Tag Archives: EU VAT

Constable VAT Focus 13 December 2018


Refunds of VAT in the UK for non-EU businesses

This brief explains changes for verifying claims for VAT refunds submitted by non-EU businesses under the Overseas VAT Refund Scheme.

Software suppliers for VAT returns and the EC Sales List

Find recognised suppliers and software for filing your VAT returns online.

VAT when you buy a vehicle to sell on

VAT registered motor dealers can reclaim the VAT charged and shown on the invoice when they buy vehicles to sell on.




1. Restrictions on Bad Debt Relief

This case concerned a Portuguese company, Tratave, which was refused the right to adjust the amount of VAT previously paid in relation to supplies to eight companies which are now insolvent. Following an inspection by the tax authorities, the adjustment was disallowed on the ground that Tratave had failed to notify the insolvent companies of its intention to seek bad debt relief against supplies made to them.

The requirement to notify the insolvent companies is a Portuguese restriction which gave rise to the question before the Court; does the principle of fiscal neutrality and relevant EU law preclude national legislation which denies the adjustment of VAT in the event of non-payment where the supplier has not notified its insolvent customer?

The Court posited that the relevant EU law around bad debt relief gives member states discretion as to the requirements they may impose on businesses seeking bad debt relief for VAT. This discretion is to allow member states to effectively combat tax evasion but any extra requirements must not have a significant impact on the VAT system or make it unnecessarily difficult for businesses to recover VAT.

In coming to a conclusion, the Court considered that the obligations imposed were not excessive and did not distort the system of VAT. Tratave had failed to comply with a reasonable domestic requirement for bad debt relief for VAT and, therefore, the Court held that the principle of neutrality and relevant EU law do not preclude national laws akin to those in the present case.

Constable Comment: This case shows that Member States of the EU are given some discretion, albeit not unfettered, in how they apply VAT law. As each country deals with different issues and cultures it is necessary to afford some leeway so the VAT system can be effectively enforced in each domestic region.


Upper Tribunal


2. Best Judgment Assessments

DCM Optical Holdings Ltd (DCM) appealed against an FTT decision dismissing DCM’s claims that, inter alia, HMRC had acted outside of its authority by retrospectively amending VAT returns which were out of time for assessment. The appeal also concerns assessments made on ‘best judgment’ of underpaid output tax for four VAT periods prior to February 2004.

DCM submitted VAT repayment returns for multiple periods including 07/05 and 12/08 which are the returns in question. HMRC contended that mistakes had been in calculating these returns and amended the returns to reflect the correct calculation of VAT due. It was HMRC’s belief that the method of apportionment used by DCM between taxable/exempt supplies was not appropriate.

DCM asserted at the Tribunal that these returns were out of time for assessment and that HMRC could therefore not refuse the repayments retrospectively. DCM also highlighted that all of the periods prior to February 2004 were out of time for assessment and these should not have been issued.

The Upper Tribunal allowed DCM’s appeal in part, holding that the assessments relating to periods before February 2004 were out of time. However, it upheld the FTT’s decision that there was no time bar preventing HMRC from retrospectively amending a reclaim VAT return. It was stressed that the time limits only apply to the power to assess, not the power to investigate and decide if a repayment claim was correct when submitted. HMRC is allowed, by virtue of section 73(6) VATA 1994, in this case, to raise a VAT assessment one year after evidence of facts

Constable Comment: Opticians supply a mixture of exempt supplies of medical services and taxable supplies of glasses frames. This has given rise to multiple input and output VAT issues for DCM but also for others operating in the same sector. In areas of uncertainty it is essential to seek professional advice when classifying supplies and establishing a method of calculating a businesses’ partial exemption percentage to minimise the risk of any mistakes which could give rise to assessments and penalties.




CVC VAT Focus 23 August 2018


Local authorities and similar bodies

Decide which activities are business or non-business for VAT purposes if you’re a local authority or other public body.

Apply for the Fulfilment House Due Diligence Scheme (Notice FH1)

Find out if you need to be registered to store goods in the UK for sellers established outside the EU.

Administrative agreements with trade bodies (VAT Notice 700/57)

Details of administrative agreements relating to VAT on certain specific transactions between members of trade bodies and HMRC.

Software suppliers supporting Making Tax Digital

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.




1. Estonian Sales Tax Illegal?

The issue before the court in this instance was whether Article 401 of the VAT Directive must be interpreted as barring the maintenance or introduction of a local sales tax. The City of Tallinn introduced a 1% local sales tax which affected Viking Motors and other appellants, Viking Motors challenged the legality of this tax on the basis that the EU law on VAT only allows one turnover tax: VAT.

