Indirect tax news from the past week
RCB 10(2021): repayment of VAT to overseas businesses not established in the EU
Overseas businesses that incur VAT in the UK for business purposes can reclaim the VAT using the overseas VAT refund scheme. To obtain VAT refunds for the year 1 July 2019 to 30 June 2020, businesses established outside the UK and EU were required to submit their application for refunds together with a certificate of status by 31 December 2020. HMRC previously granted a six month extension to submit the certificate. They are aware that businesses are still experiencing difficulties obtaining the required certificate from their official issuing authorities due to measures taken in response to COVID-19. In RCB 10(2021), HMRC have therefore stated that they will allow businesses a further six months (until 31 December 2021) to submit a valid certificate of status. (Contact: Alistair Lord).
X: VAT on commission due when property sale completed – AGO
In 2012, X GmbH arranged the sale of real estate in Germany belonging to T GmbH, for which it was paid €1m. Payment was spread over five equal annual instalments of €200k, and X considered that it should account for VAT when payment was received. However, in the Opinion of AG Maciej Szpunar, X had to account for VAT when its services completed. X could not invoke the rules on credit notes (as the agreement to pay by instalments did not modify what it was owed) or the rules on bad debt relief (as the consideration had not become irrecoverable) to defer the tax point. In the AG’s opinion, the rule prescribing that some services are completed when the period to which they relate expire (thereby deferring output tax) only applies when there would otherwise be uncertainty about the time of completion, and there was no such uncertainty here. The fact that X had to finance the VAT due on its services, as it would not be paid in full for several years, was its own commercial choice. Taxpayers cannot determine tax points simply by adjusting payment terms. (Contact: David Walters).
EU e-commerce VAT package live from 1 July – HMRC guidance
The new rules for EU e-commerce transactions came into effect from 1 July, which will affect any business that sells to consumers (B2C) in the EU. The existing One Stop Shop (OSS), which allows businesses to account for VAT in different EU Member States via one VAT return has been extended to intra-EU cross-border B2C sales of goods and other services. Following the abolition of low value consignment relief, an Import OSS allows businesses that supply low-value imported goods to deal with EU VAT obligations via a single VAT return. There are also new rules affecting supplies made via online marketplaces. In response, HMRC have issued more guidance. Check how to report and pay VAT on distance sales of goods from Northern Ireland to the EU confirms that businesses who sell goods over £8,818 annually from NI to EU consumers will need to register and account for VAT in the EU (either by registering in the EU or via the OSS). If a business registers for UK VAT so as to use the OSS, it will not need to account for VAT on UK domestic sales until it exceeds the normal VAT registration threshold. Tell HMRC you’re registered for the VAT Import One Stop Shop in the EU explains that if a business sells low value goods (not exceeding £135) into NI and is registered for the IOSS in the EU, it must tell HMRC its IOSS registration number. If the business is UK VAT registered it must account for VAT on eligible sales of low value goods into NI on its IOSS return, with no import VAT being accounted for when the goods enter NI. HMRC will publish further guidance on the UK’s IOSS scheme soon. (Contact: Andrew Clarke).
HR: for richer, for poorer – marriage and VAT fraud - CJEU
Attempted VAT fraud is not always complex. HR’s husband sold €80m of soft drinks and spirits to P GmbH without charging German VAT, and P forged VAT invoices to try to recover input tax. The fraud was detected, the husband was convicted, and P was denied input tax recovery. The complicating feature in this case was that the husband, in helping P to sell the drinks, identified his own wife (HR) as a potential customer. The attempted fraud was self-contained (it just related to transactions between the husband and P) and HR’s involvement was not designed to obscure it. Nevertheless, the CJEU has ruled (by reasoned order) that HR could be denied input tax recovery if she knew or should have known about the fraud. The Kittel principle did not depend on transactions in the supply chain being an orchestrated part of a fraud. It was enough that they allowed the fraud to occur (in the sense that P had to sell the drinks to someone). HR’s entitlement to recover input tax of €1.1m therefore depends on her persuading the German courts that her husband kept her in the dark about his fraud, and that she had no reasonable means of knowing about it. (Contact: Rob Holland).