Indirect tax news from the past week
Weindel Logistik: recovering VAT on imports owned by others – CJEU
Weindel Logistik imported goods belonging to a Swiss company from Hong Kong, China, and Switzerland into Slovakia. It reconditioned and repackaged the goods before exporting them again or dispatching them around the EU, and charged the Swiss owner for repackaging services. The CJEU has now issued a reasoned order that Weindel Logistik was not entitled to recover VAT on importing the goods unless it both had the right to dispose of the goods as owner, and could demonstrate that the imports had a direct and immediate link to its economic activity. In its view, the tests for whether a business can recover input tax on purchases (i.e. whether they have a direct and immediate link to its outputs or its business as a whole, and whether the cost of the goods is incorporated in the price of the business’ supplies) apply to imports just as much as to domestic purchases. The Order is of particular interest given the recent publication of RCB 15(2020) confirming HMRC’s revised policy on recovery of import VAT by non-owners. (Contact: Andrew Clarke).
E: bad debt relief not dependent on VAT registration - CJEU
Member States can restrict bad debt relief (BDR) to recognise that non-payment by a customer is temporary rather than permanent. However, restrictions must not go beyond what is required to achieve that goal. In E, the CJEU has ruled that the question of whether or not a customer was registered for VAT (either at the time of the supply or 150 days later, which were requirements of the Polish BDR scheme) had nothing to do with establishing whether non-payment was permanent. After all, debtors need not be registered for VAT at all. The CJEU accepted that there was generally a link between a supplier's reduction of output tax and an adjustment to the defaulting customer's input tax recovery. However, that did not mean that BDR could be made conditional on an effective input tax adjustment by the purchaser (who, in E's case, had become insolvent less than 150 days after being invoiced for E's professional services). In the CJEU's view, BDR should be permitted provided that there was a reasonable probability that the debt would not be paid, subject to the relief being clawed back if payment later materialised. The Polish BDR conditions were contrary to EU law, and must be disapplied. (Contact: Aaron Bissett).
Combinova: "use" of goods when applying inward processing relief – CJEU
Combinova imported goods into Sweden on 23 November 2017, processed them, and re-exported them on 11 December. It relied on inward processing relief (IPR) for relief from import VAT and duty, but was two weeks late in submitting the required bill of discharge. A customs debt arose because of this non-compliance, but that debt would be extinguished by Article 124 of the Union Customs Code if Combinova could demonstrate that the goods had not been “used or consumed” and had in fact been re-exported. The CJEU has now ruled that “use” referred to use which went beyond the processing which was authorised under IPR. If “use” meant any sort of processing (as the Commission argued), then Article 124 would never have any effect on goods which were imported under IPR. Provided that Combinova had simply processed the goods as expected, had in fact re-exported them, and provided that there was no suggestion of deception by the taxpayer, the import VAT and duty debt should be extinguished. (Contact: Bob Jones).
Ice Rink Company: hiring skates separately – FTT
Visitors to Planet Ice in Milton Keynes can hire skates or bring their own; they can even hire skates to go and use elsewhere. In April 2019, the UT remitted an appeal to the FTT to reconsider whether "skating with skates" packages involved two separate supplies (if they did, then the hire of children's skates could be zero-rated). The UT instructed the FTT to consider not whether people using the rink might have their own skates, but whether typical customers who selected the "skating with skates" package had realistic alternative options. The FTT, confirming its original decision from 2017, thought they did. Such customers had a genuine contractual freedom to use their own skates, and could plan to buy skates from a retailer (or even from the rink itself) when they decided to go skating. This might not make sense economically, but expensive purchases for children can languish at the back of a cupboard after one or two uses. Purchasing skates was a realistic alternative for customers considering the "skating with skates" package, and hiring them was therefore a separate supply. The appeal was allowed. (Contact: David Walters).