VAT Borderline Anomalies: RIP? Not Yet, bring on Land Related Services!

Tuesday, October 30, 2012

by Nick Ryan

Back in May we covered HMRC’s declaration of intent to address the borderline anomalies in VAT “once and for all” with raised eyebrows http://www.thevatpractice.ie/blog/hmrc-addressing-or-not-borderline-anomalies/. As you may recall our appetite had been whetted, here was the sure blade of swift reform being raised with intent only to see, at close inspection, the blunt, rusted edge of bitterness and a desire to right the “wrongful” decisions made against them in the past. We had hoped for more but the results of the consultation process published by HMRC and then subsequently enacted upon left a biter taste. So much more could have been achieved.
Was that it, is this the sum total of borderline anomalies as we know it? Then came HMRC’s and Revenue’s briefings on Land related services and the crusade to irradicate these anomalies is complete. Or, is it?
The briefing on land related services was clear in its aim, this was to confirm changes to the place of supply of services rules following EU level discussions and to provide for an EU uniform application of Article 47. Within this there is the re-clarification of the VAT treatment of a range of land related services including the hire of exhibition stands, storage and warehousing and access to airport lounges. Also encompassed within the briefings is the reaffirmation of what is meant by land and what are considered to be typical examples of land related services and what are not. Typically the examples themselves have caused in some areas confusion. The briefings make it clear that for a service to be land related the service must have a sufficiently direct connection with a specific piece of land and examples are given as to what is meant by this. Unfortunately these examples provide for more confusion than clarity.
For example, consultant A is an investment broker who receives commissions from investment companies for introducing customers to them. In one drive for an investment company, consultant A markets to potential investors an opportunity to invest in land/property overseas. When they introduce a potential client to the investment company and a land investment sale is made then they receive a commission. Question is, is their commission a land related service?
How do we assess how sufficiently direct the connection is between their introduction to the investment company and the specific piece of land or property the investment company sells to the investor? If we can not establish that the consultant A highlighted a particular plot of land to the investor can we argue their service as being land related? What is the difference between their introductory marketing service and that of the investment company? Are both not doing the same thing in marketing and selling a land investment opportunity to an investor. In one way it could be argued that consultant A is making a land related service as they are receiving commission derived from the sale by another party of land to a party they introduced. But is that direct enough? I am not convinced and can see trouble down the line. Once again we have entered the jungle of the borderline anomaly.
Another anomaly, which I find to be particularly ironic, is in connection with exhibition services and the hiring of stands. With great gusto the briefings announced we now have clarity on the matter, if you hire out a stand at an exhibition which includes at least a power point then this falls under the general rule for the place of supply of services. No power point or related services (like a cup of coffee or bottle of water) then it is a land related service and subject to VAT where the exhibition is held. How unutterably daft is that! I have the pleasure in advising a number of clients involved in the event management industry and together we have been hard pressed to find one exhibition organiser that provides stands without at least a power point. Generally, such naked stands are the domain of the country hall fair. Why take such an illogical stance? Why not apply a rule of thumb and remove any chance for error on a businesses’part and just confirm that the hiring of a stand at an exhibition is treated, no matter whether it comes with a power point (at lease) or not, as subject to the general rule. Simple, straightforward and commercial.
I do not believe we have seen the last of the anomaly, at a recent VAT workshop the group identified at lease twenty without thinking that hard and, of which, none had any logic behind them for the treatment applied.
One VAT anomaly that refuses to go away is to do with digital books. A part from the fact that a digital book is standard rated as opposed to a paper book being zero rated which is an anomaly in itself, Amazon have been accused of taking advantage of a European tax anomaly by using Luxembourg as their conduit for the sale of digital books to its UK customer base. In the UK the VAT rate for digital books is 20% while it is a meagre 3% in Luxembourg, good to see the EU getting in on the act.
If you have identified any anomalies then please let us know. Perhaps a campaign is in the offing?
Should you have any comments or questions on this, or on VAT matters or the services we provide, then please contact Nick Ryan at advice@thevatpractice.ie or on 00353 238838181

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