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    Weekly VAT News

      EY VAT News – 13 May 2024

      Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments for the period to 13 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 webcast 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.

              Please join us on Tuesday, 14 May 2024 at 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.

            Court of Justice of the European Union

            • Judgment: The taxable amount for a contribution in kind of immovable property is the ‘issue value’ of shares acquired

              Topics – Consideration – nominal v issue value of shares

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

              On 8 May 2024 the Court of Justice of the European Union (CJEU) released its decision in this 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?

              P.sp.z.o.o (P) is a VAT registered company and its capital is divided into shares. P increased that capital by contributions in kind from W and B. These companies transferred several buildings (immovable property), together with a cash contribution, in exchange for shares in P. The contracts stipulated that the consideration for the contributions in kind to P's capital (shares in P) was to be valued at their ‘issue price’. To determine that price, the parties relied on the value of the properties tendered, as assessed by a third party on the basis of market prices.

              P included the VAT recorded on the invoices issued by W and B relating to the contributions of immovable property to P's capital on its VAT return as recoverable.

              The tax authority considered that the taxable amount for VAT purposes of the contributions made by W and B, in the context of P's capital increase, had to be calculated by taking into account the ‘nominal value’ of P's shares, which corresponds to approximately EUR11.50 and not their ‘issue value’, which corresponds to approximately EUR8,123. The tax authority called into question P's right to deduct the VAT relating to those contributions in excess of that calculated on the nominal value.

              The CJEU recalled that Article 73 provides that the taxable amount includes everything which constitutes the consideration obtained or to be obtained by the supplier for the supply of goods and services. This consideration does not have to be in cash. Exchange contracts, in which the consideration is by definition in kind, and transactions in respect of which the consideration is monetary are, from an economic and commercial point of view, two identical situations for the purposes of the VAT Directive. It is however important that there is a direct link between the goods or services exchanged and that the value of the goods or services given in exchange can be expressed in monetary terms. Such a direct link is established where there is a legal relationship between the provider and the recipient in the context of which reciprocal services are exchanged.

              The CJEU noted that P made several increases in its capital by acquiring ownership of buildings belonging to W and B. The consideration received by those companies for the contributions of their property to P's capital corresponds to shares of P, which it issued for that purpose. There is, therefore, a direct link between the transfer of those buildings by W and B and the allocation of shares in P to those companies. In addition, the value of the shares which have been transferred to those companies may be expressed in monetary terms.

              Considering the value of those shares, the CJEU recalled that consideration constitutes the subjective value, i.e., the value perceived, and not a value estimated on the basis of objective criteria. In the absence of a sum of money agreed between the parties, that value, to be subjective, must be the value which the recipient of the supply of goods, which constitutes consideration for another supply of goods, attributes to the goods which he intends to obtain and correspond to the sum which he is prepared to spend for that purpose.

              In the immediate case, the subjective value of the consideration for the contributions of immovable property corresponds to the monetary value which W and B conferred on P's shares when they accepted them in exchange for those contributions to P's capital.

              Whilst it is for the referring Court to confirm, the CJEU considered that the contracts in the immediate case provide for consideration in the form of shares, the unit value of which is established on the basis of their issue value. It follows that the subjective value of each of those shares to which W and B subscribed corresponds to the issue price of those shares. That issue price, and not the nominal value of those shares, must be considered to determine the taxable amount for the transfer of the buildings.

              The CJEU considered that this is not called into doubt by the fact that the issue value of the shares was determined by the parties after an assessment, by a third party, of the market value of the buildings tendered. That assessment only shows that the parties agreed on terms and conditions similar to those which other parties might have agreed on for the sale of such buildings. It does not affect the finding that the parties in this case agreed that the value of the shares in question corresponds to their issue value.

