Readers will recall last month’s disappointing news that Hotel La Tour lost its case in the Court of Appeal. HMRC’s relief may be premature, as we have had confirmation of the Hotel’s direct application to the Supreme Court for permission to appeal.
The Court of Justice has predictably ruled that supplying services to a sister company does not on its own create a fixed establishment for the customer company. In a separate case it has confirmed that insolvency practitioners’ fees are subject to the normal VAT rules on time of supply and VAT recoverability.
One Advocate General (AG) opinion indicates that a pharma company is allowed to adjust its output tax to take account of compulsory payments made to a national health insurance fund, unless the payment is specifically described as a tax. The other AG opinion, if followed by the Court, will throw into doubt many member states’, as well as the UK’s, treatment of immoveable property under the Capital Goods Scheme, in particular whether the adjustment period is limited to 5 years.
We have received confirmation that Hotel La Tour has applied directly to the Supreme Court for permission to appeal against the Court of Appeal’s ruling (the Court of Appeal denied permission last month). The grounds of the application are that the Court of Appeal:
Comment: We are aware of HMRC inviting taxpayers to settle their appeal on the basis of the CoA Judgement, but with the news of the application to the Supreme Court the invitation appears premature as final decision in the Hotel la Tour dispute is sometime in the future.
[2024] UKUT 00147 (TCC) SilverDoor Limited
The UT has confirmed the FTT decision that the 2.95% charge for businesses that used a corporate credit card to pay for short term serviced accommodation is standard rated.
Background: SilverDoor provides services, as disclosed agent, to providers of short-term accommodation, who generally hire it to businesses for their employees’ short term needs. Most of SilverDoor’s income comes from commission charged to property owners with no charge to the business users unless they pay with a corporate credit card.
The FTT agreed with HMRC that the 2.95% fee for using a corporate credit card was inherently for the service of making a reservation and this services is standard rated. It rejected the contention that it was a card handling fee that could be exempt as an intermediary service.
The UT agreed with the FTT and rejected the contention that the intermediary financial services exemption could apply because SilverDoor had not brought merchant acquirers and Clients together.
Comment: It was always going to be an uphill task as the FTT is the primary finder of facts and found against the taxpayer. The UT did not find the approach taken by the FTT to be wanting, so upheld the original decision.
[2024] UKUT 145 (TCC) Nottingham Forest Football Club
The UT confirmed the FTT decision that an assessment for nearly £350,000 had been made in time by HMRC.
The under declaration of VAT arose from errors in the changeover from one accounting system to another, and lack of reconciliations. The football club argued that the HMRC officer had sufficient evidence to make the assessment for more than 12 months, so was out of time. The FTT had been unable to find fault with HMRC's approach, and despite the best efforts of Counsel for the Football Club, the UT did not criticise the FTT's reasoning and judgement.
TC09188 Colaingrove - additional Tribunal interest claim
The FTT has ruled Colaingrove was entitled to addition interest over and above the statutory minimum on claims for overpaid VAT, provided the claims related to appealable decisions made by HMRC before the cut off date of 31 March 2009.
Readers may recall the name “Colaingrove” as it has been in the Tribunal several times in relation to its Holiday Parks businesses with claims for overpaid VAT in relation to removable contents of holiday homes, caravan verandas, bingo and gaming. It was provided with refunds of tax together with statutory interest under section 78, and in addition claimed interest under section 84(8) based on its own costs of borrowing.
Comment: In a very detailed Judgement the FTT concluded that the interest claimed by Colaingrove as an adequate indemnity exceeded statutory interest provided by section 78 of the VAT Act, because in general its borrowing costs were higher than the original interest award. It therefore used its discretion to award additional interest (making it up to Base rate plus 1%) but only where HMRC provided an appealable decision prior to 31 March 2009.
It seems unlikely that any new claims for interest on this basis would be successful, as the relevant section of the VAT Act was repealed in 2019, and any pre-existing Appeal is likely to have been settled.
Case C-523/22 Adient Ltd and Co. KG – Romania
In the latest of a recent line of disputes over “fixed establishment” the Court has again stated that the provision of services, using its own human and technical resources, by its sister company does not create a fixed establishment for the customer company of the same corporate group.
Background: The Adient group manufactures assemblies such as car seats for the automobile industry, the German company buys raw materials, part assemblies etc and has them delivered to the Romanian factory where it keeps ownership throughout the manufacturing process (it needed to be VAT registered in Romania) The Romanian company provides manufacturing process and expertise, and distributes the finished goods at the request of the German company.
The Romanian tax authority said the place of supply depends on the establishment of the German company, and there were sufficient human and technical resources provided by the Romanian company (in the same corporate group, but not VAT grouped) to create a Romanian establishment, so Romanian VAT was due. The VAT would have been wholly recoverable if charged but the tax authority was seeking penalties and interest.
