Click here to view online
EY VAT News – week to 9 January 2017 Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments. If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact or one of the people below. Previous editions of EY VAT News can be found here. Given the Christmas and New Year break, this edition of EY VAT News includes items since 20 December 2016 In this edition:
Court of Justice of the European Union
Opinion: Member States are entitled to impose the principle of distortion of competition re exemption and supplies of sporting services but not without also applying that condition to the services supplied by other non-profitmaking bodies Opinion: Supplies of restaurant and entertainment services are not closely related to exempt supplies of education Referral Calendar Update
Court of Appeal
VAT appeals, the ‘pre-payment’ rule does not contravene EU law Self-billing and disallowed input tax, assessment found to be flawed
Upper Tribunal
The right to claim overpaid VAT remains with the representative member of the VAT group
First-tier Tribunal
Penalty was correctly issued to a director via a Personal Liability Notice Tax advice provided to the appellant, which resulted in a benefit to the appellant's sole director and employee, was for the purpose of the appellant's business Application to amend grounds of appeal, proposed amendment is amendment to existing claim and not a new claim
EY Global Tax Alerts
Romania, Spain, Peru and Uruguay
European Commission
Public Consultations: reform of VAT rates; Definitive VAT system for B2B EU supplies of goods; Special scheme for small enterprises
Court of Justice of the European Union Opinion: Member States are entitled to impose the principle of distortion of competition re exemption and supplies of sporting services but not without also applying that condition to the services supplied by other non-profit-making bodies C-633/15 London Borough of Ealing On 21 December 2016, the Court of Justice of the European Union (CJEU) delivered the opinion of Advocate General Wathelet (AG) in this UK referral concerning the transitional rules for the application of the sporting services exemption under Article 132(1)(m) of the VAT Directive and the proviso under Article 133(d) that exemption should not result in competition being distorted. The London Borough of Ealing (LBE) is a local authority which operates sports facilities. During the period 1 June 2009 to 31 August 2012 it declared and paid the VAT on the admission charges to those facilities. Considering that those supplies of services should be exempt from VAT, LBE made a claim for its repayment. Its request was refused on the ground that the national legislation excluded from that exemption supplies of sporting services by local authorities in accordance with point (d) of the first paragraph of Article 133 of that Directive (that exemption must not be likely to distort competition). LBE appealed that decision to the First-tier Tribunal. LBE maintained that the tax authorities could not rely on the second paragraph of Article 133, since the national legislation had not subjected all supplies of sporting services to VAT on 1 January 1989, but had exempted some supplies of such services. In addition, that provision did not allow local authorities to be excluded from the exemption in respect of sporting services, while exempting the same services provided by other non-profitmaking organisations. Finally under Article 133 the question whether that exemption would be likely to cause distortion of competition had to be evaluated in each individual case, it did not allow Member States to exclude all local authorities from that exemption. The AG has opined that a Member State is allowed to impose, on bodies governed by public law, the condition relating to competition laid down in point (d) of the first paragraph of Article 133 where on 1 January 1989 that Member State subjected only some supplies of sporting services to VAT and exempted others. The fact that a Member State chooses to exempt sporting services and at the same time to use the condition relating to competition cannot be regarded as incompatible with EU law. When legislation was drafted to require exemption from 1 January 1990, it also allowed Member States to make the grant of the exemption to non-profit-making bodies subject to conditions. However the AG has also considered that the second paragraph of Article 133 must be interpreted as meaning that a Member State which on 1 January 1989, applied VAT to sporting services, cannot make the grant of the exemption from VAT to nonprofit-making bodies governed by public law subject to the condition relating to competition laid down in point (d) of the first paragraph of Article 133 without also applying that condition to the services supplied by other non-profit-making bodies. This follows the principle of fiscal neutrality and precludes treating similar supplies of goods and services, which are in competition with each other, differently for VAT purposes. The AG also opined that the second paragraph of Article 133 must be interpreted as meaning that it does not allow a Member State to exclude, generally, all non-profit-making bodies governed by public law from the benefit of the exemption of supplies of sporting services without having considered in each individual case whether the granting of that exemption would be likely to cause distortion of competition to the disadvantage of commercial enterprises which are subject to VAT. We await to see if the CJEU follows the AG's opinion. For further information please contact Andrew Needham
Opinion: Supplies of restaurant and entertainment services are not closely related to exempt supplies of education C-699/15 Brockenhurst College On 21 December 2016, the Court of Justice of the European Union (CJEU) delivered the opinion of Advocate General Kokott (AG) in this UK referral asking whether supplies of restaurant and entertainment services made by an educational establishment to paying members of the public (who are not recipients of the principal supply of education) are ‘closely related’ to the provision of education and, therefore, exempt from VAT under EU law, in circumstances where the making of those supplies is facilitated by the students (who are the recipients of the principal supply of education) in the course of their education and as an essential part of their education.
