The Vat Practice, Cork. Ireland

Deutsche Bank AG – Advocate General’s opinion: portfolio management services constitute a single composite supply

Nick Ryan — Wed, 16 May 2012 16:52:01 +0000

The Advocate General has provided their opinion with regard to the discretionary fund management services as provided by Deutsche Bank AG to its individual customers. The AG’s opinion is that, although this service comprises of various elements which can be separately identifiable and are capable of being supplied separately, the fund service has to be considered to be a single supply for VAT purposes largely as these services are supplied for a single all encompassing fee and that the customer’s interest lies in benefitting from a single supply as opposed to receiving a multitude of component services. In the AG’s view this fund management service qualifies as a single supply of portfolio management.

This opinion is based on the position that the customer’s primary concern is that the investment they have being managed by Deutsche Bank AG is being managed in accordance with the agreed strategy. What securities are bought or sold, and when they are bought and sold, to meet this strategy are of less importance to them. Therefore it is the management of the fund that provides for the key element and results in this service being treated as a composite supply as opposed to a multiple supply.

It is an interesting decision and one that could well impact on other businesses who provide goods and/or services together. The position in Ireland and the UK on what constitutes a composite supply or a multiple supply is a particularly grey area for some industries and this AG opinion could provide for some keen arguments where by arguing a composite supply either reduces the VAT rate applicable or removes the supply from the VAT net.

Watch this space!

Should you require more information on this, or if you have a particular VAT question, then please contact Nick Ryan at the VAT Practice. Alternatively leave you comment below.

Advocate General’s opinion: VAT on supplies of aircraft to leasing companies

Nick Ryan — Wed, 16 May 2012 16:30:33 +0000

The Advocate General has issued its opinion in the Finnish case A Oy which concerns the VAT treatment applicable where aircraft are sold to leasing companies for onward lease to third parties where they be airline operators or corporate businesses.

The opinion contradicts the current Finnish governments position that the sale of the aircraft could not be zero rated even when the leasing company could evidence its purchase for onward lease to an airline operating for reward chiefly on international routes. The AG’s opinion confirms that zero rating should apply in this instance. This opinion that supports the VAT treatment applied by a number of EU Member States and applies the “look through” approach applied by these Member States when determining the VAT treatment to be applied .

We have to wait for the final judgement in this case though the court is guided by the AG’s opinion though not bound to follow it. We suspect in this case the court will follow the opinion.

Revenue reaffirms the grey areas in vocational training and retraining

Nick Ryan — Wed, 16 May 2012 16:22:35 +0000

Recently Revenue released its e-brief 22/2012 which was to reaffirm the position on the VAT treatment of education and vocational training and retraining services as detailed in their revised leaflet issued in April 2012.
The leaflet reaffirms that VAT treatment as previously outlined though is seen by Revenue as providing the clarity required in determining the VAT liability of these supplies. Unfortunately it fails to fully deliver on this leaving the position on vocational training still erring on the grey side.
This leaflet is important for a number of businesses that provide coaching and training though which may, or may not, qualify for VAT exemption. Over the past years there has been an upsurge in outsourced training aimed at professionals, businesses and self help sectors. The problems largely found has been where a training provider provides a range of services that cross over the boundary of what is deemed to be vocational training and what is not.
What we needed from this new leaflet was greater clarity in the form of a definition and a shift from the “sitting on the fence” guidelines approach commonly used by Revenue. Although the guidelines do provide for clarity they also provide for interpretation which leads to risk.
A question, if I provide VAT training workshops is this vocational training or not. If I provide the workshop to members of an accounts team and this is used by them in managing their VAT reporting and accounting systems then we could safely argue that this is vocational training. What if I provide the same training to a public audience that could comprise of accountants, CEO’s and company secretaries? Can I argue that the latter two groups are going to use this training to improve their skills? Will it be essential for their employment? How do I therefore deal with this difference and am I required to confirm with those attending that they require this training as per the vocational training guidelines? Starting to get messy?
What about a business life coach who provides parenting guidance training. Is this vocational if the training is provided to teachers for use in their approach in the classroom or, as it is designed as parenting counselling does it by its own definition therefore fail to meet the guidelines as set out by Revenue and bring it within the VAT net?
I think that businesses which are either currently providing types of training or, are considering doing so, need to tread carefully. There is a need to apply these guidelines on a case by case basis to determine whether, or not, the training they provide can qualify as vocational and is therefore exempt.
Finally, where it is concluded that the training is exempt businesses need to ensure that they manage their entitlement to VAT recovery of business operating costs. Consideration should be given to the use of an appropriate method for the determination of recovery on dual use costs and the attribution of costs against activities.
Should you require further information on this or have a particular question on VAT then please contact Nick Ryan at the VAT Practice. Alternatively please leave your comment below.

