The hope, kindled by the AG in providing guidance on VAT accounting for multi-purpose vouchers, has been extinguished by the Court merely confirming that a “City Card” is a multi-purpose voucher.
International businesses will be heartened by the Court’s ruling that a subsidiary, providing marketing and representation services to its parent in another country, does not create a fixed establishment for VAT purposes.
The Court has also ruled, in two examples of exemption, that member states have discretion in granting exempt status to businesses in the medical and educational sectors.
Finally a few Tribunal cases are trickling through, with the floor based partial exemption calculations being approved in specific circumstances, the Metropolitan Police failing to reclaim VAT charged on sale of seized cars to scap dealers, and “non-traditional” flapjacks being ruled not to be zero rated cakes.
We reported the AG Opinion in this dispute in a separate Case Alert at the end of February, and were hoping for clarity on how to account for output tax on multi-purpose vouchers in the final decision of the Court.
The case looks at a Stockholm "City Card" which offers unlimited public transport plus entrance to many visitor attractions for a limited time. The example examined by the Court cost about €65 and lasted for 24 hours after the first use. The theoretical price for all the attractions included in the card was about €175, but it would take a very determined tourist to visit all the locations. Some attractions would be standard rated, and others could be culturally exempt.
The attractions were paid by the Card Issuer when the tourist visited the venue, and the question therefore arose: how should VAT be accounted?
The Swedish tax authority asserted that the City Card was not a voucher, claiming it should be treated in the same way as a ticket to a sports event, with VAT payable on issue. The AG went into some detail about how VAT should be calculated if the visitor did not “use up” all the benefits, and DSAB made a margin.
However, the Court has merely confirmed that the City Card is a multi-purpose voucher with VAT due at the consumption stages, rather than on issue of the Card. It has provided no guidance on how to account for output tax on the unused element of the card.
A Romanian company was set up in 2011 to provide marketing, regulatory, advertising and representation services for its German parent company, which was its only customer. It took orders from Romanian customers, passed these to Germany and also dealt with invoicing etc. The Romanian tax authority asserted that this was sufficient to create a fixed establishment of the German company.
The Court relied heavily on the Judgement in Welmory Case C-605/12, which found that fixed establishment of a Cyprus online auction site required sufficient permanence as well as human and technical resources. In this case Berlin Chemie did not have human resources in Romania, as it relied entirely on services provide by the Romanian Company which charged fees for the services provided. Contrast this case with that of DFDS Case C260/95 where a Dutch company had employees in the UK, so it was found that a UK fixed establishment existed.
Further News from the CJEU
The Court has considered two cases regarding exemptions for activities in the public interest.
Firstly in Case C-228/20IGmbH (Germany) the Court, on 7 April, largely followed the AG’s opinion in finding that the German tax authority could impose rules limiting the exemption for hospitals.
Secondly in Case C-612/20Happy Education (Romania), on 28 April, the Court ruled that services provided by a private company, of after school activities, even though of an educational nature, would not be exempt unless the company has received appropriate recognition by its government.
News from the Courts and Tribunal
News from the Tribunal
There are several cases from the First Tier worthy of comment.
In case TC 08425The Mayor’s Office for Policing and Crime (MOPAC), the FTT agreed with HMRC that unjust enrichment can apply to public bodies such as the police.
Comment: MOPAC sought a refund of output tax charged to scrap dealers and breakers on the sale of seized cars. As all the dealers would be VAT registered, they would have been able to recover the VAT and MOPAC’s case failed.
In TC 08439Glanbia Milk Limited the Tribunal considered the vexed question of whether 36 different products described as "flapjacks" were zero rated cakes. It seems the flapjack bars had been held out as suitable for sports nutrition purposes, and have more protein than a "traditional flapjack", so the Tribunal concluded that the bars are confectionary (although noting that some of the samples tasted were not sweet) and as they were not cakes (nor was it argued they were biscuits), the result is that the products are standard rated.
Comment: The Tribunal found for HMRC in spite of sampling just 4 of the 36 flapjacks on offer.
TC 08441Hippodrome Casino in Leicester Square has a business comprising a Theatre, Restaurants, Bars and a Casino, and claimed that the standard turnover partial exemption method should be subject to the override using a method based on floor areas. The Tribunal distinguished Hippodrome from Aspinall's Clubs on the basis that there was little crossover between the restaurant and theatre (taxable supplies) and the casino (exempt), despite the management's attempts to inveigle them into the gambling den. The Tribunal was convinced by Hippodrome that the SMO, in the words of the CJEU in VWFS, "guarantees a more precise determination of the deductible proportion of the input VAT than that arising from the application of the turnover-based method.”
Comment:HMRC have resisted floor based partial exemption methods for some years, so it is refreshing to see that, in the right circumstances, this is an acceptable approach.
GET IN TOUCH
Discuss the latest tax updates to see how they will affect your business