Brockenhurst College (BC) taught courses in catering and hospitality, and performing arts. In order to enable its students to learn skills in a practical context, BC operated a restaurant in which the catering functions were undertaken by students under the supervision of their tutors. The restaurant charged for the meals at subsidised rates. With regard to the performing arts course, the college's students staged concerts and performances for paying members of the public. By a decision dated 5 November 2012, the First-tier Tribunal (FTT) determined that the supplies of restaurant services and entertainment services by BC to members of the public are exempt from VAT under Article 132(1)(i) of the VAT Directive (Directive) as supplies of services closely related to education. The Upper Tribunal by a decision dated 30 January 2014 upheld the decision of the FTT. On appeal by HMRC the Court of Appeal decided to stay the proceedings and refer questions to the CJEU for a preliminary ruling. The AG has opined that the Directive does not define the concept of supplies ‘closely related’ to education. Nevertheless, it is clear from the actual wording of the provision that it does not cover the supply of goods or services which are unrelated to ‘children's or young people's education, school or university education, vocational training or retraining’. Furthermore, the supply of goods or services can be regarded as ‘closely related’ only where they are also considered to be supplies that are ancillary to the principal supply. The purpose and objective of the education exemption is that access to the provision of education, for the benefit of pupils, students and trainees, does not become more expensive due to VAT. Also the principle of fiscal neutrality must be taken into account in the interpretation of the exemptions in the Directive. From the perspective of the end consumer (in this case the third party), a distinction as to whether the food is consumed in a normal restaurant or in a training restaurant is irrelevant to the VAT burden. In both cases, the consumer is served and fed and in both cases he pays money for that consumption. The same can be said for supplies of entertainment services. Closely related transactions within the meaning of Article 132(1) of the VAT Directive are independent supplies, the taxation of which also increases the cost of access to supplies that as such are exempt from VAT. They do not include the supply of restaurant and entertainment services by an educational establishment to paying members of the public who are not recipients of the education. This issue has spanned a number of years since initial claims were submitted, should the CJEU agree with the AG's opinion, then this would render colleges that submitted claims with a potentially complex exercise to reverse the claim process and revert to taxable income. This on the surface may impact on a college's resultant partial exemption position for current and prior years, along in some cases with capital goods scheme adjustments where relevant. For further information please contact Damian Shirley
Referral The CJEU website shows the following new referral:
A Lithuanian referral -C-532/16 AB SEB bankas asking various questions as to whether an adjustment to VAT is applicable, per Articles 184 to 186 of Council Directive 2006/112/EC, in cases where an initial deduction could not have been made because the transaction in question related to an exempt supply of land.