Lebara Ltd: VAT treatment of the sale of phone cards, ECJ makes significant decision

Nick Ryan — Wed, 16 May 2012 14:05:42 +0000

The European Court of Justice (ECJ) has issued its judgment in the long awaited Lebara phone cards VAT case which provides for good news for both Lebara and other mobile operators. The decision follows on from a lengthy dispute with HMRC and, after referral by the VAT tribunal in the UK to the ECJ.

The basis of the issue under contention was the VAT treatment Lebara applied to the sale of its phone cards to distributors established in other EU Member States. The phone card provided the end user with the facility to make international calls by using Lebara’s infrastructure in the UK. These end users would purchase the cards from the distributor located in their local EC territory.

HMRC had disagreed with Lebara VAT treatment of the supplies of the cards to the distributors whereby Lebara claimed that it was supplying the distributors with a right to receive telecommunications services. Also, in consideration to the VAT rules that determine where the taxation should take place, the distributor, in Lebara’s opinion was obliged to account for the VAT on the transaction in its own country under a mechanism referred to as the ‘reverse charge’. Lebara also contested that the sale of the card by the distributor to the end user was a distinct and separate transaction with the distributor acting as principal and thereby accounting for VAT on the sale in their EU Member State.

HMRC disagreed with this treatment contesting that there were two elements to the sale of the phone card by Lebara, the sale of the card to the distributor and the access to use their infrastructure to the end user. The latter in HMRC’s view was a UK supply and therefore subject to UK VAT.

The ECJ pronounced in favour of Lebara stating that the marketing and pricing of the phone cards meant that there was no direct link and, therefore, no legal relationship between Lebara and the end user. As such, Lebara was not supplying two services in return for the consideration that was received. It was supplying the distributors who, in their own right, were supplying the end user.

The stance taken to date by HMRC on these arrangements has been questioned as it appears to suggest that a supply can be taxable in more than one State. It is hoped that this decision has provided the clarity needed in order for the application of the VAT rules to be made without further fear of challenge and thereby provide for the consistency needed.

For more information on this decision or on other VAT matters then please contact Nick Ryan at the VAT Practice. Alternatively leave your comment below.

HMRC: Addressing, or not, borderline anomalies

Nick Ryan — Wed, 16 May 2012 12:39:15 +0000

HMRC released their consultation document on 21 March on VAT: Addressing borderline anomalies. This followed on from the budget announcement. I have practiced in VAT, on both sides of the fence, for twenty one years and in that time have been constantly amazed at the anomalies there are both in the application of and interpretation of VAT. VAT and anomalies go together like cheese and cucumber in a sandwich, we expect them, we, at times, relish the opportunity they can provide and we are often driven to moments of frustration at the results they can produce.
In these difficult times, many businesses find themselves under pressure from their customers as to the cost and delivery of their product, some buyers use this influence to drive down costs and VAT is being heavily targeted in some industries where VAT is a non deductible cost. Interpretation is becoming a key focus by some businesses in looking for a window of opportunity to argue their supply is subject to VAT either at a lower, and therefore more competitive rate, or not applicable to VAT at all. At times this drive is flagrantly an abuse of the law but in these difficult times where cost is key then any measure that can be seen to reduce cost becomes a primary driver.
HMRC’s consultation document for many practitioners falls short of the mark by focusing on what many would argue are the obvious choices and others would argue are not really anomalies at all. The key areas where HMRC are looking to remove the anomalies were in sports drinks, catering supplies, hairdresser’s chair rental, self storage, holiday caravan hire and alterations to listed buildings.
It is anticipated that legislation will be introduced to address these long-standing VAT anomalies and loopholes, once the findings of the consultation process are announced, with effect from 1 October 2012. The purpose here is to eradicate where possible the anomalies in VAT where similar supplies have different VAT rates. HMRC intend by these to changes to reach agreement that the standard rate is the applicable rate in these areas and/or confirm that this is the case. The main areas of concern are:
 Approved alterations to listed buildings: the same treatment to apply as with the VAT treatment of alterations to non-listed buildings, and repairs and maintenance for all buildings.
 Self-storage and other forms of storage: to apply a consistency in treatment.
 Hot food and sports drinks: to seek to apply VAT on these supplies where it currently does not apply, consideration here as to what qualifies as “hot” food.
 Rental of hairdresser chairs: to clarify the position beyond doubt thereby avoiding future further litigation and/or dispute.
 Holiday caravans: Ensuring that the purchase of holiday caravans is taxed consistently at the standard rate.
This is a very interesting announcement and should be monitored closely. We have witnessed the broad discussion in connection with medical services and I believe we will witness similar levels of discussion with a possibility of increased litigation among these targeted sectors. The proposed changes to the VAT treatment of certain food items, and whether they are hot or not, should result in a lively consultation process. If HMRC get their way, then a number of parties within the food sector may be caught.
Within VAT practitioners the response has been mixed ranging from the areas to be addressed to be too narrow to that the proposals are biased in that they largely seek to reaffirm HMRC’s view on what the treatment should be rather than consider an alternative based on previous arguments put forward in the past. Some practitioners have expressed their concerns that the process has not identified anomalies but rather are disputed areas in VAT which courts have to date provided decisions that are not favourable to HMRC.
One issue that has not been considered is how in practice these changes will impact on both businesses and consumers in the management of complying with these proposed changes and the impact on price reflecting these changes. Here are some examples of other anomalies that I, and other practitioners, would have welcomed as part of this process:
• Bicycle: standard rated BUT bicycle helmet required under law and safety regulations to ride it zero rated.
• Childs pushchair: standard rate while car seat is eligible at the reduced 5% rate and clothes are zero rated. Baby for these is the same.
• E-book: 20% while paper book is zero rated.
• Sausage roll sold as hot food proposal is to reaffirm it is standard rate BUT if the customer can wait until it cools down, would it be zero rated?
• Listed buildings: why differentiate between repair and alteration?
In conclusion I think HMRC has missed a golden opportunity to deliver a welcome and refreshing change to how VAT applies but perhaps this is just the first of many to come?
If you would like further information on these changes, or on other VAT issues then please contact Nick Ryan at the VAT Practice. Alternatively post your comment below.