              The CJEU recalled that its assessment regarding consideration in this case does not preclude the referring court from being able to verify, taking into account all the relevant circumstances, that the value agreed upon by the parties actually reflects economic and commercial reality, and is not the result of an abusive practice. Also, Article 80 of the VAT Directive expressly allows Member States, in order to prevent tax evasion or avoidance, to take the open market value as the taxable amount for supplies of goods and services to connected parties.

              However, since that provision derogates from the rule that the taxable amount consists of the consideration actually received, the CJEU noted that it must be interpreted strictly. In the immediate case there is no suggestion that the value of the shares is the result of an abusive practice or that measures were taken by the tax authority pursuant to Article 80 and that they are applicable.

              In conclusion, Article 73 must be interpreted as meaning that the taxable amount of a contribution of immovable property by a first company to the capital of a second company in exchange for shares in the latter must be determined by reference to the ‘issue value’ of those shares where those companies have agreed that the consideration will be based on this value.

              Comments: An interesting run through the principles of valuation. Any business involved in similar arrangements should carefully consider how value is derived to ensure appropriate VAT accounting. Any business challenged in similar circumstances should consider whether this judgment provides an opportunity to revisit the decision.

            • Calendar Update

              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?

              Thursday 13 June

              Judgment – C-533/22 Adient

              Topics – Fixed establishment – supplies within a group

              Romanian referral asking, inter alia, whether Article 44 of the VAT Directive, and Articles 10 and 11 of the Implementing Regulations, are to be interpreted as precluding a national practice under which an independent legal entity is classified as a fixed establishment of a connected entity solely on the basis that both entities belong to the same group. The request consists of eight questions and relates to a situation where a Romanian subsidiary provided to its German company, services of manufacturing as well as handling customer complaints. The Romanian authorities have adopted the view that the Romanian subsidiary constitutes a fixed establishment of the German entity which receives the services supplied by that Romanian subsidiary. That being the case, the referring court also asks, with its eighth and final question, whether there is any supply at all where the same human and technical resources have supplied the service (as an independent entity) and received it (as a fixed establishment of the German entity).

              Judgment – C-696/22 C (Administrateurs and liquidateurs judiciaires)

              Topics – Chargeable event and insolvency proceedings

              A Romanian referral asking, inter alia, whether Articles 63, 64 and 66 of the VAT Directive preclude an administrative practice which imposes additional payment obligations on the taxable person, a professional limited liability company (SPRL) through which administrators of insolvency proceedings may exercise their profession – consisting in defining the chargeable event and the chargeability as being at the time at which the services were provided in the context of insolvency proceedings, where the insolvency administrator’s fee was determined by the insolvency court or the assembly of creditors, with the result that the taxable person is obliged to issue invoices no later than the fifteenth day of the month following the month in which the chargeable event occurred?

            Upper Tribunal

            • Appeal Updates

              The Upper Tribunal register of cases has been updated and shows that DuelFuel Nutrition Limited has appealed the First-tier Tribunal (FTT) decision in DuelFuel Nutrition Limited v HMRC.

              This case concerns the sale of a flapjack and either a cake bar or brownie packaged and sold together, and whether the ‘products’ are to be treated as zero-rated for VAT purposes as ‘cakes’ pursuant to Item 1 of Group 1 Schedule 8 VATA94 or standard rated as excepted items of ‘confectionary’ pursuant to Note 5 to Item 1 of Group 1 Schedule 8 VATA94.

              The FTT found that the products do not contain ‘typical cake ingredients’, are not typically eaten on occasions normally associated with cake consumption and are marketed as ‘nutritional products’ for consumers engaging in exercise, all of which indicates to the ordinary person that they are not cakes and should be ‘deemed’ standard rated confectionery.

              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 in order 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.

            UK Parliament

            • MPs call for arena ticket levy and tax relief to stem tide of grassroots music venue closures

              The cross-party Culture, Media and Sport Committee has called for a levy on arena and stadium tickets and a cut in VAT to support grassroots music venues.

