Indirect tax news from the past week
09/09/2024
Barclays Service Corporation & Anor: VAT grouping – FTT
An application to include Barclays Services Corporation (BSC), a US entity with a UK branch, into an existing Barclays VAT group was rejected by HMRC on two grounds: BSC was not eligible to be treated as a member of the VAT group because it was not established, nor did it have a fixed establishment, in the UK; or, alternatively, if BSC did have a fixed establishment in the UK, it was necessary to refuse the application for the ‘protection of the revenue’. The First-tier Tribunal has rejected Barclays’ appeal on the first ground. Considering the case law and the contractual position/element of control in relation to the BSC employees, the FTT found that at the time the application was made, the UK branch of BSC did not have the sufficient human and technical resources in the UK to make a meaningful commercial contribution. Therefore, as there was no activity, the UK branch could not, as a matter of fact, have been a fixed establishment of BSC. In respect of the UK’s ‘whole establishment construction’ of the VAT grouping provisions, whereby the entire eligible non-UK body corporate is allowed into a VAT group, the FTT held that any change to the UK’s approach could give rise to important practical repercussions, which the FTT was not in a position to evaluate. Finally, the FTT went on to consider the ‘protection of the revenue’ point. The FTT rejected HMRC’s ground of appeal, and held that VAT savings arising on BSC’s admission to the VAT group (had it have been a UK fixed establishment) would be “those that fell within the normal consequences of VAT grouping”. (Contact: Chris Beattie)
Joined Dutch cases on VAT treatment of pension fund management – CJEU
In a joined judgment, the CJEU has considered whether a number of Dutch pension funds qualified as ‘special investment funds’ (SIFs), in which case, management of those funds would be exempt from VAT. The CJEU has previously ruled that pension funds comparable to an undertaking for collective investment in transferable securities (UCITS) will qualify as a SIF. One of the characteristics previously described as being required for a fund to be comparable to a UCITS was that members must bear the investment risk, but what had not previously been examined was to what extent that investment risk had to be borne by the investors. In the pension funds in question in this case, the benefits under the pension funds were largely based on members’ salaries and periods of employment service. However, the expected amount was not guaranteed, as it was influenced by investment returns – effectively falling somewhere in-between a defined benefit and a defined contribution fund. The CJEU has now held that to be comparable to a UCITS, the degree of investment risk borne by the members must be comparable to the investment risk borne by an investor in a UCITS; specifically, the benefits a member can expect to receive must depend primarily on investment performance. It now falls to the national court to assess whether the members of a pension fund bear a sufficient degree of investment risk to be comparable to a UCITS. The CJEU also held that according to the principle of fiscal neutrality it is necessary to consider not only whether a pension fund is comparable to a UCITS, but whether it is comparable to other funds that are not UCITS but are considered to be SIFs by the EU member state concerned. (Contact: Nicole Faith)
UK accession to CPTPP from 15 December 2024
The Department for Business and Trade has announced that, following Peru’s ratification of the UK’s accession instrument, the UK will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK’s accession to CPTPP will enter into force from 15 December 2024 with respect to the six CPTPP members who have ratified the agreement so far (Chile, Japan, Singapore, New Zealand, Peru, and Vietnam). The agreement will come into force with other CPTPP parties as they ratify the agreement. The government estimates that CPTPP could boost the UK economy by £2 billion annually by 2040. For an assessment of the agreement’s content and potential implications for UK businesses, please see this Deloitte Insight article, which was written at the time the UK had reached an agreement in principle with the other CPTPP countries. (Contact: Henry Morris)
This week’s CJEU VAT calendar
On 12 September, the CJEU will deliver judgments in the following cases: Syndyk Masy y Upadłości A on the split payment mechanism; Casino de Spa and Others and Chaudfontaine Loisirs on VAT on online gaming; Drebers on VAT adjustments for construction works; Novo Nordisk on pharmaceutical company payments to the state health insurance agency; and NARE-BG on COVID-19 time limits and corrections. There will also be an Advocate General’s opinion in Foreningen C on VAT on media licence fees.
Dbriefs webcast
On 11 September at 12.00, the UK Tax Update – September webcast will be hosted by Rachel Austin. Our panel will discuss the latest UK tax developments, with updates on news in corporate, employment and indirect tax.