Weekly VAT News

Jersey Choice Ltd: removal of low value consignment relief – SC

In 2012, low value consignment relief (LVCR) for postal imports, which eliminated the charge to import VAT, was removed for supplies from the Channel Islands. Judicial review proceedings taken by the governments of Jersey and Guernsey at the time challenging the removal were unsuccessful. The removal affected Jersey Choice Ltd, which grew horticultural products in Jersey and sold them to UK customers, applying LVCR. Jersey Choice brought proceedings against the UK government (HM Treasury) for breach of EU law, claiming £15m for damages suffered. The High Court and Court of Appeal both struck out Jersey Choice’s appeal on the basis that it had no reasonable grounds for the claim. The Supreme Court has upheld the Court of Appeal judgment. The Channel Islands were within the EU customs union, but outside the EU for VAT purposes. Jersey Choice argued that the removal of LVCR amounted to a charge having equivalent effect to a customs duty and was contrary to the EU customs regime, which provides for the free movement of goods. However, the Supreme Court held that the legality of the removal must be assessed under the EU Principal VAT Directive, not the customs regime. As Jersey was a ‘third country’ in the context of the EU VAT regime, the EU principles of equal treatment and proportionality could not apply. The Supreme Court dismissed Jersey Choice’s appeal. (Contact: Donna Huggard)

Corporate Criminal Offences – HMRC update

HMRC have updated their statistics on compliance activities in relation to Corporate Criminal Offences (CCO) for the failure to prevent the facilitation of tax evasion. As of 1 January 2024, HMRC had 11 live CCO investigations, with no charging decisions yet made, and a further 24 identified cases were under review as to whether they should proceed to an investigation. The cases identified span 10 business sectors, including software providers, labour provision, accountancy and legal services, and transport. To date, HMRC have reviewed and rejected an additional 94 cases. However HMRC note that some of their previous investigations have led to satisfactory explanations that did not establish deliberate facilitation, but have instead led to other tax and regulatory offences being pursued. (Contact: Adam Routledge)

Valentina Heights: reduced VAT rate and hotel licensing – CJEU

When Bulgarian hotel Valentina Heights expanded, it applied for a new tourist categorisation certificate. In 2019, for reasons not explained, the previous certificate was cancelled by the authorities, but a new one was not issued until 2020. In Bulgaria, hotels are required to have a valid certificate, otherwise they are in breach of the Law on Tourism, and they also are not entitled to apply the reduced VAT rate for the provision of accommodation in the hotel sector. The Bulgarian tax authorities therefore asserted that Valentina Heights should have charged VAT at 20% rather than 9%. In the judgment of the CJEU, Valentina Heights was entitled to charge VAT at the reduced rate. Valentina Heights may have infringed the Law on Tourism, which could give rise to administrative penalties, but this did not mean that it was providing a different sort of accommodation to certificated hotels, which could apply the reduced rate. Even if hotels without certificates were a separate class of hotel, the CJEU considered that the principle of fiscal neutrality prevented a different VAT treatment. The only real distinction between Valentina Heights and other hotels was that it was operating in breach of the Law on Tourism, but it is well established that VAT generally applies equally to lawful and unlawful transactions. The dependency that Bulgarian VAT law placed on tourist certification was not a legitimate implementation of the reduced VAT rate, and infringed fiscal neutrality. (Contact: David Walters)

Arcomet Towercranes: VAT and transfer pricing: CJEU reference

Between 2011 and 2013, SC Arcomet Towercranes SRL’s (Arcomet Romania) profits from its operations in Romania exceeded the ceiling set by a transfer pricing study, which assessed that profits should be between -0.71% and 2.74%. Arcomet Romania’s Belgian parent company, Arcomet Service NV (Arcomet Belgium), therefore issued an invoice to Acromet Romania for €695k. Arcomet Belgium initially treated these payments as adjustments to the value of goods supplied to Arcomet Romania, but then reclassified them as consideration for supplies of services. Arcomet Romania accordingly accounted for VAT on the payments under the reverse charge mechanism. Following an inspection, the Romanian tax authorities denied input tax recovery to Arcomet Romania, on the grounds that “the supply of services and the need to carry them out for the purposes of taxable transactions had not been justified”. Following an appeal by Arcomet Romania, the Romanian court has asked the CJEU whether transfer pricing adjustments represent consideration for a supply of services, and, if so, how groups should evidence the link between those services and business activities. (Contact: Mark Simm)

This week’s indirect tax case calendar

On 19 February, the Upper Tribunal will hear the taxpayer’s appeal against the First-tier Tribunal decision in Thyssenkrupp Materials (UK) Ltd on inward processing relief and the requirements for bills of discharge. On 22 February, the CJEU will deliver a judgment in Gemeente Dinkelland on the application of interest for overpaid tax in the case of taxpayer error.