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Indirect tax updates


We have three AG opinions from the CJEU this month, a final decision from the UK Supreme Court and an interesting Tribunal judgement

In a Polish case the AG thinks a variation on loan securitisation (with a transfer of rights rather than assignment of the loans) leads to supplies which are not exempt.

A curious case from Slovenia suggests that a taxable lease can lead to VAT being due on the basis of an invoice tax point even though an actual invoice was not issued. 

The AG does not think Lithuanias policy of denying input tax recovery by a bank, because it knew the seller of a property was in financial difficulties is justified by the Directive.

In the UK, Zipvit’s claim for input tax on post office charges has finally been put to bed by the Supreme Court

In the First Tier Tribuna,  two sofa retailers have won the right to recover all the VAT incurred on advertising their sofas, even though they try to sell insurance products as an add on service.

News from the CJEU

Case C-250/21 SzefKrajowej Administracji Skarbowej - Poland

This is a case involving two financial institutions and a borrower.  Bank B advanced a loan to a Borrower.  Investment fund A paid a lump sum to Bank B, in return for which Bank B agreed to pass all the monies received from the borrower to Investment fund A.  Bank B retained the legal interest in the loan, but the credit risk was transferred to the Investment Fund.  The AG is saying that Investment Fund A has an economic activity, the consideration for which is the margin between the proceeds received, and the lump sum paid out.  Since this is not the granting of credit to the Bank, it is not exempt. 

Comment: these circumstances appear to contrast with loan securitisation, whereby loans are bundled together and assigned by a bank to an investor.  In those circumstances the investor collects the interest and capital repayments directly from the borrower (perhaps employing the bank as its agent) so its income is accepted to be exempt.

Case C-235/21 Raiffeisen Leasing -  Slovenia

This case involves a sale and leaseback transaction. Raiffeisen had bought the freehold property and been charged VAT (with an invoice) but did not issue an invoice to the lessee (RED).  RED subsequently recovered VAT on the basis of the lease and knowing that it was a taxable supply.  The Tax authority assessed Raiffeisen for output tax and late payment interest on the basis there had been a taxable supply, and the lease contained all the information necessary for an invoice so output tax was due (and input tax was deductible by RED). 

Comment: It seems, in these unusual circumstances, that the AG agrees that a lease can be treated as having all the attributes of an invoice (which can comprise more than one document) so output tax is due based on an invoice taxpoint. 

Case C‑227/21HA.EN. UAB – Lithuania

This case involved a bank, which bought  a property from its borrower, who was in financial distress.  The proceeds were settled by set off against the debt. The seller failed to pay the output tax before it  entered insolvency proceedings.

Input tax recovery by the bank was denied because it would have known that the output tax would not have been paid over. 

Comment The AG has concluded that the policy is contrary to the Article 168(a) of the PVD, but has caveated her conclusion, because it is not clear from the evidence provided whether the company was provided with funds (ie cash) to pay the VAT.

News from the Courts and Tribunal

UK Supreme Court

Zipvit Limited [2022] UKSC 12

The Supreme Court has followed the guidance provided by the CJEU that the taxpayer has no right to recover input tax under Article 168A of the PVD, and that if HMRC had been required to exercise its discretion to make a payment to Zipvit it would have been entitled to deny any payment as otherwise the public purse would have provided an unmerited windfall.

Readers will recall that Zipvit historically paid the Post Office to deliver numerous packages of vitamins and supplements, and the postal charges were considered exempt at the time.  The position changed after TNT’s case in the CJEU so that certain Post Office services became standard rated, so Zipvit made its claim that the charges it had previously paid must have included VAT, and it was due a refund. 

Comment: It seems that this dispute has finally run its course, with the Supreme Court Judges all agreeing that the taxpayer is not entitled to a refund of VAT when originally all parties – Zipvit, the Post Office and HMRC all thought the supplies of postal services were exempt.

First Tier Tribunal - Sofology and DFS  TC 08480 29 April 2022

Sofology and DFS are both leading retailers of furniture, and especially sofas. They advertise on the internet, and pay Google each time a potential customer clicks a link to the “landing page” on their websites (pay per click charges).

HMRC asserted that, because both retailers, seek to sell insurance products to their customers, the VAT incurred on pay per click should be apportioned between standard rated sofa sales and exempt insurance income.

The retailers disagreed, and in a long and detailed Judgment the Tribunal upheld the appeal, noting that the adverts or landing page made no mention of insurance, and the cover was only offered after the customer had chosen to buy a particular sofa.  There was no direct and immediate link between the advertising and the insurance product.

It was irrelevant to the question how much insurance related income and profit margin was received, so the VAT on the pay per click advertising was fully recoverable.    

Comment: The Tribunal judgement  provides an excellent academic analysis of the relevant Case law, and neatly distinguishes the difference between direct attribution (the first step in any partial exemption) and the need for apportionment.

Retailers who provide exempt add on services (finance or insurance) should review their circumstances with a view to making a claim or recovering more input tax in future. A more detailed analysis of the case is provided in our VAT Alert.

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