Weekly VAT News

Queenscourt Ltd: VAT liability of dip pots – FTT

In 2019, HMRC repaid Queenscourt Ltd VAT of £75,502, on the basis that dip pots sold as part of takeaway meal deals at its KFC outlets should be treated as separate zero-rated supplies. When Queenscourt submitted a top-up claim in 2020, a different HMRC officer determined that the dip pots were part of a single standard-rated supply and issued an assessment for to recoup the VAT previously repaid. The First-tier Tribunal has ruled that the dip pots formed part of a standard-rated supply. The FTT also considered whether it was fair of HMRC to revisit the original claim. As a general rule, the FTT does not have any general supervisory jurisdiction over HMRC’s actions (judicial review applications are a matter for the High Court). However, the Court of Appeal has previously ruled (Beadle) that public law arguments can be deployed as defences to HMRC enforcement action even at the FTT, unless expressly excluded by statute. The FTT considered that this principle (as applied by the Upper Tribunal in Zeman) could be reconciled with more general observations from the courts about the limited scope of the FTT’s jurisdiction. Based on this, there is some further support for arguments about legitimate expectation to be heard by the FTT in appeals against HMRC assessments. However, appellants should bear in mind the associated standard of proof. For there to be any remedy, HMRC’s actions must be “conspicuously” or “outrageously” unfair (formally, this is not the same as having to show detrimental reliance, but it amounted to much the same thing in this case). Although Queenscourt described various initiatives which had to be put on hold when it was required to repay the £75k, the FTT considered that its evidence was insufficient to supplant HMRC’s obligation to collect the right amount of VAT. Queenscourt’s appeal was dismissed. (Contact: Andrew Roberts)

SC Adient Ltd & Co. KG: VAT fixed establishment – CJEU

Can a Romanian toll manufacturer, which only provides services to its German principal, be a Romanian fixed establishment (FE) of the German principal, meaning that its services should be subject to Romanian VAT? This question, considered by the CJEU in Adient, is a variant of questions asked in earlier CJEU cases (Cabot Plastics, Berlin Chemie, Dong Yang), and the CJEU’s judgment applies a similar approach. When identifying the location of a recipient of a supply, a FE is a secondary point of reference which should only be used in preference to a business establishment if the VAT treatment would otherwise be irrational or lead to conflict with other EU Member States. The mere fact that the toll manufacturer is part of the same corporate group as the principal or has an exclusive contract which makes the principal its only client does not mean that the toller creates a local FE for the principal. As in Dong Yang, the CJEU does not state that the toller can never create a FE for the principal, but it is important to consider exactly what it supplies. To create a FE, it would have to place resources at the principal’s disposal so that it had the necessary human and technical resources to operate its business. The fact that Adient Romania staff could access a common accounting system and make entries on Adient Germany’s behalf was not enough to create an establishment; nor was the availability of a storage facility for Adient Germany’s goods. For Adient Romania to constitute a FE of Adient Germany, it would be necessary to consider the scope of services provided by the Romanian employees, and whether employees had been placed at the disposal and under the authority of Adient Germany. There are only limited circumstances when a toll manufacturer could properly be identified as providing its principal with a FE. (Contact: David Walters)

General Election

Ahead of the General Election on 4 July 2024, UK political parties have started to publish manifestos setting out their policy proposals for if they were to be in government. Manifestos published so far include those of the Conservative Party, the Labour Party, the Liberal Democrats, the Green Party of England & Wales, and Reform UK. On Thursday 20 June 2024, at 14:30, there will be an EMEA Dbriefs webcast on the UK General Election 2024. Our panel will discuss the tax policy and trade aspects of the manifestos. (Contact: Andrew Clarke)