Calendar Update Wednesday 11 January 2017 Hearing - C-624/15 Litdana - Lithuanian referral asking whether a taxable person may be prevented from applying the VAT margin scheme in circumstances where the invoices issued by the taxable person's supplier state that the goods were purchased exempt from VAT or supplied under the margin scheme, but it subsequently transpires that this information was incorrect. Wednesday 18 January 2017 Judgment- C-471/15 Sjelle Autogenbrug – Danish referral asking whether the sale of spare parts removed from redundant vehicles may be regarded as second-hand goods for the purposes of the VAT margin scheme. For further information please contact Jamie Ratcliffe Judgment - C-37/16 SAWP - Polish referral concerning the VAT accounting treatment of certain transactions involving (i) authors, performers and other right holders, (ii) producers and importers of audio recorders and similar devices and blank
media, and (iii) collective management organisations levying fees on behalf of those authors, performers and other right holders. Thursday 19 January 2017 Judgment - C-344/15 National Roads Authority – Irish referral asking whether a public body, which operates a toll road, should be deemed to be in competition with private operators of different toll roads, such that treatment of the public body as a nontaxable person would lead to a significant distortion of competition. Hearing – C-164/16 Mercedes Benz Financial Services UK - UK referral from the Court of Appeal concerning the VAT treatment of a specific motor vehicle finance product offered by the taxpayer, specifically whether for VAT purposes it falls to be treated as a supply of services (as contended by the taxpayer) or a supply of goods (as contended by HMRC), with resulting cash flow implications. For further information please contact Jamie Ratcliffe Thursday 26 January 2017 Hearing - C-101/16 Paper Consult - Romanian referral, continuing a long-running theme of referrals from Eastern European EU Member States, concerning the right of input tax deduction in respect of transactions considered by the tax authorities to be suspicious, in the presence of irregular conduct on the part of the supplier (specifically, on this occasion, where the supplier has been declared inactive by the tax authorities). Wednesday 1 February 2017 Opinion – C-26/16 Santogal M-Comércio e Reparação de Automóveis - Portuguese referral concerning the scope of the exemption with credit (zero-rating) under Article 138(2)(a) of the VAT Directive for the intra-Community supply of a new means of transport. Thursday 9 February 2017 Hearing – C-303/16 Solar Electric Martinique - A French referral asking whether the sale and installation of photovoltaic panels and solar water heaters on buildings, with a view to supplying electricity or hot water to buildings, constitutes a single transaction that may be characterised as works of construction.
Court of Appeal VAT appeals, the ‘pre-payment’ rule does not contravene EU law Totel Limited On 20 December 2016 the Court of Appeal released its judgment in the case of Totel Limited (TL). The appeal concerns the requirement to pay, on account, VAT subject to appeal under a ‘prepayment rule’ i.e. that before a taxpayer can appeal, the VAT at issue must be paid. There is no similar requirement for income tax appeals or appeals regarding some indirect taxes such as Stamp Duty Land Tax (SDLT). TL contended that the prepayment rule for VAT appeals infringes EU law, as VAT is derived from EU law, remedies for overpayments must comply with EU law principles, including the principle of ‘equivalence’. In dismissing the appeal, the Court of Appeal found that the equivalence principle does not have the effect that VAT has to be compared with other taxes, VAT being a very different tax from income tax or even SDLT. In addition, the Court also considered the “no ‘most favourable treatment’ proviso”. This is an element of the equivalence principle under which Member States are not required to extend their most favourable procedural rules to VAT appeals provided that EU-derived claims are not picked out for the worst treatment. As the prepayment rule applied to appeals in respect of other UK indirect taxes (such as insurance premium tax and landfill tax), HMRC did not need to justify the difference in treatment.
