Indirect tax news from the past week
SK Telecom: VAT on use or enjoyment of phones in Austria – AGO
SK Telecom (SKT), a mobile phone provider based in South Korea, incurred Austrian VAT on fees charged by an Austrian network operator, and passed them on to its customers (South Koreans visiting Austria) as roaming charges. The Austrian tax authorities rejected SKT’s Thirteenth 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. AG Henrik Saugmandsgaard Oe agreed. In his view, the roaming service was clearly “used” in Austria, and it was unnecessary to consider whether it was also “enjoyed” there (although some language versions of the Principal VAT Directive refer to "use and enjoyment", the correct phrase is "use or enjoyment"). The AG also considered that the fact that the roaming service might be subject to VAT in South Korea was irrelevant. The application of use and enjoyment provisions for the prevention of double taxation (or non-taxation or distortion of competition) is only by reference to VAT in the EU. SK Telecom’s roaming charges should have been subject to Austrian VAT. (Contact: Jonathan Anderson).
RCB 16(2020): VAT on payroll services in the welfare sector
Cheshire Centre for Independent Living (CCIL) provides payroll services for disabled people who employ personal assistants. It successfully appealed to the FTT about whether its services were sufficiently closely related to welfare to be exempt from VAT. However, HMRC appealed to the UT and belatedly identified a decisive argument: the payroll services needed to be closely connected to a supply of welfare (not just welfare in general), and as an employee the personal assistant was not making any services that were within the scope of VAT. In the absence of any exempt supply to which it could relate its payroll services, CCIL conceded that it should have charged VAT. In RCB 16(2020), HMRC have explained that the FTT’s original decision cannot be relied upon by other payroll providers in the sector. They should decide whether or not they wish to pursue any appeals which may have been stood over pending CCIL, and are expected to ensure that VAT has been accounted for on historical supplies. (Contact: Tammy Arendse).
Frenetikexito: VAT on nutrition advice provided by gym – AGO
Frenetikexito runs fitness studios in Portugal, and offers its customers fitness and nutrition plans for a monthly fee. Where customers signed up to both plans, Frenetikexito allocated 60% of the payment to the fitness plans and 40% to the nutrition advice service (which it treated as exempt), regardless of the extent to which customers used either of them. In AG Julianne Kokott’s Opinion, the two plans should be treated as separate supplies. She concluded that there was no single complex supply: the fitness and nutrition plans were provided by different staff at different locations and different times, were invoiced separately, and could be signed up for separately. In her view, the nutrition plans were not dependent ancillary supplies either, as the charges were more than a marginal part of the overall fee, and nutrition advice and fitness plans are different ways of achieving a healthy lifestyle. However, AG Kokott had doubts about whether the charges for the nutrition advice could be described as therapeutic (especially if the customers rarely used the service) and were unlikely to qualify as consideration for an exempt supply of healthcare. Overall, therefore, the allocation of consideration to nutrition plans may not affect the VAT which Frenetikexito should have charged to its customers. (Contact: Nicole Brook).
E: medical reports not exempt from VAT – CJEU
E is a qualified nurse who provides healthcare reports for MDK (the medical service for Lower Saxony’s health insurance fund), which in turn advises the fund whether people qualify for funded care. To qualify for exemption, his services needed to be “closely linked” to welfare services (and "essential" for them) and provided by a body devoted to social wellbeing. The CJEU has ruled that E's reports were essential as, without them, the care would not be funded and would not take place. The fact that the reports were subcontracted by MDK and not provided by E directly to the fund did not redefine the services, which were closely linked to welfare. However, E did not inherit qualifying status from MDK (which was a qualifying body), meaning that his services were not provided by a body devoted to social wellbeing, and did not qualify for VAT exemption. (Contact: Jacqui Nicholls).