Weekly VAT News

Hippodrome Casino Ltd: floorspace-based VAT override inappropriate – UT

The Hippodrome in Leicester Square has casinos, bars and restaurants, and a theatre. Hippodrome Casino Ltd (HCL) refurbished the property through 2009 to 2012 with a view to providing a Las Vegas-style experience to customers. In 2022, the First-tier Tribunal considered that there was little crossover between the casinos (exempt) on one hand, and the bars, restaurants, and theatre (taxable) on the other. In its view, a floorspace-based standard method override (which improved HCL’s input tax recovery by £548k annually) was a better reflection of the use of HCL’s costs than the standard partial exemption method. The Upper Tribunal has now overturned this decision. The FTT had reached its conclusion on the basis that the bars, restaurants, and theatre were not merely an adjunct to, or an amenity for, the gaming. However, the UT considered that this failed to address HMRC’s core argument. According to the UT, the FTT had failed to consider properly whether the areas designated as relating to taxable activity in HCL’s override calculation actually had a dual use (for example, because they were designed to encourage customers to use the gaming activities, or were subsidised by the profits from the gaming). The override calculation had to consider the economic use of HCL’s costs, rather than merely which area they related to. The UT concluded that HCL’s operation of the Hippodrome was principally about the gaming activity, supported by the other entertainment and hospitality activities. It accepted HMRC’s argument that most of the areas relied on by HCL as giving rise to input tax recovery had a dual use, and concluded that HCL had failed to show that its floorspace-based override calculation reflected how costs were used was an improvement on the standard method. The UT allowed HMRC’s appeal, and dismissed HCL’s underlying appeals against HMRC’s rejection of its override. (Contact: Judith Lesar) 

Safeguarding the Union – command paper

The government has published a command paper on Safeguarding the Union, which sets out a package of proposed measures intended, in the event of the restoration and ongoing functioning of the Northern Ireland institutions, to protect “Northern Ireland’s political and constitutional place in the Union, strengthen the operation of the UK internal market, and support ever greater opportunities for trade within it”. Measures include statutory protections for Northern Ireland’s constitutional position and continued access to the UK’s internal market, and the establishment of a UK East-West Council and Intertrade UK (a new body to promote trade within the UK). With respect to the operation of the Windsor Framework, the paper proposes replacing the ‘green lane’ with a broader UK internal market system and introducing an internal market guarantee to protect UK trade flows. (The guarantee will commit that more than 80% of freight movements from Great Britain to Northern Ireland will be treated as ‘not at risk’ of moving into the EU, and accordingly will be under the UK internal market system.) The intention is to remove checks on goods moving within the UK internal market system, except those undertaken by UK authorities to prevent abuse, criminality and the risk of disease. A new approach will remove the need for international customs paperwork and supplementary declarations, and will broaden the range of goods that can be moved within the UK internal market system. (Contact: Jeffrie Mann)

Adient: VAT fixed establishment  – AGO

Advocate General Kokott has considered an attempt by Romania to identify a toll manufacturer (Adient Romania, which made car seat covers) as a fixed establishment (FE) of an affiliated entity (Adient Germany, which owned the raw materials and the finished products). If it was, then Adient Romania should have charged Romanian VAT on its toll manufacturing services, as they were domestic supplies received by Adient Germany at its Romanian establishment. Previously, the CJEU has stated that it could not rule out the possibility of a subsidiary operating as a FE of its parent. However, in the AG’s opinion, that concept should not be applied too broadly. For example, the mere fact that two companies belong to the same corporate group cannot, on its own, support this approach. Nor is it relevant to consider the nature of the onward supply made by the principal or the ultimate destination of the manufactured goods. The question is whether an entity like Adient Romania has made resources available to Adient Germany, rather than providing it with services. Even if Adient Germany did have a FE in Romania, the Romanian tax authorities needed to be able to identify it as the relevant establishment that received the services. In AG Kokott’s view, it is settled case law that the business establishment (head office) is generally to be preferred to an FE, as it is an objective, simple, and practical way of identifying a customer’s location. Using an FE instead is an exception to this general rule, and only becomes relevant if the FE is taking the place of the head office and performing its functions in relation to certain supplies (and its ability to do so using resources put at its disposal by another group company are set out contractually). If the CJEU follows AG Kokott’s opinion, Adient will further clarify that the power of tax authorities to identify some group entities as representing establishments of others is relatively limited. (Contact: David Walters)

EU CBAM – issues with submission of reports

The first reports under the EU Carbon Border Adjustment Mechanism were originally due on 31 January 2024. However, due to technical issues with the EU systems, some businesses were unable to submit their reports. Accordingly, the European Commission is effectively providing for a 30-day extension to the due date for businesses that request delayed submission, which is possible from 1 February via the Transitional Registry. No penalties will be imposed where there have been difficulties submitting the report, provided the submission is made promptly when the issues are overcome. (Contact: Zoe Hawes)

This week’s VAT case calendar

On 6 or 7 February, the Court of Appeal will hear the taxpayer’s appeal against the Upper Tribunal decision in Northumbria Healthcare NHS Foundation Trust on VAT and car parking. On 8 February, the CJEU will deliver a judgment in Valentina Heights on the reduced VAT rate for accommodation.

Dbriefs webcasts

On 7 February 2024 at 12.00, the UK Tax Update – February will be hosted by Tim Waterhouse. Our panel will provide an update on the latest news in corporate, employment and indirect tax.
On 8 February 2024 at 12.00, there will be a webcast on ‘Next-Gen’ Digital Invoicing and Reporting in the Modern Tax Environment. Hosted by Pieter Van Hoecke, our panel will explore experiences and the latest trends in the field of digital invoicing and reporting, and the solutions and technologies being adopted in the market.