Self-billing and disallowed input tax, assessment found to be flawed, the appeal against the assessment should have been allowed G B Housley Limited On 21 December 2016, the Court of Appeal released its judgment in the case of G B Housley Limited (GBH). GBH had operated a self-billing system for a number of years and, although there was no self-billing agreement in place, HMRC was fully aware of the system. Between 2006 and 2008, four of GBH's suppliers deregistered for VAT. Not being aware of this, GBH continued to issue self-billed VAT invoices in respect of supplies from these suppliers, and recovered the VAT shown thereon as input tax. HMRC sought to disallow GBH's related input tax claims on the basis that the invoices were invalid. GBH appealed, contending that HMRC should have exercised its discretion under regulation 29(2) of the VAT Regulations 1995 to accept alternative evidence in support of input tax deduction. The First-tier Tribunal (FTT) held that HMRC made no attempt to consider the discretion open to it, having decided that the lack of a self-billing agreement was fatal to GBH's claim. The FTT therefore allowed GBH's appeal, holding that HMRC had acted unreasonably in not exercising its discretion and concluding that this failure rendered the assessment invalid. In its first decision, the Upper Tribunal (UT) concluded that the FTT was correct to decide that HMRC did not properly exercise its discretion when it refused to allow the deduction of input tax. However, the UT left open for further argument whether the consequence of its conclusion was that GBH's appeal should be allowed, with the result that the assessment should be discharged. This decision dealt with the further argument which the UT heard on this issue. In this regard, the UT concluded that the FTT should not have allowed the taxpayer's appeal. That appeal should be allowed only if HMRC revisits the exercise of its discretion and decides to exercise it in favour of GBH, or the FTT decides that HMRC's decision not to exercise its discretion in favour of GBH was unreasonable (in the sense that it was a decision which no reasonable panel of Commissioners could have made). Accordingly, the UT allowed HMRC's appeal and remitted the matter back to the FTT. GBH appealed to the Court of Appeal, its primary case being that the UT, having concluded that HMRC had acted unreasonably in not having exercised its discretion, under reg 29(2), to accept, in the absence of proper self-billing invoices, alternative evidence in support of input tax deductions, had had no alternative open to it other than to conclude that HMRC's failure had rendered the assessment invalid and HMRC's appeal should have been dismissed. In this latest decision and allowing the appeal, the Court of Appeal held that once the earlier decision to raise the assessment had been found to be flawed, the appeal against the assessment should have been allowed. The assessment should be discharged and HMRC should consider whether in all the circumstances, it considers it appropriate to seek to raise a further assessment and whether it has power to do so, given the passage of time and the statutory time constraints.
Upper Tribunal Gala 1 Limited Where a company, which was a member of a VAT group and made supplies on which VAT was overpaid, left its VAT group, the right to claim the overpaid VAT remained with the representative member of the VAT group Gala 1 Limited (Gala) appealed against the First-tier Tribunal (FTT) decision in the case of Gala Leisure Limited (GLL), as assignee of GLL. GLL made Fleming claims for overpaid VAT. GLL and other companies had been members of various VAT groups during the claim period. A number of the companies assigned to GLL any right they had to recover overpaid VAT in relation to such supplies (a right that was later assigned to Gala). The case considered the effect of companies leaving a VAT group on the entitlement to claim repayment of overpaid VAT where the VAT group remained in existence. The FTT held that where the VAT group remained extant, the representative member continued to hold the rights and obligations (including the right to claim repayment of overpaid VAT) in respect of supplies made during the period when the trading company was a member of the VAT group, notwithstanding the trading company's subsequent departure from that VAT group. In exceptional circumstances, where restricting the right to claim overpaid VAT to the representative member would result in non-compliance with the EU law principle of effectiveness, it was accepted that a San Giorgio right to claim would arise in favour of a person other than the representative member. However, such a right was likely to arise only where a group had ceased to exist, or a company had left the group and a claim by the representative member of the continuing group failed to provide an effective remedy. In the present case, neither of those situations arose for GLL. Gala, as GLL's assignee appealed the decision, contending that following the Court of Session judgment in Taylor Clark Leisure (TCL) and the UT decision in BMW (UK) Holdings Ltd, MG Rover Group Ltd and Others (MGR) the circumstances of
