Indirect tax news from the past week
RCB 15(2020): import VAT recovery by non-owners
HMRC have issued RCB 15(2020) confirming their policy (as previously announced in RCB 2(2019) in April 2019) that import VAT can only be recovered by owners of imported goods. The new RCB acknowledges some of the practical points that were raised in response to this change in policy. For example, finance houses rather than their customers are, in HMRC’s view, responsible for VAT when leased assets are imported. Retailers should not use their own duty deferment account if goods belong to their suppliers when they leave a customs warehouse. Affected businesses should consider whether customs special procedures could soften the impact of this policy change, but neither they, nor postponed VAT accounting, (which HMRC also mention) are likely to provide a complete solution. With the end of the transition period fast approaching, and the number of imports set to markedly increase, any business involved in overseas trade should review its supply chains to establish whether it is accounting for VAT in line with HMRC’s policy. (Contact: Andrew Clarke).
United Biscuits: no insurance exemption for pension fund management
In an insurance contract the insurer, in return for a premium, undertakes to indemnify the insured in the event of a particular risk occurring. The CJEU has previously noted that there is no particular reason for defining insurance differently for VAT and for insurance law purposes. UK pension funds have therefore been arguing that pension fund management should have been exempt from VAT, as HMRC accepted (until April 2019) that such services were exempt when provided by insurers whose services were treated as a regulated insurance activity in the UK. In United Biscuits the CJEU has rejected this argument. The fund managers did not indemnify the pension fund against any risk, and the Insurance Directives could not be applied to override this fundamental requirement for VAT exemption. In any event, the First Life Assurance Directive never intended pension fund management (an “operation” which is ancillary to insurance, rather than "insurance" in its own right) to be regarded as insurance. Based on the CJEU’s judgment, there seems to be no scope for exempting the management of defined benefit pension schemes. (Contact: Judith Lesar).
End of the transition period – developments
The government has updated the Border Operating Model which provides further detail for businesses on how the GB-EU border will operate after the end of the transition period. Amongst other things, the Model now maps out the intended locations of inland border infrastructure and provides details of a Kent Access Permit that will be mandatory for HGVs using the short strait channel crossings in Kent. The government has also announced that it will be increasing the support that businesses can access from the Customs Grant Scheme. SI 2020/1088 amends various transitional customs regulations in line with the Model. In relation to Northern Ireland, the UK has published a draft SI setting out the definition of qualifying Northern Ireland goods; and the Commission has published a draft Directive explaining how businesses in Northern Ireland will need an “XI” VAT registration number in order to continue trading with the rest of the EU under the Northern Ireland Protocol. (Contact: Zoe Hawes).
UCMR-ADA: supplies by collective copyright organisation – AGO
In UCMR-ADA, AG Jean Richard de la Tour has considered the treatment of royalties collected by a Romanian collective management organisation (CMO) from a cultural association which had performed a copyrighted musical show. In such situations, the AG considered that the copyright holder was making a supply to the association. It was not possible to treat the royalties as compensation and therefore outside the scope of VAT. It appeared that the CMO was collecting royalties in its own name but on behalf of the copyright holders. Consequently, the copyright holder should charge VAT to the CMO for the amount it received (i.e. after deduction of the CMO’s commission) and the CMO should charge VAT to the association on the gross royalties. The AG’s Opinion therefore reflects the conclusions of the VAT Committee which published guidelines on the VAT treatment of CMOs in February. (Contact: David Walters).