Weekly VAT News

BLS1 Ltd: VAT and serviced accommodation – IOM HC

The reduced value rule means that hotels and similar establishments need only charge VAT on part of the amounts invoiced to long-term guests (usually 20%, reflecting the services enjoyed by the guests but not the accommodation itself). In BLS1 Ltd, the Isle of Man High Court has ruled that the reduced value rule should apply to the provision of serviced accommodation in studio apartments at The Quarters in Swiss Cottage, London. BLS1 (established in the Isle of Man) arranged for the studios to be cleaned and for towels and linen to be changed weekly. Each studio had a basic kitchenette, a desk and a sofa, as well as a bed and bathroom. The High Court considered that the question of whether The Quarters was a “similar establishment” to a hotel did not depend (as the IOM VAT and Duties Tribunal had thought) on whether BLS1’s supplies would otherwise be exempt from VAT. The question of whether BLS1 was granting a licence to occupy land (a proposition rejected by the Tribunal) was not therefore relevant. The Tribunal should have limited itself to the straightforward question of whether The Quarters was a similar establishment to a hotel, and the associated statutory test of whether it was held out as being suitable for use by visitors or travellers. The Tribunal’s findings of fact showed that The Quarters was similar to a hotel, and BLS1’s appeal was allowed. It had correctly applied the reduced value rule to services provided to long-term occupants. (Contact: Ben Tennant)

C SPRL: VAT and administrators of insolvency proceedings – CJEU

C SPRL provided services to insolvent Romanian companies, including the appointment of insolvency practitioners. Payments by the companies for C’s services were not always punctual, and it therefore sought to defer the time when it should account for the associated VAT. C has not been successful. In the CJEU’s judgment, C’s services gave rise to successive statements of account or successive payments, and should therefore be treated as supplied at the end of the period to which they related. C could not take advantage of the alternative rules for continuous supplies (which would potentially have allowed output tax to be deferred to the end of the year). Nor could the CJEU identify any reason why C should be allowed to defer output tax until it received payment (bad debt relief should be available for non-payment). On a separate issue, the CJEU also considered input tax recovery on services provided by a law firm to C, which used the firm’s name to endorse proposals to creditors for insolvency appointments. In the CJEU’s judgment, there was no need for C to demonstrate that the endorsement increased its turnover. Input tax recovery is not dependent on profitability. Instead, a direct and immediate link was probably established simply by the fact that C displayed the law firm’s name on its proposals. Finally, on a point of tax administration, the CJEU ruled that the decision of the Romanian tax authorities had to be annulled if C had not been given an opportunity to present its case on certain issues, and if the outcome might have been different had it been allowed to do so. (Contact: David Walters)

VAT in the Digital Age – ECOFIN meeting

The 21 June 2024 meeting of the EU’s Economic and Financial Affairs Council (ECOFIN) discussed the European Commission’s VAT in the Digital Age (ViDA) package, but was again unable to reach agreement. The ViDA package is intended to update the EU VAT system to take account of technological advances, address the challenges of the digital economy, and be more resilient against VAT fraud. There are three pillars: digital reporting requirements, a new VAT regime for platform economy operators in the short-term accommodation and passenger transport sectors, and single VAT registration. The European Commission released the initial ViDA proposals in December 2022, and revised text was published on 8 May 2024. Agreement was not reached at the ECOFIN meeting on 14 May 2024, and so the issue was considered again at the 21 June ECOFIN meeting. Further discussion on the package will continue under the presidency of Hungary. (Contact: Abi Briggs)