Indirect tax news from the past week
BNT: input tax restriction on non-business broadcasting
In 2016 the CJEU ruled that the Czech public broadcasting body was not in business for VAT purposes in relation to its core broadcasting activities, which were funded by a public licence fee. In Balgarska natsionalna televizia it has applied the same approach to the Bulgarian national broadcaster. Although BNT was funded from the State budget by a flat rate subsidy per hour of programming rather than by a licence fee, it was not making supplies to viewers for consideration. However, the fact that much of BNT’s revenue was therefore classified as non-business rather than exempt did not mean that it should be ignored for the purposes of determining input tax recovery. The CJEU confirmed that there is no right of deduction in relation to non-business activities, and this must be reflected in the calculation of recoverable input tax. It ruled that EU Member States have a broad discretion to determine an appropriate recovery method. Therefore, practical difficulties in attributing input tax to BNT’s taxable activity (such as advertising, product placement, and teleshopping) may mean that the national courts uphold an assessment for €801k. (Contact: Jacqui Nicholls).
Reduced rate of VAT on hospitality from 1 October
On 1 October, the 5% reduced rate of VAT which has applied since 15 July 2020 to certain supplies in the hospitality and tourism sectors increased to 12.5%. The reduced rate applies to certain supplies of food and non-alcoholic drinks in the course of catering from restaurants, pubs and cafés etc.; supplies of holiday accommodation; and the right of admissions to shows and certain attractions. Businesses involved in those sectors will need to ensure that their systems are correctly configured to apply the correct rate – a number of complications (for example, around how deposits should be handled) became evident when the reduced rate was initially introduced. Businesses outside the sector will need to ensure that they recover the correct amount of VAT on services that they purchase (for example, when employees expense a meal). The 12.5% rate is also temporary – it will run for six months until 31 March 2022, after which the standard rate is due to apply once again. (Contact: Alice Stocker).
Ulster Metal Refiners Ltd: burden of proof on HMRC in fraud cases – FTT
Many MTIC fraud appeals focus on whether a trader knew or should have known of fraud in its supply chain, and it is comparatively unusual for taxpayers to challenge whether the transactions involved fraud in the first place. In Ulster Metal Refiners Ltd, however, the taxpayer has done so to some effect, as the burden of proof is on HMRC to demonstrate the fraud. HMRC had denied UMRL input tax recovery on the basis that its immediate supplier, Irwin, had procured soft drinks from fraudulent businesses that had hijacked other business’ VAT numbers. Although UMRL’s argument (that Irwin’s suppliers were legitimate businesses) might not have been correct, its challenge exposed other possible explanations. Perhaps (for example) Irwin had simply fabricated VAT invoices, but HMRC had not put their case on that basis and could not rely on it. The FTT concluded that UMRL should have realised that Irwin was involved in some form of VAT fraud, but HMRC had failed to discharge the burden of proof as to what fraud had occurred. Therefore, the FTT allowed UMRL’s appeal in relation to the bulk of the assessment. (Contact: Adam Routledge).
EC v Italy: no excise duty exemption for yacht fuel – CJEU
Fuel used for navigation in EU waters is exempt from excise duty unless it is used in private pleasure craft such as yachts. Italy has interpreted this as applying to commercial navigation more generally, and allows yachts that are chartered to use duty-free fuel. In EC v Italy, the CJEU has ruled that this treatment is incorrect. The duty exemption depends on the ultimate use of the yacht by the lessee or charterer, and not on the fact that the owner of the boat is chartering it commercially. If the owner makes the yacht available with a crew (and therefore remains in control of the operation of the boat) but the charterer determines that they will use it for non-commercial purposes, then duty-paid fuel must be used. Businesses which charter boats to provide passengers with a cruise ship experience should not be affected, unless the passengers can dictate how the yacht is used. (Contact: Ed Knight).