              The recommendations are in a report which highlights how small local venues integral to the pipeline of professional creative and technical music talent are stopping performances or closing entirely at a rate of two per week.

              On top of immediate financial help through a levy-funded support fund and a targeted temporary VAT cut to help stem the tide of closures, the report says a comprehensive fan-led review of live and electronic music should be set up this summer to examine the long-term challenges to the wider live music ecosystem.

              The report says that given the urgency of the crisis, a voluntary levy on arena and stadium concert tickets would be the most feasible way to have an immediate impact, creating a support fund for venues, artists and promoters administered by a trust led by a sector umbrella body. The Committee also calls for the industry to ensure the levy cost is not passed on to music fans. If there is no agreement by September or if it fails to collect enough income to support the sector, the Government should step in and introduce a statutory levy, the report adds.

              On VAT relief, the Committee calls for a temporary cut based on venue capacity, with the Government undertaking analysis to assess the impact to inform future decisions.

              Please also refer to:

            HMRC Material

            • Revenue and Customs Brief 7 (2024): New guidance on the VAT treatment of voluntary carbon credits

              HMRC has published Revenue and Customs Brief 7 (2024): VAT Treatment of Voluntary Carbon Credits as well as updating its internal manuals. This guidance affects businesses and their agents in the environmental services market, who create, buy or sell voluntary carbon credits or an exchange that operates voluntary carbon markets.

              The brief explains:

              • The VAT treatment of voluntary carbon credits from 1 September 2024
              • The voluntary carbon credits that will be in the scope of the Terminal Markets Order

              Voluntary carbon credits are currently treated as outside the scope of UK VAT. This is because when they were first introduced, HMRC’s view was that they could not be incorporated into an onward supply and there was no evidence of a secondary market. HMRC recognises that there have been significant changes in the voluntary carbon credit market, including the emergence of secondary market trading and businesses incorporating voluntary carbon credits into their onward supplies. As a result, from 1 September 2024, the sale of these carbon credits must be treated as taxable for VAT where the place of supply is in the UK.

              The Terminal Markets Order (see Commodities and terminal markets (VAT Notice 701/9)) provides a VAT zero rate for wholesale commodity transactions made by members on specified terminal markets. From 1 September 2024, HMRC will allow the VAT relief granted under the Terminal Markets Order to apply to contracts in taxable voluntary carbon credits traded on terminal markets, within the terms of the relief. HMRC indicated that further updates to the TMO is expected although they couldn’t provide an exact timeline.

              HMRC has invited comments on the guidance before the implementation date.

              Comments: This is a complex area, and while the new guidance is a positive step, the lack of a Domestic Reverse Charge to mitigate VAT fraud in the carbon credit market is surprising, given its historical susceptibility. Businesses must have robust Know Your Customer (“KYC”) checks in place to protect their input tax recovery rights against fraudulent supply chains, particularly in light of the "known or should have known" principle of the Kittel case. The guidance leaves the VAT treatment of "offsetting activity" unchanged, leading to a distinction between the supply of credits and their retirement (HMRC may offer further clarification). Businesses that acquire carbon credits for retirement (rather than resale), especially those with restricted input VAT recovery (like banks), will face an increased VAT cost from 1st September. HMRC indicated their default position would be to link VAT recovery to output VAT charges, requiring careful management of tax points around the implementation date for full recovery. Finally, determining whether the supply constitutes electronic services or multiple/single supplies gains importance for applying the correct VAT treatment.

              HMRC’s willingness for further consultation before implementation is a positive step, and we would recommend any business which thinks it will be impacted to get in touch to make its views known.

              For further information, please contact Richard Norman or Roberto van Meurs.