Comment: This is the latest Judgment in a series of disputes over “fixed establishment” and whether the activities of a sister company create an establishment for VAT purposes for the customer company. The Court has again stated that the provision of services, using its own human and technical resources, by a company does not create a fixed establishment for the customer company.
Case C–696/22 C SPRL – Judgment – Romania
The Court has concluded that Liquidators services are a continuous supply, and if an invoice is issued this creates a taxpoint with no overriding rule to make the time of supply the date of receipt. Whether the customer can recover the VAT charged, which was questionable because there are no ongoing supplies, requires an objective assessment.
Background: The liquidators of an insolvent company provided a continuous supply of services, and it seems that an invoice was issued even though the company had insufficient funds to pay it. The Liquidators claimed output tax was not due until the funds were received, and the tax authority seems to have disputed the company's right to recover the related input tax.
Comment: Notably the Court did not require an AG opinion (meaning the case presented no new point of law) and it effectively made general observations on time of supply and recoverability that appear uncontentious.
Overall the Court concluded that Liquidators services are a continuous supply, and if an invoice is issued this creates a taxpoint. There is no overriding rule to make the time of supply the date of receipt. Whether the customer can recover the VAT charged (questionable because there are no ongoing supplies) requires an objective assessment of all the circumstances. In the UK, HMRC will normally accept that Insolvency Practitioner fees are attributable to the pre-insolvency activities and recoverable if the business was fully taxable.
Advocate General Opinions
Case C‑248/23 Novo Nordisk AS - Hungary
On 6 June 2024 AG Capeta recommended the decision of the Court should be that when a pharmaceutical company is obliged to pay part of its turnover to a State health insurance body it should be allowed to reduce its output tax unless the national legislation states clearly that the payment is a tax.
Background: In Hungary, a consumer obtaining prescription drugs will pay a subsidised price to the pharmacy. The rest of the price is paid by the National Health Insurance Fund (NEAK), and the pharmacy accounts for output tax on the total price paid by the consumer and NEAK.
Novo Nordisk is a Danish company that sells pharmaceutical products in Hungary through wholesalers, who in turn supply the pharmacies subject. In addition to the usual price / volume discounts to NEAK (which presumably reduces its output tax in accordance with this “discount” even though NEAK is not actually buying the products (this part of the arrangement was not part of the dispute). In addition, Novo Nordisk is obliged by law to pay NEAK 10% or 20% of the price to contribute to the subsidy fund (the ex lege payment). Novo Nordisk adjusted its output tax to take account on the ex lege payment, as if it were a discount. Comment: The AG considered articles 79 (price reductions and discounts) and 90(1) (price reduction after the supply takes place) of the PVD and weighed up whether the ex lege payment amounts to a discount (with corresponding reduction in output tax) or a specific tax (with no reduction in output tax).
Comment: The AG reached the conclusion that unless the payment is expressed clearly as a tax the supplier is entitled to reduce its output tax. This follows the principles on cashback payments from the case of Elida Gibbs that the refund does not need to be to the original customer (usually a wholesaler). The funding of prescription drugs varies from country to country as does the VAT treatment, in the UK prescription drugs are zero rated to the extent of the payment by the consumer, but the payment mechanism further up the chain is complex.
Case C‑243/23 L BV (but curiously given the fictitious title “Drebers”) - Belgium
On 6 June 2024 AG Collins proposed the Court should rule that the adjustment period for capital items arising from renovation or conversion of a building is limited to 5 years, with the longer adjustment period of up to 20 years only available for ‘immovable property acquired as capital goods’.
Background: A law firm owned a property partly used by the firm and partly as residential accommodation for the firm's owner. Between 2007 and 2015 the firm spent a lot of money on refurbishing the building but did not claim any VAT because until 2014 legal services were exempt in Belgium. It registered for VAT when its services became standard rated and claimed capital goods scheme adjustments based on the Belgian 15 year adjustment period for real estate capital items. The tax authority resisted, saying the goods and services used in the refurbishment were capital goods (with a 5 year adjustment period, some of which had run out), rather than “immovable property acquired as capital goods” (with a 15 year adjustment period, where up to 20 years is allowed by the PVD). The AG appears to agree with the Belgian tax authority.
Comment: if the opinion is followed by the Court, this case will throw the UK's treatment of works of refurbishment as capital items to which the 10 year adjustment period applies into doubt because the AG opinion is that the 5 year adjustment period is the right one. We will see if there is a challenge by a potential UK beneficiary, and if so, this could provide some clarity on the continuing effect of European VAT rules in the UK.
Other News
HMRC updates
VAT Registration: On 31 May 2024, HMRC updated its guidance on cancelling a VAT registration and applying for or making changes to a Group VAT registration. The timescale for a reply has been updated: “If you have not heard from us after 40 working days, contact our VAT Registration Service to make sure that they have received your application.” It had previously been 30 working days.
A new Statutory Instrument amending the bodies entitled to museum relief under section 33A of the VAT Act has been published (effective 8 July 2024) and following Royal Asset on 24 May the Finance (No 2) Act 2024 is now law.