the present case were sufficiently exceptional that it was, in practice, virtually impossible or excessively difficult for the recovery of the wrongly paid tax to be made at the time of the claim by the representative member and that the FTT erred in law in failing to reach this conclusion. In this latest decision and dismissing the appeal, the Upper Tribunal (UT) held that whilst in principle a claim by somebody other than the representative member can be considered, in this case there were no exceptional circumstances to warrant this, Gala relied on assertions and failed to produce sufficient evidence to substantiate its case. The FTT gave careful consideration to the arguments of GLL as to why this was an exceptional case, and did not accept them. The UT found no error of law in its decision. Gala also sought to introduce new and further grounds of appeal relying on the judgment in TCL, contending that the claims made were brought ‘on behalf of’ the relevant representative members. In refusing permission to amend the Notice of Appeal the UT considered that there were sufficient distinctions between the immediate case and that of TCL and that there was no evidence to show that the representative members had appointed Gala or GLL as their agent. In this case the logic of the TCL judgment does not extend to requiring that this appeal, as a matter of law, should be taken as an appeal by the representative members. The UT found that there was no requirement for a reference to the CJEU re ‘what makes an exceptional case’. It concluded that the principle of effectiveness is settled law and does not require a reference for it to be clarified. The question of whether or not a case is exceptional requires application of the facts to those settled principles of law and in such circumstances a reference would not be appropriate. Comment: This decision follows that of the earlier joined cases of Lloyds Banking Group plc, Standard Chartered PLC, MG Rover Group Ltd and BMW (UK) Holdings Limited. It is a complex area and any taxpayers with VAT repayment claims in circumstances where the company that carried out the relevant transactions has been a member of one or more VAT groups may wish to consider the impact of these cases. We understand that HMRC has been granted leave to appeal the Court of Session judgment in the case of Taylor Clark Leisure. Please refer to our earlier Alert for further information regarding the litigation in this area. For further information please contact Andrew Bradford
First-tier Tribunal Penalty was correctly issued to a director via a Personal Liability Notice TC05559 - Mr Shafiq Rehman An unsuccessful appeal by Shafiq Rehman (SR) concerning the attribution of a penalty for deliberate and concealed errors to the director of the business via a Personal Liability Notice. SR initially set up his business as a recruitment firm but had taken the opportunity to diversify the business at the suggestion of a business associate. On investigation by HMRC, It was found that some of the diversified business involved activity with missing traders but SR contended that he was not aware of any illegitimate trading being carried on through his business and that his business associate, who was more experienced in these matters, had effectively ‘hijacked’ his company. HMRC issued a penalty for deliberate and concealed errors in the VAT returns of the business at 100% of the VAT involved but subsequently mitigated this to 50%. The penalty was initially imposed on the company, however when the company was later put into insolvency, HMRC served a Personal Liability Notice on SR under paragraph 19, Schedule 24 FA 2007 as sole director of the company. SR appealed on the grounds that (i) he had not acted to deliberately conceal the VAT liabilities of the business and (ii) the inaccuracies in the businesses VAT returns should not be attributed to him personally. In dismissing the appeal and with regard to deliberate concealment, the First-tier Tribunal (FTT) concluded that an intentional failure to do something, including the intentional failure by a director to exercise oversight of a business associate, can amount to a deliberate act of concealment. Regarding whether the inaccuracies in the VAT returns could be attributed to SR personally, the FTT concluded that it was difficult to see how it is possible for SR to avoid having the penalty attributed to him. The dishonest business associate was not an officer of the company. It is SR who is the officer of the company and it is as a result of his failure to carry out his duties properly, including by exercising oversight of the business associate that the penalties had arisen.
