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    Weekly VAT News

      EY VAT News – 6 May 2024

      Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments for the period to 6 May 2024.

      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. Alternatively, you can use our ‘contact us’ form. If you give us a brief description of your query (not just on this week’s content), we will send it to a relevant person in EY.

      If you have any feedback or comments on EY VAT News, please contact Ian Pountney.

            EY Events

            • Webcast – How e-invoicing should be both local and global – 14 May 2024

              It is hard to keep up with e-invoicing regulations around the globe. Almost every week seems to bring a new measure or announcement.

              In this one hour webcast, panelists will provide some clarity on how businesses can meet their obligations effectively. They will outline the following:

              • Insights from France, Romania and Malaysia on how some businesses are addressing e-invoicing
              • Approaches to strategy setting
              • Practical issues that businesses may encounter

              During the live webcasts you will also have the opportunity to take part in polls and ask questions to the panelists. We will also demonstrate EY Global Tax e-invoicing Solution (GTES), our Software-as-a-Service offering.

              The webcast will take place twice to accommodate a global audience.

              Date: Tuesday, 14 May 2024
              Time: 8:00 – 9:00 and 16:00 –17.00 (BST)

              To register click here. If you are unable to join, please register and you will be notified when the replay is available.

            EY Publications

            • Trade Talking Points – 2 May 2024

              Trade Talking Points is our fortnightly newsletter on the latest trade insights from EY's Trade Strategy team.

              In this edition we provide updates on EU forced labour and supply chain due diligence requirements, new EU investigations into medical devices and wind turbines, the US Special 301 Report, and the UK-US Small and Medium-Sized Enterprise Dialogue.

              For further information please contact Sally Jones, George Riddell or Margarethe Taucher.

            Court of Justice of the European Union

            • Calendar Update

              Wednesday 8 May 2024

              Judgment – C-241/23 Dyrektor Izby Administracji Skarbowej w Warszawie (Contrepartie en actions)

              Topics – Consideration – nominal v issue value of shares

              A Polish referral asking whether ‘consideration’ obtained or to be obtained by the supplier in return for a supply of goods, as referred to in Article 73 of the VAT Directive, is to be understood as meaning the ‘nominal value’ of shares acquired or the ‘issue value’, if the parties have stipulated that the consideration is to be the issue value?

              Thursday 16 May

              Judgment – C-746/22 Slovenské Energetické Strojárne

              Topics – Overseas VAT refund – procedure

              An Hungarian referral asking whether Article 23(2) of Directive 2008/9, laying down detailed rules for the refund of VAT to taxable persons not established in the Member State of refund but established in another Member State, is to be construed as meaning that national legislation which, for the purposes of the examination of an application for a refund of VAT, does not allow an applicant, at the appeal stage, to plead new facts or to adduce new evidence which it was aware of before the adoption of the first-tier decision but which it did not present, even though it was requested to do so by the tax authority, creates a material constraint which exceeds the requirements laid down for appeals in Article 23(2)? Also, is the period of one month indicated in Article 20(2) mandatory and, if so, is that compatible with the relevant EU principles and provisions? Finally, is national legislation, pursuant to which the tax authority is to bring the proceedings to a close if the applicant does not respond to a request from the tax authority or comply with its obligation of rectification, failing which it is not possible to examine its application, compatible with Article 23(1)?

              Opinion – C-171/23 UP CAFFE

              Topics – Obligation to determine liability for VAT – fraud committed through the creation of a new company

              A Croatian referral asking whether EU law imposes an obligation on the national authorities and courts to determine liability for VAT (and not to refuse a claim for a refund) where the objective facts of the case indicate that VAT fraud has been committed through the creation of a new company, that is to say, by interrupting the continuity of the previous company’s taxable activity, in the case where the taxable person knew, or ought to have known, that he was participating in such an activity, and where, at the time when the chargeable event occurred, national law did not provide for such a determination of liability?

              Opinion – C-184/23 Finanzamt T II

              Topics – VAT Groups – Scope of VAT and deduction

              A German referral asking whether a VAT Group has the effect of removing supplies of goods or services made for consideration between its members from the scope of VAT? Do supplies of goods or services made for consideration between those persons fall within the scope of VAT in any event in the case where the recipient of the supply of goods or services is not (or is only partly) entitled to deduct input tax, as there is otherwise a risk of tax loss?