UK Budget 2012: Summary of key VAT and indirect tax changes and announcements

Nick Ryan — Wed, 16 May 2012 09:29:37 +0000

A number of changes were announced together with a reaffirmation of other proposed changes already in process that will be introduced later in the year.
In VAT the following changes were announced:
VAT anomalies and loopholes: Legislation will be introduced to address long-standing VAT anomalies and loopholes, with effect from 1 October 2012. The purpose here is to eradicate where possible the anomalies in VAT where similar supplies have different VAT rates. HMRC intend by these to changes to reach agreement that the standard rate is the applicable rate in these areas and/or confirm that this is the case. A consultation process will be undertaken and interested parties views are welcomed. The main areas of concern are:
 Approved alterations to listed buildings: the same treatment to apply as with the VAT treatment of alterations to non-listed buildings, and repairs and maintenance for all buildings.
 Self-storage and other forms of storage: to apply a consistency in treatment.
 Hot food and sports drinks: to seek to apply VAT on these supplies where it currently does not apply, consideration here as to what qualifies as “hot” food.
 Rental of hairdresser chairs: to clarify the position beyond doubt thereby avoiding future further litigation and/or dispute.
 Holiday caravans: Ensuring that the purchase of holiday caravans is taxed consistently at the standard rate.
This is a very interesting announcement and should be monitored closely. We have witnessed the broad discussion in connection with medical services and I believe we will witness similar levels of discussion with a possibility of increased litigation among these targeted sectors. The proposed changes to the VAT treatment of certain food items, and whether they are hot or not, should result in a lively consultation process. If HMRC get their way, then a number of parties within the food sector may be caught. When considering the range and scale of reliefs currently available in the VAT system, the proposals announced do appear to fall short of the mark by quite a distance.
VAT cost sharing exemption: Following earlier announcements the draft legislation covering this welcome change for charities and universities etc. is to be included within the Finance Bill 2012.This will apply to VAT exempt bodies who share services. Unfortunately the announcement has highlighted the fact that the exemption will be more limited in scope and thereby provides for a limited use.
VAT registration and de-registration threshold changes: With effect from 1 April 2012 the registration threshold will increase to £77,000 from £73,000 and the de-registration threshold will increase to £75,000 from £71,000. Little impact here for small businesses and keeping these out of the VAT net. The registration/de-registration threshold for acquisitions from other EU Member States is increased to £77,000 from £73,000. Also announced is the introduction of an Online system for registration and de-registration including a facility for making changes to business details. This will be effective from 31 October 2012. In line with other EU Member States, the VAT threshold for registration for businesses not established in the UK will be removed from 31 December 2012.
Fuel scale charges: These are to be adjusted to reflect current fuel prices and will be effective from 1 May 2012.