The FTT also considered the issue of how the attribution rules in paragraph 19 of Schedule 24 FA 2007 operate in circumstances such as these where HMRC has simultaneously charged both a company and a director for the same penalty, and what would happen if HMRC recovered the penalty from the business having already recovered it from the director. HMRC reminded the FTT that paragraph 19(2) of Schedule 24 precludes HMRC recovering the penalty more than once and that paragraph 19(1) allows for the penalty to be attributed to the officer (e.g. director). HMRC also referred to guidance (factsheet FS12) which states that it will only attribute a charge to an officer if it is unlikely to recover it from the company (for example if it is or is about to become insolvent) and will only recover such an amount as has not been recovered from the company. The FTT concluded that there is no impediment to HMRC issuing a penalty notice simultaneously on both the business and a director. Comment: This case is a reminder of HMRC's ability to pursue a director of a business personally for penalties where it is unable to obtain payment from the business.
Tax advice provided to the appellant, which resulted in a benefit to the appellant's sole director and employee, was for the purpose of the appellant's business TC05554 - Doran Bros (London) Limited A successful appeal by Doran Bros (London) Limited (DBL) concerning the attribution of costs associated with tax advice. DBL entered into an engagement with a firm of tax consultants (QT). After taking the advice offered by QT, DBL implemented certain measures, including buying a large quantity of investment gold to put into an employee benefit trust for the benefit of DBL's sole director and employee. The advice given by QT related to minimising the tax and NICs which was payable by DBL if it chose to reward the director and employee. The arrangement resulted in reduced corporation tax and the ability for DBL to borrow back from the employee benefit trust the funds which it had invested. The First-tier Tribunal (FTT) agreed that the arrangement also resulted in significant benefit to the director personally. HMRC contended that DBL had failed to demonstrate a sufficient link between the expenditure and the taxable supplies it made. HMRC's view was that the expenditure was in respect of advice given to achieve the tax efficient extraction of funds from DBR and so it was for the personal benefit of DBR's sole director. It followed that it was not deductible. In allowing the appeal, the FTT considered two key questions: to whom were QT's services supplied and is there a sufficient link to DBL's taxable supplies? The FTT considered the principles of key cases in this area such as Rosner, Praesto Consulting UK Limited, Airtours and Newey (t/a Ocean Finance). With regard to whom the tax services were supplied, the FTT considered the contractual position, noting that the QT engagement letter was addressed to, and signed on behalf of DBL. The contractual relationship is between DBL and QT. The FTT agreed with HMRC that the director benefitted personally from the arrangements but the FTT considered that the engagement letter reflected the economic reality. HMRC submitted that there was insufficient link between the services provided and DBL's own taxable supplies as the services provided were for the benefit of the director rather than DBL. HMRC's submission was that DBL's intention was to ensure that the director paid the least amount of tax possible in respect of the reward he received. The FTT found that the fact that there are benefits to the director does not prevent the services provided to DBR being for the purposes of the business. The FTT concluded that advice given to a taxable person on how it can reduce its tax and NICs liabilities in rewarding its employee is advice given for the purpose of the business. The additional benefit which the director may derive personally, even if it is considerable, does not enable a distinction between this type of advice and advice, for example, which might be given to a business in respect of operating its payroll or the mitigation of any other business expense. Comment: Whilst a lower tier tribunal decision, any business which has been subject to a restriction to VAT recovery under similar circumstances may wish to consider revisiting the decision.
Application to amend grounds of appeal, proposed amendment is amendment to existing claim and not a new claim TC05555 - Wheels Common Investment Fund Trustees Limited and others A successful appeal by Wheels Common Investment Fund Trustees limited and others (WCIF) concerning an application to amend grounds of appeal and whether the changes amounted to an amendment or a new claim.