              Thursday 30 May

              Opinion – C-331/23 Dranken Van Eetvelde

              Topics – VAT Fraud – Joint liability – Is the cumulation of administrative and criminal penalties permissible?

              A Belgian referral concerning joint liability in a case of VAT fraud and asking whether domestic legislation infringes Article 205 of the VAT Directive, and the principle of proportionality, in so far as it provides for unconditional overall liability and does not allow the court to assess liability on the basis of each person’s contribution to a tax fraud? The referral also asks whether the cumulation of administrative and criminal penalties in the present case is compatible with the principle ne bis in idem (a person cannot be punished and be subject to several procedures for the same facts) enshrined in Article 50 of the Charter of Fundamental Rights of the European Union?

              Thursday 6 June

              Opinion – C-243/23 Drebers

              Topics – VAT deduction – renovation works

              A Belgian referral concerning the entitlement to deduct VAT in respect of certain renovation works carried out on a building used partly for professional purposes? The referral asks whether Articles 187 and 189 of the VAT Directive preclude domestic legislation, according to which the extended adjustment period (of 15 years) in the case of the renovation of an existing building is applied only if, after completion of the works, on the basis of the criteria under national law, there is a ‘new building’ within the meaning of Article 12 of the VAT Directive?

              Opinion – C-248/23 Novo Nordisk (TVA – Contributions payées en vertu d’une obligation légale)

              Topics – Pharmaceutical company – payment to State health insurance agency – value of taxable supply

              A Hungarian referral asking whether Article 90(1) of the VAT Directive is to be interpreted as precluding the national legislation at issue in the main proceedings, under which a pharmaceutical company which makes payments ex lege (arising from the law) to the State health insurance agency based on the revenue obtained from publicly funded pharmaceutical products is not entitled subsequently to reduce the taxable amount, by reason of the fact that the payments are made ex lege, that payments made under a funding volume agreement and investments made by the company in research and development in the health sector may be deducted from the base amount for the payment obligation, and that the amount payable is collected by the State tax authority, which immediately transfers it to the State health insurance agency?

            • New Referrals

              • C-164/24 Cityland – A Bulgarian referral concerning automatic VAT deregistration of a taxpayer following successive non-payment of declared VAT. The referral asks whether domestic legislation is contrary to Article 213(1) of the VAT Directive? If answered in the affirmative, does Article 213(1) have direct effect. Alternatively, do Articles 213(1) and 273, as well as the principles of legal certainty and proportionality, permit exclusion from the VAT system in the event of formal infringements of the law, without account being taken of the time of commission of the offence, the type of offence, the other conduct of the person and the existence of other subjective circumstances, such as commercial litigation for failure to pay the tax due on time? If the first question is answered in the negative, do Articles 213(1) and 273, and the principle of proportionality, permit exclusion from the VAT system at the same time as the imposition of interest for failure to pay declared tax on time, without the revenue authority being required to analyse the type and nature of the company’s activity, its conduct as a taxable person and the severity of each of the proposed measures?

            Upper Tribunal

            • Appeal Updates – Walkers Snack Foods Limited

              The Upper Tribunal Register of cases has been updated and shows that Walkers has appealed the First-tier Tribunal (FTT) decision in Walkers Snack Foods Limited v HMRC.

              This case concerns a decision by HMRC that certain products sold by Walkers are standard rated for VAT purposes. The products at issue are ‘Sensations Poppadoms’ and Walkers argues that they should be zero-rated for VAT purposes on the basis that they fall within Item 1 of Group 1 of Part II to Schedule 8 VATA94, being ‘food of a kind used for human consumption’ and that they do not fall within any of the excepted items in that Group. Walkers also contend that the products should be zero-rated under the principle of fiscal neutrality.

              In disagreement, HMRC asserts that the products fall within excepted item 5 of Group 1, because they are ‘products similar to potato crisps, potato sticks, potato puffs made from potato, or from potato flour, or from potato starch’ and are ‘packaged for human consumption without further preparation’. HMRC also asserts that it would breach the principle of fiscal neutrality to treat the products as zero-rated.

