Indirect tax news from the past week
Mandarin: determining usual residence – UT
Mandarin Consulting Ltd provided soft skills coaching to students from China looking for job opportunities in major international companies. Following a decision of the First-tier Tribunal, Mandarin accepted that it had provided consultancy services (rather than education) to the students (rather than to their parents). However, the correct VAT treatment still depended on where the students were usually resident. Regulation 282/2011 specifies that a supplier should establish residence based on factual information provided by the customer, and verify that information by normal commercial security measures. However, the Upper Tribunal has ruled that the Regulation overlaid, but did not replace, the place of supply rules in the Principal VAT Directive. A supplier might be well advised to check that it satisfied the Regulation’s requirements, but if it could not do so (like Mandarin) then it was still entitled to demonstrate its customers’ usual residence by reference to a multi-factorial test. Unfortunately for Mandarin, the evidence that it had collected was too general, and did not establish that the students were usually resident in China at the time of supply. The Upper Tribunal therefore found in favour of Mandarin on a point of principle, but remade the decision in favour of HMRC based on the particular facts of the case. (Contact: David Walters).
Greenspace: conservatory re-roofing subject to VAT – UT
Some conservatories are too hot in summer, and too cold in winter. Greenspace Ltd’s solution was to replace the glass or polycarbonate roof panels with ones made of Styrofoam thinly covered in aluminium (Thermotec). This was simpler than the conservatory conversion process considered in similar cases in the past, as the Thermotec panels were manufactured to fit the existing frame exactly, and could simply be slotted into place without needing to be covered by additional roof tiles. Nevertheless, the First-tier Tribunal ruled in August 2020 that the panels were not “insulation for a roof” but were a new roof in their own right, and that Greenspace’s supplies did not therefore qualify for the reduced rate of VAT. The Upper Tribunal has now rejected Greenspace’s appeal. The FTT had not been obliged to compare the roof after Greenspace had installed its panels to the original roof. The frame that was retained could not itself be described as a roof, and the provision of the Thermotec panels (i.e. Greenspace’s supply) which made the conservatory weatherproof as well as insulating it could properly be categorised as the provision of a new roof. Greenspace’s appeal (relating to a VAT assessment for £2.6m) was dismissed. (Contact: Sarah Grace).
EU VAT Committee: Danske Bank
The working papers prepared for the meeting of the EU VAT Committee on 22 November revisit, amongst other things, the treatment of VAT groups by multinational businesses in light of Danske Bank. Unsurprisingly, given that Danske Bank followed the analysis adopted by the committee at earlier meetings, Working Paper 1025 proposes that the act of joining a VAT group should dissolve an establishment’s ties with the rest of the legal entity and make it part of the VAT group instead. Cross-border transactions between branches and head offices, or between branches, should therefore be subject to VAT if either establishment is in a VAT group. Although the committee’s guidelines (which will result from the meeting) are not binding on EU Member States, it will be interesting to see whether countries which currently include legal entities in VAT groups in their entirety (which is also how the UK applies VAT grouping) will feel pressured to change their approach if the committee follows the working paper’s approach. (Contact: Daniel Johnson).
Amper Metal: VAT recovery on motor racing advertising – CJEU
Amper Metal Kft paid €133k plus VAT to have a small logo displayed on cars at a Hungarian motor racing championship. Amper could recover the VAT if it “used” the advertising for business purposes. However, the Hungarian tax authorities considered that Amper Metal did not have a proper business reason for advertising through motor racing, as its clients were paper factories which were unlikely to be influenced by such channels. Furthermore, the authorities did not see the advertising as useful, as it did not help increase Amper’s turnover, and it had been significantly over-priced. The CJEU has ruled that input tax recovery was possible if the advertising could be objectively linked to Amper’s business activities. The mere fact that the advertising did not work, or was too expensive, could not justify an input tax restriction. However, the CJEU indicated that the referring court should consider whether the input tax should be blocked as business entertainment. If so, then Amper would be unable to recover the VAT even if a direct link could be established. (Contact: Ryan Hodge).