WCIF is a, or represents, defined benefit (DB) pension funds and this case follows on from the case of the same name in which the CJEU found that DB schemes are not Special Investment Funds. Therefore the management services charged to employers were found to be taxable and the appeal returned to the FTT. On 24 August 2015, WCIF applied for the appeal to be stayed until the determination in the High Court of United Biscuits. HMRC opposed this application. The application was heard by the FTT who directed, among other things, that WCIF should submit an application to amend its grounds of appeal to incorporate the argument in United Biscuits and, at that point, it renew its application for a stay pending the outcome of United Biscuits. In an application dated 12 August 2016, WCIF applied for permission to amend its original grounds of appeal by substituting new grounds of appeal. This application was the subject of the current hearing. The only issue between the parties at the hearing was whether WCIF should be permitted to amend its grounds of appeal. It was common ground that this turned on whether the proposed amendment is an amendment to the original claim or a new claim, in which case it would be outside the time limits provided in section 80(4) and (4ZA) of the VATA 1994. In allowing the appeal the FTT considered the cases of Reed Employment Limited (Reed) and Vodafone Group Services Ltd (Vodafone). In Reed, the Upper Tribunal (UT) found that in the absence of a definition to assist in determining whether a subsequent demand for repayment of tax is a new claim or an amendment to an existing one, it is very much a question of fact and degree, judged according to the particular circumstances. The UT found that errors and omissions may be corrected provided the correction does not enlarge the scope of the claim by adding elements not in contemplation when the claim was originally made. In Vodafone Group Services Ltd, Vodafone subsequently made other claims for the repayment of over-declared output tax. These over-declarations had nothing to do with the original claim although some of them occurred in accounting periods which also included original claims. The UT found that by changing the entire basis of its claim Vodafone was attempting to abandon one claim and pursue another which amounted to an attempt to circumvent the time limit imposed by s 80(4). This was not a permissible course of action. Reed and Vodafone show that the first step in determining whether an amendment to grounds of appeal is a new claim, is to identify the fundamental character or elements of the original claim. An amendment that does not change the fundamental character or elements of the original claim is not a new claim but an amendment to the original claim. An amendment that extends the facts and circumstances beyond those contemplated by the earlier claim is a new claim. The FTT agreed with the analysis in Reed that what is an amendment is a question of fact and degree, judged according to the particular circumstances. In the current case, the FTT concluded that the elements of WCIF's claim are unchanged. If WCIF is allowed to amend the grounds of appeal then the arguments in support of the claim and, possibly, the evidence necessary to make good those arguments will have changed. However, the FTT considered that there was nothing in Reed or Vodafone to prohibit this. In the circumstances of this case, the FTT concluded that the new grounds of appeal are an amendment to the grounds for the original claim rather than a separate claim. Accordingly, the FTT decided that WCIF should be permitted to amend its grounds of appeal. Comment: Parties with existing ‘Wheels claims’ before the Tribunal may wish to consider the implications of this latest decision.
EY Global Tax Alerts Romania - On 6 December 2016, the Romanian Government issued Emergency Government Ordinance no. 84/16 November 2016 (the Ordinance), which introduced several changes to the Tax Procedure Code including the following changes to VAT:
The Ordinance clarifies the tax treatment applicable to expenses (and of the related input VAT) incurred by inactive taxpayers during their period of inactivity Changes have been made to the VAT adjustment regime for capital goods A special VAT regime has been introduced for taxable persons performing agricultural activities Effective 1 January 2017, the obligation of taxable persons performing intra-Community supplies of goods or services to register in the Registry of Intra-community Operators will be removed
Spain – As previously reported in VAT News, following Royal Decree 596/2016, dated 2 December 2016, from 1 July 2017 taxpayers who file Spanish VAT returns on a monthly basis will be obliged to maintain Spanish VAT books through a new “Immediate Submission of Information” (ISI) system.