Other changes of note announced in VAT:

Status of public bodies: Following recent moves by the EU Commission UK legislation is to be amended to ensure it reflects EU legislation relating to the VAT treatment of public bodies when carrying out their statutory duties and when in competition with the private sector. Ireland has also fallen in line and amended its legislation and it will be interesting to see how the private sector consider the use of “competition” where they provide similar services.

Education: The Government will review the VAT exemption for providers of education, in particular at university degree level, to ensure that commercial universities are treated fairly (Finance Bill 2013).

Charitable buildings: The Government will withdraw charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy-saving materials (Finance Bill 2013).

Further information on these changes is available on the HMRC website though for clarification on any of the above, how it may affect you or for your comments then please contact the VAT Practice.

UK Budget 2012: Summary of key VAT and indirect tax changes and announcements

Nick Ryan — Thu, 22 Mar 2012 10:49:56 +0000

A number of changes were announced together with a reaffirmation of other proposed changes already in process that will be introduced later in the year.
In VAT the following changes were announced:

VAT anomalies and loopholes: Legislation will be introduced to address long-standing VAT anomalies and loopholes, with effect from 1 October 2012. The purpose here is to eradicate where possible the anomalies in VAT where similar supplies have different VAT rates. HMRC intend by these to changes to reach agreement that the standard rate is the applicable rate in these areas and/or confirm that this is the case. A consultation process will be undertaken and interested parties views are welcomed. The main areas of concern are:
 Approved alterations to listed buildings: the same treatment to apply as with the VAT treatment of alterations to non-listed buildings, and repairs and maintenance for all buildings.
 Self-storage and other forms of storage: to apply a consistency in treatment.
 Hot food and sports drinks: to seek to apply VAT on these supplies where it currently does not apply, consideration here as to what qualifies as “hot” food.
 Rental of hairdresser chairs: to clarify the position beyond doubt thereby avoiding future further litigation and/or dispute.
 Holiday caravans: Ensuring that the purchase of holiday caravans is taxed consistently at the standard rate.
This is a very interesting announcement and should be monitored closely. We have witnessed the broad discussion in connection with medical services and I believe we will witness similar levels of discussion with a possibility of increased litigation among these targeted sectors. The proposed changes to the VAT treatment of certain food items, and whether they are hot or not, should result in a lively consultation process. If HMRC get their way, then a number of parties within the food sector may be caught. When considering the range and scale of reliefs currently available in the VAT system, the proposals announced do appear to fall short of the mark by quite a distance.

VAT cost sharing exemption: Following earlier announcements the draft legislation covering this welcome change for charities and universities etc. is to be included within the Finance Bill 2012.This will apply to VAT exempt bodies who share services. Unfortunately the announcement has highlighted the fact that the exemption will be more limited in scope and thereby provides for a limited use.

VAT registration and de-registration threshold changes: With effect from 1 April 2012 the registration threshold will increase to £77,000 from £73,000 and the de-registration threshold will increase to £75,000 from £71,000. Little impact here for small businesses and keeping these out of the VAT net. The registration/de-registration threshold for acquisitions from other EU Member States is increased to £77,000 from £73,000. Also announced is the introduction of an Online system for registration and de-registration including a facility for making changes to business details. This will be effective from 31 October 2012. In line with other EU Member States, the VAT threshold for registration for businesses not established in the UK will be removed from 31 December 2012.

Fuel scale charges: These are to be adjusted to reflect current fuel prices and will be effective from 1 May 2012.

Other changes of note announced in VAT:

Status of public bodies: Following recent moves by the EU Commission UK legislation is to be amended to ensure it reflects EU legislation relating to the VAT treatment of public bodies when carrying out their statutory duties and when in competition with the private sector. Ireland has also fallen in line and amended its legislation and it will be interesting to see how the private sector consider the use of “competition” where they provide similar services.

Education: The Government will review the VAT exemption for providers of education, in particular at university degree level, to ensure that commercial universities are treated fairly (Finance Bill 2013).

Charitable buildings: The Government will withdraw charitable buildings from the scope of the VAT reduced rate for the supply and installation of energy-saving materials (Finance Bill 2013).

Further information on these changes is available on the HMRC website though for clarification on any of the above, how it may affect you or for your comments then please contact the VAT Practice.

