ECJ decision in the Rank Group – the power shifts to the consumer?

Wednesday, February 29, 2012

by Nick Ryan

The ECJ released its judgement in the case of the Rank Group and although it does not decide on the winner or the loser it does, as its remit provides for, give much needed clarification on how VAT should be considered. We have yet to see its full impact, though the changes in the VAT treatment of medical professional services are a tentative step, but it does provide for some interesting thought.
The decision has not provided for a clear conclusion for Rank itself but it is the clarification of the VAT concept of fiscal neutrality that provides for our interest. Essentially fiscal neutrality means that two similar products should be treated the same in order not to distort competition. The ECJ decision established that two products, which could be goods and/or services, will be similar if they are considered so by the consumer and meet the same needs of the consumer. Therefore it is not necessarily what the provider of the product considers it to be rather what the product is perceived to be by the average consumer. Added to this, the ECJ took the view that, unlike in previous considerations, it is not necessary to firstly identify a distortion of competition between the two products before then applying the concept of fiscal neutrality. Consider here the view by Revenue that Local Authorities should only consider registering for VAT where the taxable services/activities they undertake are found to be in competition with a third party.
In essence this decision provides more leverage to the taxpayer and their advisers in challenging the tax authority as the judgement reinforces that if the customer perceives that where a supply is similar to an alternative product then it must have a similar treatment from a VAT perspective.
In Ireland this might provide for further impact for a number of organisations, including Local Authorities, sports bodies and charities, which have to date had their entitlement to register for VAT rebuffed by Revenue. Might we see organisations of this kind seek a VAT registration under the concept of fiscal neutrality?
A question further arises for VAT itself from a global perspective. If one territory considers a supply to be VAT exempt yet another treats it as taxable what happens if the average consumer consider them to be similar, what rate should prevail, which authority exerts its influence over the other? Interesting times are indeed ahead.
For further information on the ECJ decision, fiscal neutrality or for assistance on VAT matters then please contact the VAT practice.

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