Indirect tax news from the past week
SK Telecom: VAT on use or enjoyment of phones in Austria - CJEU
SK Telecom (SKT), a mobile phone provider based in South Korea, incurred Austrian VAT on fees charged by an Austrian network operator, which it passed on to its customers (i.e. South Koreans visiting Austria) as roaming charges. The Austrian tax authorities rejected SKT’s Directive claim on the basis that effective use and enjoyment of its services took place in Austria, and SKT should have accounted for Austrian VAT on the roaming charges. The CJEU has agreed. In considering the two questions referred to the CJEU together, it was held that roaming services, a distinct service in their own right, supplied by an operator established in a third country to its customers who also belong in that third country, of allowing them to use a network of the Member State in which they are temporarily staying, must be considered to be ‘effectively used and enjoyed’ within that Member State. Furthermore, the application of such use and enjoyment provisions is not dependent on any tax treatment adopted outside of the EU to the extent it prevents non-taxation in the EU. (Contact: Jonathan Anderson).
EQ: VAT exemption for welfare services – CJEU
The Luxembourg courts can appoint a lawyer to act as guardian for adults lacking legal capacity, to protect them in civil matters. EQ has been acting as a guardian since 2004. In 2018, the Luxembourg tax authorities determined that those activities should have been subject to VAT, on the basis that the VAT exemption for supplies "closely linked to welfare and social security work" made "by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing" did not apply. The CJEU has held that the services supplied by EQ constitute an economic activity (which EQ had argued was not the case), but that they were closely linked to welfare and social security work. As to whether a lawyer providing such services may be considered a body “devoted to social wellbeing”, although the profession of lawyers cannot be characterised, as a whole, as being devoted to social wellbeing, a lawyer providing services closely linked to welfare and social security work would not be excluded from recognition as such a body. (Contact: Nick Comer).
Grupa Warzywna: Application of Polish VAT penalty provisions - CJEU
Polish company Grupa Warzywna acquired real estate on the understanding that the transaction was subject to VAT and deducted the input tax accordingly. Following an inspection, the Polish tax authorities found that the supply of the property was VAT exempt. Grupa Warzywna corrected its VAT return, however despite this correction, the tax authorities imposed a penalty of 20% of the amount of the over-claimed VAT. The CJEU has held that the penalty of 20% was inconsistent with Article 273 of the EU Principal VAT Directive (regarding the prevention of fraud). Whilst EU Member States can adopt measures to ensure the correct collection of VAT and to avoid fraud, they must exercise their jurisdiction in compliance with Union law and its general principles, including the principle of proportionality. Therefore, such penalties must not go beyond what is necessary to achieve the objectives of ensuring the correct collection of the tax and avoiding fraud. (Contact: Donna Huggard).
Northumbria Healthcare NHS Foundation Trust: Car parking chargeable to VAT - FTT
NHS hospitals in England frequently charge for car parking, which subsidises the provision of healthcare and deters people from parking at the hospital for free and walking to nearby shops. In Northumbria Healthcare NHS Foundation Trust, the FTT has ruled that NHS car parking charges were subject to VAT. The Trust was supplying car parking for consideration in the course of an economic activity. Special rules for bodies governed by public law did not override this treatment, as the car parking was not provided under a special legal regime (notwithstanding NHS guidance on how to charge for car parking) and was potentially in competition with private car park operators. The FTT also ruled that the car parking was not VAT exempt as “closely related” to hospital or medical care as it was not an indispensable stage in diagnosing, treating, or curing disease. Even if it was an essential part of the therapeutic process, then it would be excluded from the VAT exemption as the car parking was in competition with commercial operators. The Trust’s appeal (relating to a claim for VAT of £267k for 2013-16) was dismissed. (Contact: David Walters).