            • Help with football agents' fees and dual representation contracts

              These Guidelines are for football agents and football clubs and focus on:

              • HMRC’s view on dual representation contracts
              • Employer Duty and VAT compliance risks for football agents’ fees and dual representation

            • Update – HMRC Manual: Digital services tax

              HMRC has made some updates to its Digital Services Tax Manual:

            • Update – Managing your customs warehouse

              This Guidance explains how to manage a customs warehouse, handle goods, and process, repair and move goods. Information for warehousekeepers who use a duty management system and when someone else is using your warehouse has been updated.

            • Less than one month to go for exporters to move to the Customs Declaration Service

              HMRC has announced that businesses exporting goods have less than one month left to move across to the Customs Declaration Service (CDS).

              Export declarations must be submitted through CDS from 4 June this year, when it replaces the Customs Handling Import and Export Freight (CHIEF) system for all trade declarations.

              For further information regarding global trade please contact Gerard Koevoets.

            EY Global Tax Alerts

            • Poland

              Poland

              The Ministry of Finance has announced a new timeline for the implementation of an obligatory National E-invoicing System (KSeF) in Poland. For large enterprises, the new implementation date is set for 1 February 2026. For other entities, the new implementation date will be 1 April 2026. (For background, see EY Global Tax Alert, Poland introduces mandatory e-invoicing from 2025, dated 18 April 2024.)

            • Kenya

              Kenya

              The Statute Law (Miscellaneous Amendments) Act, 2024 seeks to amend several Acts of Parliament. Indirect tax measures include:

              • Exemption for the supply of gas meters
              • Introduction of VAT on denatured ethanol

              Kenya

              The Cabinet Secretary for the National Treasury has revoked the Electronic Tax Invoicing Regulations 2023 and issued Electronic Tax Invoice Regulations, 2024.

              The Electronic Tax Invoice Regulations, in part, provide guidance on the applicability of electronic tax invoicing, contents of an electronic tax invoice, exclusions and exemptions from the Regulations.

            • Pakistan

              Pakistan

              Recent law changes in Pakistan have made significant changes to the tax appeals procedure in cases involving federal income tax, sales tax and federal excise tax. These changes, effective from 16 June 2024, aim to streamline the tax appeals process, encourage the use of Alternate Dispute Resolution and establish clearer rules and timelines for resolving tax disputes.

            • Finland

              Finland

              The Government has announced an increase in the standard VAT rate from the current 24% to 25.5% – in the EU only Hungary's VAT rate is higher (27%). Certain reduced VAT rates of 10% and 14% in Finland would remain unchanged, but the products and services subject to the reduced rates will partially change within these VAT rates. The rate of Insurance Premium Tax will also increase to 25.5%

              The increase in the standard VAT rate is intended to be implemented from the beginning of September 2024.

              The Government had already outlined that most of the commodities subject to the 10% VAT rate are intended to be moved to the 14% VAT rate, with only newspapers and periodicals remaining at 10%. Additionally, the VAT rate for sweets and chocolates is likely to change, moving to the standard VAT rate.

            Packaging Extended Producer Responsibility

            • UK Government announces changes to the draft regulations for packaging Extended Producer Responsibility

              The UK Government has shared the Draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations with the EU, as required for implementation under the Windsor Framework. In addition, it also notified the World Trade Organisation (WTO) of the labelling requirements under the Regulations, bringing the UK one step closer to implementing packaging Extended Producer Responsibility (pEPR) by 2025.

              Following the consultation on the draft regulations, the UK Government has announced several changes to the way pEPR will function. Some of the key changes include the following:

              • Labelling obligations: To allow businesses a suitable amount of time to adapt to the new recyclability labelling requirements, all labelling obligations will come into force from 1 April 2027.
              • Deposit Return Scheme (DRS): If a DRS has not been established by 1 January 2028, producers of drink containers made of plastic, aluminium and steel will be subject to all of the pEPR obligations.
              • Guidance and methodology: The scheme administrator must now provide guidance on the methodology and factors which must be considered when assessing net efficient disposal costs.
              • Disposal costs and fees: A number of clarifications have been made to the definitions related to disposal costs. In addition, the regulations now specify that scheme administrators must provide efficient disposal cost and waste income assessments.
              • Online marketplaces: The exemption for online marketplaces has been removed, with online marketplaces now facing obligations for packaging sold on their websites.