              The FTT found against Walkers, holding that Sensations Poppadoms should be standard rated for VAT purposes. Agreeing with HMRC, the FTT held that, due to its ingredient profile and marketing strategy, the product is similar to potato crisps, and therefore whilst 'food for human consumption', is excepted from zero-rating. The FTT also held that there is no breach of fiscal neutrality in treating the product as standard rated.

              A date for the appeal has not been set.

              Comments: The UK VAT legislation on food is notoriously complex. This decision is another example which demonstrates the potential complications in determining the appropriate VAT rate to apply to food. Any businesses involved in such supplies should consider the implications of this decision and the merits of a product review to ensure appropriate VAT accounting, particularly as there is a raft of ongoing food litigation currently. Although the FTT found against the taxpayer in this case, businesses which have accounted for VAT may wish to consider submitting protective claims to avoid earlier periods falling out of time in the event that the Upper Tribunal (and potentially higher courts) overturn the decision.

              For further information please contact Andy Jones.

            First-tier Tribunal

            • Services are cosmetic in nature and fail to qualify as exempt medical care; an assessment was however issued out of time

              Topics – Whether certain cosmetic skin treatments are exempt/ whether assessment issued within the required time limit

              Gillian Graham T/A Skin Science

              The First-tier Tribunal (FTT) has released its decision in this joined case against two decisions made by HMRC (1) that Gillian Graham T/A Skin Science (GG) should be compulsorily registered for VAT in respect of her supplies of skin care treatments and (2) that GG be subject to an assessment of £212,897 in respect of a single period running from 1 November 2007 to 28 February 2018.

              GG operates a clinic at 10 Harley Street, London under the name ‘Skin Science’ which has been running since October 2001. GG is a registered general nurse (RGN) and qualified as such in 1994. When a patient attends the clinic, GG operates a nursing process described as ‘the Healthcare Treatment Programme’. This consists of assessment, diagnosis, planning, implementation and evaluation.

              GG provides a range of treatments including Restylane, Pix Cannula, Teosyal light filling redensity, Muscle relaxing injections, Dermal roller, Glycolic Acid Peel, The (Easy) TCA Peel, Botox, Belotero Volume, Dermal fillers, Full face lift (by injection), Hollywood Eye Magic Serum, Belotero Soft, and Sclerotherapy: leg. GG also prescribes medicines including Lidocaine, Botulinum, Scleremo, Zinerate and Tretinoin.

              GG argues that her supplies of skin care treatments are exempt from VAT as they are supplies of medical care. GG also contends that the VAT assessment is out of time and otherwise procedurally invalid.

              HMRC asserts that the supplies are subject to VAT at the standard rate as they fail to qualify for exemption and that the VAT assessment is valid.

              The FTT noted that the medical care exemption is to be interpreted strictly as it is an exception to the general principle that VAT should be levied on all services supplied for consideration by a taxable person. Interpretation must, however, not be so restrictive as to deny the objective of the exemption which is to ensure that the benefits of medical care are not hindered by the increased costs of that care if it was subject to VAT.

              The concept of the ‘provision of medical care’ does not include medical interventions carried out for a purpose other than that of diagnosing, treating and in so far as possible, curing diseases or health disorders. It is the purpose of the medical intervention rather than merely the qualifications of the person providing it that is key.

              The FTT recalled that whilst it is not always easy in individual cases to distinguish medical care within the meaning of the exemption – which is to say medical procedures with a therapeutic aim – from other medical activities, whether a supply falls within the exemption must be determined on the facts or by reference to the factual context of the transaction.

              Health problems may be psychological but medical intervention where treatment is for purely cosmetic reasons cannot be within the exemption. When determining the purpose of an intervention, the subjective understanding of the person undergoing the cosmetic treatment is taken into consideration, but that subjective understanding is not in itself decisive in determining whether the intervention has a therapeutic purpose. As this is a medical assessment it must be based on findings of a medical nature made by a person qualified for that purpose.

              Considering the services offered by GG, the extent of her qualifications (in particular with regard to psychological disorders), the purpose of the treatments offered, advertising and the patients' view, the FTT concluded on the liability point that GG had failed to demonstrate that the treatments she provide fall within the medical exemption.