Comment: These changes introduce new obligations which will require the electronic reporting to the Spanish tax authorities of all sales and purchase invoices within four days of receipt or issue. Some of the reportable data is already included in the VAT ledgers return (form 340) and will be reported through current invoicing and ERP systems, however there are additional data requirements under the new system. It's also important to note that all data from 1 January 2017 to 1 July 2017 has to be reported in the new format and although there is an extended period to report this, it does mean that businesses need to ensure that they are capturing all required data from 1 January 2017. Businesses will need to adapt their invoicing and ERP systems in order to produce the required files (XML) which need to be uploaded to the Spanish tax authority's website. As data needs to include all new content from 1 January and with only six months to implementation, given the complexity of the new obligations it is likely that businesses will need to make immediate investment in order to comply with the new requirements and avoid potential penalties. Our Alert provides further information regarding the new obligations, in principle, although not confirmed, all businesses including non-established and non-resident businesses who are required to file VAT returns on a monthly basis, in other words those who: (i) have revenue exceeding €6 million; (ii) are included in the monthly refund regime; or (iii) who are applying the VAT Grouping provisions will be caught. This is a theme being repeated across other member states (see our earlier Alert regarding Hungary) and businesses will need to carefully consider the implications of real time submissions. Peru - On 8 and 10 December 2016, Peru enacted tax reforms effective 1 January 2017. The reforms include modification to the regulations relating to the special VAT refund regimes, which are intended to promote and facilitate investments in Peru. Uruguay - On 26 December 2016, Uruguay's Economy and Finance Ministry issued a Decree, extending the VAT rate reduction established by Law No. 19,210 and regulated by Decree 203/2014 (22 July 2014). The Decree extends the additional VAT reduction of 2% for transactions paid through debit cards or electronic instruments valued at less than 4,000 Indexed Units (approximately US$485) to invoices issued as of 1 January 2017.
European Commission Public Consultations: On 7 April 2016 the Commission adopted an Action Plan on VAT - Towards a single EU VAT area. The Action Plan aims to work towards a robust single European VAT area in relation to the definitive VAT system for cross-border supplies. Three VAT reform consultations have now been launched Reform of VAT Rates – An open public consultation on the reform of VAT rates (proposal for a Council Directive amending Directive 2006/112/EC on the Common system of VAT as regards the rules governing the application of VAT rates). This consultation aims at obtaining stakeholders views' on the following aspects:
The need for EU action in the field of VAT rates
The proper balance between harmonisation and Member States autonomy in setting VAT rates
The problems and risks linked to differentiation of VAT rates within the Single Market
The desirable direction for reform
Stakeholders' views on the proposed policy options
The results will feed into the review of the current rules on VAT rates. Definitive VAT System for B2B EU supplies of goods – An open public consultation on the definitive VAT system for business to business (B2B) intra-EU transactions on goods. The Commission is preparing a legislative proposal for a simpler and fraud-proof definitive VAT system as indicated in its 2016 Action Plan. This consultation aims at obtaining stakeholder views on:
The current VAT situation of B2B intra-EU supplies of goods Possible short term improvements of the current transitional VAT system The need to move towards the definitive VAT system based on the principle of taxation of the supply in the Member State of destination
The results will feed into the preparatory work on the definitive VAT system legislative initiative. Special Scheme for small enterprises - An open public consultation on the special scheme for small enterprises (SME's) under the VAT Directive. The Commission is preparing a comprehensive simplification package for SME's that will seek to create a more businessfriendly environment. This consultation aims at obtaining the views of stakeholders on:
The current VAT provisions for SMEs and their application Possible changes as regards the VAT provisions for SMEs
The results will feed into the review of the SME scheme. The three consultations run from 20 December 2016 to 20 March 2017.
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transactions and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In doing so, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP © Ernst & Young LLP 2017. Published in the UK. All Rights Reserved. The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF. Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. ey.com/uk
Important commercial email notice: This email may constitute an advertisement or solicitation under US law, if its primary purpose is to advertise or promote Ernst & Young LLP’s products or services. Our principal postal address is 1 More London Place, London SE1 2AF.
Please click here to remove this email from the subscription for this communication.
Use the link below to opt-out if you would prefer not to receive any advertising or promotional email from Ernst & Young LLP (except for EY Online and the ey.com website, which track email preference through a separate process). Your email address will be immediately removed from our central mailing list for newsletters and alerts, and all e-mails from Ernst & Young LLP designated as advertising or promotional will be automatically blocked as soon as necessary.
Click here to remove yourself from all Ernst & Young LLP commercial emails.
