high-quality ingredients for your skin”. Bottled Science made a claim for overpaid output tax of £1,250,840, on the basis that Skinade should be zero-rated as food. The First-tier Tribunal has ruled that, for VAT purposes, Skinade was not food. Factors reviewed by the FTT but considered not to be conclusive included whether Skinade was a beauty product, its name, its nutritional value, its palatability and taste, and the application of food safety regulations. The factor weighing most heavily on the FTT was the way in which Skinade was packaged and marketed. The packaging of the product was “quite clinical”, and “its overall presentation and route to market are very different from what one would expect of a foodstuff”. The FTT considered that “a well-informed, broad-minded VAT payer” would recognise that although Skinade had some nutritional value, it was not consumed to keep the body alive or able to function and develop, and it was distributed and marketed differently from what would be expected for food. In conclusion, while acknowledging that the issue was not easy to resolve, the FTT considered that Skinade was not food, and did not qualify for zero-rating. (Contact: Donna Baker)

Finanzamt T II: intra-VAT group services – CJEU

Following a CJEU judgment in 2022 on the application of the German VAT grouping provisions, Finanzamt T v S has returned to the CJEU. U-GmbH provided cleaning services to its parent foundation S, which ran a university teaching hospital, and provided non-business tuition alongside VAT exempt medical services. S and U-GmbH were members of a VAT group. However, the German tax authorities were of the view that given the cleaning services had been provided to S “for purposes other than that of the business”, a deemed supply arose which was chargeable to VAT. In considering the EU Principal VAT Directive’s provisions on grouping, the CJEU has ruled that services provided for consideration between members of a VAT group are not subject to VAT, even where the recipient of the services is not fully taxable (i.e., not able to recover input tax). EU member states may provide for persons closely bound by “financial, economic and organisational links” to be treated as a single taxable person, a VAT group. The effect of this is that members of a VAT group are no longer treated as separate taxable persons for VAT purposes; the members no longer submit separate VAT returns and are no longer identified, within or outside the group, as individual taxable persons. With regards to whether the risk of tax loss means that it is appropriate to distinguish cases where the recipient of services within a VAT group is not able to deduct input tax, the CJEU notes that within the framework of a VAT group, the right to deduct input tax is conferred on the group itself and not on its members. Any risk of tax loss results from the application of the EU VAT system and the rules on input tax recovery, not from the application of the VAT grouping rules. Accordingly, members of a VAT group are a single taxable person, and the supply of intra-group services would not be subject to VAT. (Contact: Andrew Clarke)

Makowit: VAT on compulsory land purchases – CJEU

J.S. was a farmer in Poland, and had been registered for VAT since 2013. In 2017, two parcels of J.S.’s land were compulsorily acquired by the Polish state for road construction. The CJEU has ruled that the compensation paid for the compulsory purchase of land was subject to VAT. Under Article 2(1)(a) of the EU Principal VAT Directive, the supply of goods for consideration by a taxable person acting as such is subject to VAT. Under Article 14(2)(a) of the Principal VAT Directive, the supply of goods includes “the transfer, by order made by or in the name of a public authority or in pursuance of the law, of the ownership of property against payment of compensation”. In this case, there was clearly a transfer of property as the result of a decision by a public authority for which compensation was paid, so the issue for the CJEU was whether the compensation was received by a taxable person “acting as such”. The CJEU noted that the land sold was part of the assets of J.S.’s farm (his economic activity). It followed that J.S., a taxable person because of his agricultural activity, was acting as a taxable person in transferring the ownership of the agricultural land allocated to his economic activity, even though he did not market the property or take any other steps to effect the transfer. The compensation payment would be subject to VAT. (Contact: Donna Huggard)