              The FTT noted, in particular:

              • It was unable to conclude from the evidence presented that conditions defined by reference to the WHO categorisations or which are Nursing Diagnoses will inevitably be ‘diseases or health disorders’ as contemplated for the purpose of the VAT medical exemption.
              • GG had not proved to the required standard that diagnosing and treating psychological conditions is within the scope of her professional practice as a registered general nurse.
              • GG had not proved to the required standard that the principal purpose of her treatments is the protection, including the maintenance or restoration, of health.
              • Whilst there may be circumstances where a treatment provided by GG would fall within the medical care exemption this is unlikely to be the case in respect of all of them.

              Concluding on the point and dismissing the first appeal, the FTT found that the treatments are standard rated supplies and therefore the VAT registration decision stands.

              Before moving on to the time limit issue, the FTT noted that whilst GG had raised an issue of fiscal neutrality, for this to be considered it would require evidence to substantiate the claim of inconsistent treatment and to support the contention of similarity. This had not been provided and so it considered that this is not an argument that it can determine. It also noted that GG’s actual point is that HMRC had not reviewed the VAT position of certain businesses that she regards as competitors and that she finds this unfair. The FTT considered this to be an issue that it could not determine and is instead a matter for the High Court on an application for judicial review.

              On the time limit issue, the following are the key facts:

              • A best judgment assessment for £270,648.91 was issued by HMRC on 7 September 2018 covering the period 1 May 2007 to 28 February 2018.
              • GG submitted a ‘nil return’ on 27 October 2020. This resulted in the 7 September 2018 assessment being what HMRC have described as ‘cancelled’ or ‘superseded’.
              • HMRC issued a new assessment covering the same periods on 18 March 2021.

              GG argued that the 2021 assessment was made out of time as it was not within the time limits of section 73(6) VATA94 and so cannot be valid.

              As the prescribed accounting period in respect of which the 2021 assessment was made started on 1 November 2007 and ended on 28 February 2018 and the 2021 assessment was issued on 18 March 2021, the 2021 assessment would be within the time limits only if section 73(6)(b) were satisfied, section 73(6)(a) being irrelevant as it was made more than two years after the end of the prescribed accounting period.

              As the time limit in section 73(6)(b) extends to one year ‘after’ evidence of facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to their knowledge, the issue depends on whether such circumstances existed and when they arose.

              HMRC's position was that submission by GG of a nil return on 27 October 2020 was the fact that justified the making of the assessment.

              However, the FTT noted that the nil return submitted by GG in this case did not contain any new information and so could not be evidence of facts for the purpose of section 73(6)(b). The 2021 assessment was therefore out of time and so GG’s appeal against it succeeded.

              Comments: Following similar decisions in earlier cases, including Aesthetic-Doctor.com Limited in January 2024 and Illuminate Skin Clinics Ltd in July 2023, this decisions is perhaps not surprising. In terms of time limits, the taxpayer was fortunate that HMRC had cancelled their first assessment that had been made in time, rather than simply amending it. It is a useful reminder to properly examine the circumstances and procedure applied to the issue of an assessment to determine whether it should be challenged.

              For further information please contact Russell Moore.

            HMRC Material

            • Update – Excise Notice 476: Tobacco Products Duty

              This Notice provides details regarding Tobacco Products Duty and the fiscal marking requirements for tobacco products. New regulations have been added at section 1.3. The address for the Tobacco Team at section 2.8 has been updated. A section on 'Tobacco Track and Trace compliance and sanctions' has been added. The 'If you have any comments or suggestions' section has been removed.

              For further information regarding excise duty please contact Craig Clark.

            • Update – VAT on movements of goods between Northern Ireland and the EU

              This Guidance explains how to charge and account for VAT on the movement of goods between Northern Ireland and EU member states. It has been updated to reflect changes to VAT interest that apply to VAT periods starting on or after 1 January 2023.

            • Check if you can apply for the UK Carrier Scheme

              This Guidance explains how to check if you can use UK Carrier (UKC) Scheme authorisation to move consumer parcels from Great Britain to Northern Ireland.