Giving consideration to the nature of VAT and how it is applied, it was concluded that there were sufficient differences between EU VAT and local sales tax for the two to run in tandem. It was held that Article 401 does prevent the introduction of another turnover tax but in this instance, as the cost could be absorbed by the business rather than being passed on to the consumer, the two taxes are sufficiently different to not breach EU law.

CVC Comment: There is a very high degree of scrutiny offered by the Courts when it comes to challenging the legality of domestic laws and taxes under EU law. In this case it was held that the nature of how the tax is applied, despite being materially the same, made the two taxes sufficiently different.


2. VAT on Joint Venture Costs


TGE Gas Engineering GmbH (TGE) is a company established in Germany which entered into a joint venture with a company called Somague Engenharia SA in Portugal in order to expand a gas terminal in Portugal on behalf of a utility company. TGE obtained a Portuguese tax ID number as a non-established person in that country in order to create an economic interest group to carry out the joint venture.

After this TGE set up a branch in Portugal and obtained another tax ID from the Portuguese authorities. This branch provided services to the joint venture which were charged on to the utility company and it was also invoiced for the costs to TGE in Germany.

The Portuguese tax authorities had previously denied recovery of the input VAT incurred on these costs based on special domestic rules applying to joint ventures. The Court held that Articles 167 and 168 of the VAT Directive and the EU principle of neutrality must be interpreted as preventing domestic tax authorities from regarding a company which has its headquarters in another Member State and the branch which it has in the first of those States as constituting two separate taxable persons. For that reason, they are also prevented from refusing that branch the right to deduct the VAT on the expenses incurred on behalf of the joint venture/parent company.

CVC Comment: The UK tax authorities may view joint ventures as a taxable person in its own right for VAT purposes. In that scenario, it is the joint venture that has the right to recover any VAT incurred, rather than the parties to the joint venture. This serves as a useful reminder that purchase invoices should be addressed to the correct taxable person. The business activities of a joint venture should be considered in its own right, and an obligation for a joint venture to VAT register may arise if the parties arrangements are considered to form a partnership. A joint venture may choose to VAT register voluntarily in order to recover VAT incurred (subject to the usual VAT recovery rules).


3. Municipalities: Entitled to deduct?


The Polish municipality of Ryjewo constructed a building in Poland and the made a “cultural centre” responsible for the management of the property, allowing them to use the building free of charge. This was allocated as a non-taxable activity for the taxation authorities, despite The Municipalities’ VAT registration, as there was no charge made.

Four years later a part of the building was rented out commercially, The Municipality sought to adjust the deduction of input VAT paid for the building, now attributing this part of the building to a taxable supply. The relevant Polish Minister had reached a decision that VAT was not deductible for The Municipality as the building was not used for an economic activity. This is appealed against.

The Court find in favour of The Municipality, concluding that at the time the building was constructed it was acting in its capacity as a taxable entity and not as a non-taxable Government body. VAT is deductible despite the building having initially been put to 100% non-taxable use by a public body.

CVC Comment: Even though no intention to later use the building to make taxable supplies was declared and there was an argument for no economic activity having previously taken place, the deduction was allowed by the CJEU. This is because the right to deduct input VAT is a fundamental aspect of the VAT system. Ultimately, the first use of the building did not matter as this only determines the initial reclaim, adjustments are to be made in line with changes in taxable/non-taxable use. This case may be of interest to organisations that have made an initial non-business use of capital expenditure on property.


First Tier Tribunal


4. Gaming Machines and Fixed Odds Betting Terminals


The issue before the Tribunal in this instance concerned revisiting the EU principle of fiscal neutrality. The Rank Group (Rank) made supplies of gambling through gaming machines including fixed odds betting terminals (FOBTS) and “casino jackpot machines”. The casino jackpot machines were specifically excluded from the exemption to VAT but FOBTS were exempt from VAT before 6 December 2005 when the definition of “gaming machine” was extended.

Rank made a claim for repayment of VAT which it had charged and accounted for in relation to the jackpot machines on the grounds that the two machines were similar and treating their supplies differently for VAT purposes was contrary to the principle of fiscal neutrality.

After a detailed consideration of relevant case-law and analysing the different types of machines to draw similarities and differences between the two, the Tribunal concluded that, despite certain differences, these differences did not have a significant influence on the average consumer’s decision to use one or the other. The Tribunal found in favour of Rank and allowed the appeal against a decision to deny VAT recovery.

CVC Comment: This case shows that the Tribunal will have regard to how the consumer interprets what he/she is purchasing and the material aspect of the supply. It was observed in the judgment itself that to try to draw distinctions within individual gaming machines and games could lead to absurdities of different rates of tax being applicable to one machine. HMRC will often apply similar tests to that of the Tribunal although when analysing transactions.