Indirect tax news from the past week
Store First Midlands: lease and leaseback of self-storage – FTT
SFML developed a building in Nottingham into self storage units. It leased the units to investors for 999 years for a premium, and almost all of the investors leased their units back to SFML for six years. HMRC assessed SFML on the basis that it was providing self storage facilities to the investors (as well as to short term customers under the leaseback) and should have charged them VAT. However, the FTT has ruled that the ultimate use of the units for self storage did not characterise the grant of the 999-year lease to the investors. The premiums were not therefore subject to VAT as the “grant of facilities for the self storage of goods”. In addition, having considered how the building was fitted-out with the units (pods), how difficult it would be to move them around, and how each investor had a property interest registered at the Land Registry, the FTT also concluded that SFML was supplying immoveable property that formed part of the building. SFML’s supplies to investors were exempt, and its appeal was allowed. (Contact: David Walters).
Cambridge University Boathouse: true beneficiaries of boathouse – FTT
Cambridge University Boathouse Ltd (CUBL) built a boathouse at Ely for £5m which it licences to the university’s three elite rowing clubs, whose stated goal is to beat Oxford in the boat race each year. The construction was funded through donations and loans, with the licence fee generating just enough revenue to cover the boathouse’s maintenance and utilities costs. HMRC denied input tax recovery on the construction, on the basis that the licence fell within the sporting exemption. The FTT has ruled, however, that the licence was granted to the clubs and not to the individual rowers who were members of the clubs. For example, CUBL provided storage for the expensive boats that belonged to the clubs, but rowers were not allowed to store their own kit or equipment there. The sporting exemption only applied if the “true beneficiaries” of CUBL’s supply were the rowers. The FTT held that CUBL had granted rights to the clubs and not to the rowers, and therefore its supply was not exempt under the sporting exemption, and CUBL was not barred from recovering input tax on that basis. (Contact: Nick Comer).
Elvospol: bad debt relief where customer insolvent within six months – CJEU
The Czech Republic does not allow suppliers to claim bad debt relief if defaulting customers go insolvent within six months of a supply. According to the CJEU in Elvospol sro, this exceeds EU Member States’ discretion to set conditions around BDR. Such conditions are only permitted if they relate to the possibility that payment will eventually be received, and the debt will no longer be bad. In 2019, however, the Supreme Administrative Court justified the Czech six-month rule on the basis that suppliers were best placed to recognise a potential insolvency. Denying BDR should therefore be permitted, it thought, as a measure to prevent VAT avoidance or evasion. In Elvospol, following a referral by the Regional Court in Brno, the CJEU has rejected this approach. In its judgment, the fact that a supplier provided goods or services to a business that went insolvent within the following six months did not create a presumption that supplier and customer had acted with the aim of not accounting for VAT. The Czech rule went beyond what was strictly necessary to prevent tax evasion or avoidance, and therefore infringed the principle of proportionality. (Contact: Aaron Bissett).
Ferimet: domestic reverse charge input tax not recoverable – CJEU
The domestic reverse charge has long been an effective tool against missing trader fraud. In Ferimet, the CJEU has delivered a judgment which suggests that, in some circumstances, it is even more potent than previously thought. Ferimet applied a domestic reverse charge to scrap metal purchases, but the Spanish tax authorities established that it had falsified the name of the supplier on the invoices. They denied Ferimet input tax recovery and imposed a 100% penalty. Ferimet protested that it had accounted for VAT (under the reverse charge) and the name of the supplier on the invoice should not prevent input tax recovery. The CJEU observed that deliberately concealing the supplier’s name might make it impossible for the Spanish tax authorities to verify that the supplier was a taxable person, which is a material condition for VAT recovery. If falsification of the invoice was connected with VAT fraud (although not direct tax evasion by the supplier, which might have been the reason for using a false supplier name), then Ferimet could be denied input tax recovery, even if it obtained no VAT benefit itself and there was no immediate risk of VAT loss. (Contact: Rob Holland).
Deloitte/IfG event: Reaching net zero – is the tax system ready?
On Monday 22 November 2021 at 13.00 GMT/14.00 CEST Deloitte is supporting an Institute for Government online event – Reaching new zero - is the tax system ready?. The webcast will ask how the government should adapt the tax system to reach net zero and whether the budget was a missed opportunity, look at steps being taken in other countries, and how to overcome barriers to reform. Dr Gemma Tetlow, Chief Economist at the IfG, will be joined by a panel which includes Amanda Tickel, Deloitte UK’s head of tax and trade policy, David Gauke (former Financial Secretary to the Treasury), James Murray MP (Shadow Financial Secretary); and Chris Stark (Chief Executive of the Committee on Climate Change). Click here to register.