              The UKC Scheme is an authorisation that enables businesses to move eligible consumer parcels, from Great Britain to Northern Ireland, in line with Windsor Framework arrangements.

              UKC Scheme authorisation allows businesses to send these parcels without completing any customs or safety and security declarations.

              You can apply to use the UKC Scheme if you are responsible for moving consumer parcels from Great Britain to Northern Ireland. Consumer parcels are defined as those moving from:

              • Business to consumer
              • Consumer to business
              • Consumer to another consumer

              You cannot use the UKC Scheme to move parcels which do not meet the criteria for the Windsor Framework arrangements. These include:

              Please also refer to:

              For further information regarding global trade please contact Gerard Koevoets.

            • Update – HMRC Manuals – Guidance on reporting for digital platforms

              The International Exchange of Information Manual ‘Reporting Rules for Digital Platforms Guidance’ section has been updated to add content on active seller due diligence and extended due diligence for existing sellers carried out by Reporting Platform Operators (RPOs). There are also updates to the HMRC Digital Platform Reporting Service (DPRS) reporting process including to note that the DPRS is expected to be available for Platform Operators to access by the end of 2024. In addition, HMRC has updated the guidance on information for sellers to explain how RPOs can provide information to a seller where a record for a seller that has carried out relevant activities on the platform has been deleted.

            EY Global Tax Alerts

            • Italy

              Italy

              An agreement has been executed between Italy and the UK recognising reciprocity for the purpose of granting VAT refunds for purchases made by Italian traders in the British territory and, conversely, by British traders in Italy. The agreement is retroactively applicable as from 1 January 2021. Thus, claims for VAT refund submitted by Italian/British traders for purchases carried out (and input VAT accrued) in the British/Italian territory shall now be regulated by the Thirteenth Council Directive 86/560/EEC), which sets out the parameters for refunding VAT to taxable persons not established in the EU.

            • Canada

              Canada

              The Border Services Agency (CBSA) has announced that the 13 May 2024 go-live date for Release 2 of CBSA Assessment and Revenue Management (CARM) has been delayed to October 2024 for importers, customs brokers and trade advisors.

              The CARM project is a multiyear initiative to modernise the way the CBSA assesses imported goods, manages revenue and enforces trade compliance.

              The CBSA will continue with an internal implementation of Release 2 on 13 May 2024.

            • Slovakia

              Slovakia

              The Ministry of Finance has submitted a draft Bill for consultation that introduces a tax on soft drinks sweetened with sugar or any other sweeteners. The law is proposed to take effect from 1 January 2025.

            European Commission

            • EU-New Zealand trade agreement enters into force

              The European Commission has reported that EU businesses, producers and farmers are now able to take advantage of a host of new export opportunities with the entry into force of the EU-New Zealand trade agreement.

              It is reported that EU-New Zealand trade is expected to grow by up to 30% within a decade, with EU exports potentially growing by up to €4.5 billion annually. EU investment into New Zealand has the potential to grow by up to 80%. The agreement also includes sustainability commitments, including respect of the Paris Climate Agreement and core labour rights.

              EU farmers will benefit from the elimination of tariffs on key EU exports such as pig meat, wine and sparkling wine, chocolate, sugar confectionary and biscuits. Moreover, the agreement protects the full list of EU wines and spirits (close to 2,000 names), such as Prosecco and Champagne, as well as 163 of the most renowned traditional EU products (Geographical Indications), such as Feta cheese, Istarski pršut ham and Lübecker Marzipan. Meanwhile, sensitive EU agricultural products such as beef, sheep meat and dairy products are protected with carefully designed tariff rate quotas.

              Benefits of the agreement include:

              • Zero tariffs on EU exports to New Zealand
              • A more open New Zealand services market in key sectors such as financial services, telecommunications, maritime transport and delivery services
              • Non-discriminatory treatment of EU investors in New Zealand
              • Improved access for EU companies to New Zealand government procurement contracts for goods, services, works and works concessions
              • A dedicated chapter to help small business exports
              • Significantly reduced compliance requirements and procedures

              For further information please refer to:

              For further information regarding global trade please contact Gerard Koevoets.

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