Weekly VAT News

Chancellor announces HMRC package

On 23 September, the Chancellor of the Exchequer, Rachel Reeves, announced “a package of reforms to deliver on the agenda of the new government”. These included reforms to the UK’s tax system, including an announcement that HMRC will soon launch a consultation on electronic invoicing (e-invoicing) “to promote its wider use across UK businesses and government departments”. The Chancellor believes that e-invoicing could reduce administrative tasks, improve cash flow, boost productivity, introduce automation, and reduce errors in tax returns, helping to close the tax gap. The consultation will seek input from businesses on how HMRC can support investment in and uptake of e-invoicing. E-invoicing is a long-accepted form of commercial data exchange between counterparties, however it is also developing into an important mechanism for regulatory authorities to drive improved compliance, efficiency, and broader commercial and economic forecasting. Further details of the UK consultation are yet to be announced and no timeline has been set, but this initiative demonstrates the growing global trend towards e-invoicing and HMRC’s objective to drive digital transformation. Other tax-related announcements included the appointment of Exchequer Secretary to the Treasury, James Murray, as Chair of the HMRC Board, to implement Mr Murray’s strategy priorities for HMRC: to close the tax gap, to modernise and reform, and to improve HMRC service. The Chancellor also announced a new Digital Transformation Roadmap to be published in Spring 2025, and further steps to recruit compliance staff to HMRC. (Contact: Giuseppe Ciampa)

Belgian cases on VAT and online gambling – CJEU

With effect from 1 July 2016, Belgium abolished the VAT exemption for online gambling other than lotteries. The Constitutional Court annulled this by a judgment in March 2018. However, in a November 2018 judgment, the Court maintained the effect of the change from 1 July 2016 to 21 May 2018, for budgetary and administrative reasons. Following objections from a number of Belgium providers of online gambling, the CJEU has now considered whether it is consistent with the principle of fiscal neutrality to differentiate between: online lotteries and other online gambling; and non-lottery online gambling and offline gambling (Chaudfontaine Loisirs and Casino de Spa and Others). The CJEU noted that fiscal neutrality precludes treating similar goods and services differently for VAT purposes. Supplies of services are similar where they have similar characteristics and meet the same needs from the customer’s point of view, the test being whether they are comparable. Whilst it is for the referring court to assess whether the services are similar, the CJEU set out indicators to be taken into account, which include cultural factors, differences relating to minimum and maximum stakes, and the chances of winning. With the exception of ‘cultural factors’, these reflect previous gambling fiscal neutrality case law. The CJEU considered that lotteries differed from other forms of gambling in that they are solely determined by chance and there is a delay between purchasing the lottery ticket and the result. With respect to (non-lottery) online versus offline gambling, the CJEU referred to the context of the gambling, and concluded that the differences in treatment may be compatible with fiscal neutrality. The CJEU also concluded that, given the primacy of EU law, national courts must disapply provisions that are incompatible with EU law, including the EU Principal VAT Directive, notwithstanding the judgment of a constitutional court, and taxpayers must be refunded VAT paid in breach of EU law, subject to unjust enrichment. (Contact: Barney Horn)

Syndyk Masy Upadłości A: VAT split payment mechanism – CJEU

By way of derogation from the EU Principal VAT Directive (PVD), in 2019, Poland enacted a split payment mechanism to address the problem of VAT fraud. Under the split payment mechanism, customers who purchased supplies worth 15,000 Polish zlotys (approximately €3,500) had to pay the VAT into a separate VAT bank account of the supplier. This account could only be used to pay VAT, and other tax liabilities, to the tax authorities or to pay the VAT on goods and services purchased by the supplier. In this case, the administrators of an insolvent business requested the transfer of funds from the VAT account to pay property tax due by the business. Following questions from the domestic court regarding Poland’s application of the split payment mechanism, the CJEU has held that the mechanism is compatible with the PVD, and did not exceed the terms of the derogation granted. In particular, the mechanism did not require VAT to be accounted for prior to the submission of a VAT return, which would have been contrary to the PVD. Also, it was not apparent to the court that there was any breach of fiscal neutrality or proportionality. The court confirmed Poland’s application of the split payment mechanism. In the UK, HMRC have awarded a contract for the development of a proof of concept for the application of the split payment mechanism, the final phase of which is due by 31 January 2025. (Contact: Andrew Clarke)

This week’s CJEU VAT calendar

On 4 October, the CJEU will deliver judgments in UP CAFFE on business continuity, and Voestalpine Giesserei Linz on permanent establishment.