Indirect tax news from the past week
EU fiscal representation for UK businesses
The UK-EU Trade and Cooperation Agreement (TCA) includes a protocol on administrative cooperation and combating fraud in the field of VAT, as well as mutual assistance for the recovery of claims relating to taxes and duties. As a result, businesses established in the UK should, in principle, be able to register for VAT in EU Member States without having to appoint a fiscal representative. However, the European Commission is reviewing this and is only expected to confirm whether fiscal representation is required in April. Until then, the requirement for UK taxpayers to appoint a fiscal representative continues to be determined by individual EU Member States. Some currently require UK businesses to appoint a fiscal representative, others do not, and some Member States have not yet clarified their position. The position is continuing to evolve, and UK businesses with VAT registration obligations around the EU will need to monitor developments and appoint fiscal representatives where appropriate. (Contact: Andrew Clarke).
Tower Bridge: carbon emission trading and VAT fraud – UT
In 2010, a domestic reverse charge was introduced for carbon emission trading, in response to a surge in suspected fraudulent activity. In some cases, however, the damage had already been done. The fraudsters vanished, leaving a question about whether their customers should be entitled to input tax recovery. In Tower Bridge GP Ltd, the Upper Tribunal has ruled that defects in invoices provided by one supplier (which did not show a VAT registration number (VRN) because the supplier had never registered) could not be overlooked. The UT examined a long line of CJEU cases on the role of invoices, noting in particular that a valid VAT invoice performs an “insurance function” for tax authorities by allowing them to verify and monitor that tax has been paid. Although some errors on invoices might be forgiven, the omission of the supplier’s VRN and address prevented HMRC from verifying that the supplier had accounted for output tax. Consequently, Tower Bridge did not have any directly effective right under EU law to recover input tax in the absence of a VAT invoice. For similar reasons, the UT held that HMRC were entitled not to exercise their discretion to accept alternative evidence. Tower Bridge’s appeal was dismissed. (Contact: Oliver Jarratt).
Westow Cricket Club: zero-rating certificates and new pavilions - UT
Before Westow Cricket Club issued a zero-rating certificate for its new pavilion, it contacted HMRC who referred to Notice 708 and told the club that “providing the new pavilion meets the conditions set out, and it appears to do so, the construction work will be zero-rated…”. The club is a Community Amateur Sports Club (CASC) and not a registered charity, and the question of whether CASCs qualify for zero-rating remains uncertain. After the pavilion was completed, HMRC (on the basis that CASCs do not qualify for relief) imposed a 100% penalty on the club for incorrect certification. Initially, the FTT ruled that the club did not have a reasonable excuse for issuing the certificate, as HMRC had qualified their response and had only expressly addressed the use of the pavilion, not the club’s charitable status. The Upper Tribunal has now reversed that decision. It ruled that the FTT had taken too narrow an approach in focusing on whether HMRC’s response was definitive, and should not have placed so much emphasis on whether a reasonable excuse that existed at the time of HMRC’s letter still held when the certificate was issued 12 months later. The club’s treasurer honestly believed that he could issue a certificate even after reading Notice 708 and it was objectively reasonable for him to have done so. The UT therefore allowed the club’s appeal, and remade the decision to discharge the penalty. (Contact: Ben Tennant).
LN: sale of property by creditor was not a business activity – CJEU
In 2009 LN lent €80k to JM, who failed to repay him. The loans were secured by mortgages over three properties, and enforcement proceedings under Romanian law resulted in them being auctioned off to LN who resold the first property in 2010 for €145k, and the other two properties in 2011 and 2012. The CJEU has ruled that the acquisition of the properties by auction and their subsequent resale did not automatically make LN a taxable person for VAT purposes. He was merely taking the necessary steps to recover his loan by exercising his right to acquire the properties, which was just the sound management of his private assets and not an economic activity. In order to be a business, the CJEU would expect evidence that LN had actively marketed the properties, and mobilised the resources which a property speculator might typically have deployed. Although he had bought and sold three properties within three years, the court concluded that LN had not been in business and consequently had not needed to charge VAT on the sales. (Contact: David Walters).