              Key actions for businesses:

              • Businesses which may be in scope of pEPR should now conduct an assessment of the data they have available to determine whether they are impacted by the changes to the regulations.
              • Packaging producers must report their packaging data covering 2023 by 31 May 2024. Any packaging producer which does not report packaging data by this date may face enforcement action.
              • The UK Government has stated it will release a call for evidence to support the development of their approach to modulation. Businesses are encouraged to consider their response to this call for evidence and start gathering key points of information they wish to share with the Government.

              Please also refer to Extended producer responsibility for packaging: who is affected and what to do.

              For further information please contact Danny Vu.

            European Council

            • Economic and Financial Affairs Council Meeting (14 May 2024) – VAT in the Digital Age

              EU Member States will try to reach an agreement on the VAT in the Digital Age (ViDA) package at the next meeting of the Economic and Financial Affairs Council on 14 May 2024.

              The ViDA package, proposed in December 2022, aims to introduce common e-invoicing and digital reporting requirements, update VAT rules for passenger transport and short-term accommodation platforms and introduce a single VAT registration across the EU.

              Comments: If there are significant developments on the outcome of the meeting, we will follow up on this separately.

            European Commission

            • Tax and Customs Union Management Plan 2024

              The Directorate-General for Taxation and Customs Union (DG TAXUD) of the European Commission has published the Taxation and Customs Union Management Plan 2024. The Plan aims to continue supporting the Commission's agenda for a fairer, greener and more competitive future and the six Commission priorities for 2019-24.

              In order to meet the Commission's priorities, the main objectives listed in the Plan are as follows:

              1. Designing EU tax policy actions that contribute to a carbon neutral continent by 2050. DG TAXUD will continue the implementation of the Carbon Border Adjustment Mechanism (CBAM). In 2024, importers will report on the embedded emissions that fall within the scope of the regulation. After analysing the first data received, the methodology will be refined if needed. Also, the DG TAXUD will continue supporting the negotiations on the revision of the Energy Taxation Directive (2003/96), which is part of the "Fit for 55" package.
              2. Developing tax policy actions for a stronger, fairer and more efficient Single Market. This includes:
                • Implementing a corporate tax reform for a fairer system that supports business and investment; to that end, it is noted that, from a direct tax perspective, DG TAXUD:
                • Remains committed to the swift implementation of the Two-Pillar solution;
                • Supports the negotiations on the recent legislative proposals – namely BEFIT (Business in Europe: Framework for Income Taxation), HOT (Head Office Tax System for SMEs), TP Directive (Transfer Pricing Directive) and FASTER (Faster and Safer Tax Excess Relief) (nb FASTER is on the agenda for the ECOFIN meeting of EU finance ministers on 14 May)
                • Works closely with Member States and other stakeholders to tackle the implications of cross-border teleworking and mobile working; and
                • Will actively evaluate the existing administrative cooperation framework for direct taxation.
                • Upgrading VAT rules and digitalising excise movements to protect revenues and promote growth: DG TAXUD will work to reach an agreement on the VAT in the Digital Age (ViDA) package. Also, it will work with Member States to define methodologies to reduce compliance gaps caused by e-commerce fraud and Missing Trader Intra Community (MTIC) fraud. It will also submit a proposal to amend the VAT administrative cooperation framework to fight against VAT fraud and promote the exchange of VAT information with other authorities (i.e. Europol, OLAF and EPPO). Throughout 2024, DG TAXUD will also work with the industry of payment service providers (PSPs) to identify and resolve issues related to their new reporting obligations introduced on 1 January 2024, with the Central Electronic System of Payment Information (CESOP)

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