Finance Bill 2012 – Key VAT changes

Nick Ryan — Wed, 29 Feb 2012 10:56:51 +0000

I can only recall one year in the recent past where the Finance Bill provided any real interest from a VAT perspective and unfortunately this year provides for little to challenge us. A brief summary of the main changes are as follows:
VAT rate: increased with effect from 1 January 2012 to 23% from 21%.
Bread: Following pressure from within the industry the definition of bread is to be amended to widen the qualification for zero rating that would cover the majority of health food breads and ethnic bread products.
Construction services involving connected parties: This is an extension of the current rules applied for construction services provided by sub-contractors to principal contractors. From 1 May 2012 the reverse charge accounting facility can be applied to construction services between connected parties without the requirement for a principal/sub-contractor relationship to exist.
Ministerial Orders: These are provided to facilitate a VAT refund in a particular case where social or economic conditions support it i.e. the refund of VAT on the purchase or development of a farm building by an un-registered farmer. The changes proposed in the Bill provide for a greater control and include the facility for Revenue to claw back the VAT refund, in total or in part, where it is found that the claimant no longer satisfied the criteria at the time the refund was granted. I imagine this would be where the object that provided for the refund is no longer being applied to the use that enabled the refund in the first place.
District heating/cooling energy: With the passing of the Act green energy suppliers will be treated along the same lines as those persons who supply electricity orgas via the natural ga distribution system with VAT liable at 13.5%.
The Committee and Report stages might bring further changes and/or amendments to the above. For updates or further information on the changes then please contact the VAT Practice.

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

Nick Ryan — Wed, 29 Feb 2012 10:38:54 +0000

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.

Property update: Putting the cart before the horse does not get you to the market!

Nick Ryan — Tue, 28 Feb 2012 16:26:37 +0000

Looking at the last quarter there has been a marked increase in property transactions arising from business restructuring, receiverships, Nama and business closure. Although these circumstances all drive different issues in dealing with the transaction there are some clear common denominators for all.
In some ways the new rules have, as was intended, simplified the VAT treatment of transactions in property though in some respects they have provided for confusion in how the VAT treatment is determined. Overall, it seems that we just can’t get our heads around how the new rules address property transactions involving pre 2008 properties. Also, the application and use of the VAT special conditions clauses are proving to be a nightmare for many with a “select all” fallback being the common approach.
For some transactions the use of the property has become intertwined with the steps required to determine the VAT treatment of a sale. With others, it is often likely that the administrative requirements for managing some property transactions such as surrenders and assignments have been ignored. I will not mention the management of the Capital Goods scheme!
Also, of major concern, is that VAT advice is largely being sought after the fact, if at all, which can provide for major problems whether this is because the cost for this advice is deemed to be too high is difficult to say. From our perspective, any advice has to be value driven and reflective of the input provided though never at the detriment of the transaction itself. From experience in recent transactions where advice was provided after the fact it has generally been found that the VAT treatment applied has been found to be incorrect which has resulted in, in some cases:
• A claw back in VAT to Revenue by the vendor
• For the sale contract to be changed to incorporate the revised treatment and the appropriate VAT special conditions clauses and,
• The price renegotiated to the benefit of the purchaser for managing these errors.
In one case this mistake resulted in the vendor losing a significant amount of the sale proceeds in order to manage the VAT claw back adjustment as the sale was concluded to be VAT exempt sale of an old building. The purchaser declined the proposal for the joint option to tax not because they felt it a disadvantage to them but because the vendor got the position so wrong which resulted in further legal and other professional costs in finalising matters for a second time.
Under the new rules the VAT position for a disposal of a property becomes more of a deal maker/deal breaker requiring flexibility and good negotiating skills by both parties in both securing the best VAT position for vendor and purchaser. What is clear is that once it has been agreed to dispose of a property, or acquire one, there is a need to have concrete clarification as to the VAT treatment to be applied, where the VAT treatment concluded is of a detrimental position for either party then what options can be considered to minimise these and thereby complete the transaction and, know what VAT special condition clauses should be included if any. This comfort and security can be provided without the fear of incurring high, and at times, unknown costs and this is essential if the sale proceeds are to be maximised and costs are kept to a minimum. From experience property transactions go a lot more smoothly if the VAT position has been outlined at the start and both parties are of acceptance of it.
The VAT Practice is aware of the complexities involved in managing these arrangements and offer a fixed fee advisory service for property disposal/acquisitions which provides the client with, not only an appraisal of the VAT treatment of the transaction but also recommendations for steps required to complete the transaction and minimise the impact of VAT, clarification on the impact of the Capital Goods Scheme, assistance with the management of the pre contract enquiries and confirmation on which, if any, VAT special conditions are to be included within the Contract for Sale. Overall the service is there to assist in the smooth and efficient completion of property transactions and provides for an opinion that can be relied upon thereby avoiding any post transaction issues.
If you have any questions on VT and property transactions or would like to utilise our fixed fee service then please contact the VAT Practice.