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EY VAT News - Week to 12 October 2015

Welcome to the latest edition of EY VAT News. Headlines include the following:

We will be holding a global webcast at 4:00 pm on Wednesday, 14 October 2015 to consider the growing trend of indirect

tax e-audits. Please contact Andrew Bradford for further information.

The OECD has published its highly anticipated final package of reports on the Base Erosion and Profit Shifting (BEPS)

Action Plan. Our global tax alert considers the wider indirect tax implications of the BEPS Actions. Please contact Rosie

Higgins for further information.

We provide an update on the litigation involving Associated Newspapers Ltd concerning the VAT treatment of retailer

vouchers used in sales promotion schemes. Please contact Joanna Crookshank for further information.

If you would like to discuss any of the articles in this week's edition of EY VAT News in more detail, please speak with your

usual EY indirect tax contact or one of the people below.

In this edition:

EY Tax Webcast : Are you ready for indirect tax e-audits? : 14 October 2015

HM Treasury : Consultation : Reforming the business energy efficiency tax landscape

First Tier Tribunal : VAT treatment of distance learning courses : Single or multiple supplies

First Tier Tribunal : Corporation tax treatment of VAT repayment and associated simple interest

Upper Tribunal : VAT treatment of retailer vouchers used in sales promotion schemes

Court of Justice of the European Union : Calendar update

European Commission : Introduction of Union Customs Code : Changes to customs valuation

France : Proposal to reduce the distance selling threshold from 1 January 2016

OECD : Publication of final Base Erosion and Profit Shifting reports : Indirect tax implications

EY Tax Webcast

Are you ready for indirect tax e-audits? : 14 October 2015

As a reminder, we will be holding a global webcast at 4:00 pm (UK time) on Wednesday, 14 October 2015 to consider the

growing trend of indirect tax e-audits.

As technology and data analysis software evolve, so do indirect tax audits. By harnessing the power of technology, tax and

customs administrations are carrying out more audits and uncovering more errors, leading to higher assessments and

penalties. The webcast will provide businesses with information about these trends, as well as how to anticipate and prepare

for e-audits and tips on how to leverage e-audit techniques to better manage indirect taxes.

To register for this webcast, please click here.

Please contact Andrew Bradford for further information.

HM Treasury

Consultation : Reforming the business energy efficiency tax landscape

Following the announcement of a review of the business energy efficiency tax landscape at the Summer Budget, HM Treasury

and the Department of Energy and Climate Change have published a consultation document setting out policy proposals to

simplify and improve the effectiveness of the landscape in supporting the Government's objectives around simplicity,

productivity, security of energy supplies and decarbonisation. This review considers the interactions between business energy

efficiency policies and regulations, including the Climate Change Levy, the Carbon Reduction Commitment Energy Efficiency

Scheme, taxes on other fuels (e.g. heating oils), Climate Change Agreements, mandatory greenhouse gas reporting, the

Energy Saving Opportunity Scheme, Enhanced Capital Allowances, and the Electricity Demand Reduction pilot. Responses to

the consultation are requested by 9 November 2015.

Please contact Kal Siddique for further information.

First Tier Tribunal

Summaries of a selection of the latest First Tier Tribunal decisions to be released.

Decision : VAT treatment of distance learning courses : Whether single or multiple supplies

Metropolitan International Schools

The Tribunal held that the provision by the Appellant of distance learning courses constituted a single composite supply of

zero-rated printed matter (manuals), coupled with ancillary services.

The Appellant provided distance learning courses. The courses in question included various trade courses, such as electrical

and plumbing courses, and also animation and games courses, enabling people to become proficient in designing and

animating computer games. One price was charged for the courses. Customers were provided with manuals that described

the particular subject matter on a step-by-step basis. The Appellant's aim was that the manuals should be entirely

comprehensive, and that the information contained in them would be all that was required to enable customers to master the

particular subjects. There was no additional provision of classroom tuition. Tutor support was provided via phone calls or

emails. However, the tutor support virtually always referred customers making enquiries back to the relevant passages in the

manuals, reflecting the fact that the manuals had been drafted to include all the required information and explanations. Certain

other add-on functions were also provided. The Appellant did not provide any examinations or provide any degrees,

qualifications or diplomas. Its courses were generally designed to prepare customers to take third party examinations.

This appeal raised a considerable number of points. However, the main point was whether the Appellant's supplies of distance

learning courses were single or multiple supplies and, more particularly, assuming that the provision was of one single

composite supply, whether that supply was a supply of zero-rated books or standard-rated education. The Appellant was not

the type of provider whose provision of education was exempt so that, on the single supply analysis, the dispute was between

zero-rated and standard-rated treatment.

Both parties advanced, as their principal contention, that the Appellant provided one single composite supply. The Appellant

contended that the single supply was the zero-rated provision of manuals (i.e. books for VAT purposes), and that any other

elements of service were ancillary to the manuals, such that they should take their VAT nature from the zero-rated supply of

the manuals. In the alternative, if it was not appropriate in accordance with the relevant case law to proceed on the basis that

the supply of the manuals was the principal supply and the other aspects ancillary elements, a secondary test for identifying

the nature of the single supply was to consider which element was predominant, and then it was contended that the manuals

plainly constituted the predominant element of the supply. HMRC contended that the single supply was the supply of non-

exempt education. The customers' aim was to secure education and to obtain a qualification. The overarching supply was

properly to be described therefore as a supply of education, and this was so even though it was almost certainly inappropriate

to describe the supply of the manuals as ancillary supplies. The categorisation of the single supply as education remained

correct even if HMRC conceded (not that it did) that the predominant element of the components in the single supply was

indeed the provision of the manuals. The Appellant contended in a very secondary manner that if its primary contention was

not accepted, then there were two separate supplies, with the supply of books comprising by far the major supply.

The Tribunal held that the end result sought by customers from the supply made by the Appellant was to learn, and to

accomplish that aim essentially by reading the vast amount of printed material. The Appellant's essential supply was the sale

of manuals. All of the other features of the supply (including tutor support) were appropriately regarded as add-on ancillary

functions that ensured, where customers had a need or wish to request receipt of the various functions, that customers should

simply go back to the manuals to the page or paragraph indicated, and re-read the manuals. The Tribunal therefore held that

there was only one single supply in the present case. The printed material was the principal supply, entirely sufficient in itself,

and the other factors were ancillary. Having concluded that there was a principal supply and ancillary add-ons, the single

supply took its nature from that of the principal supply, namely the zero-rated provision of books. Accordingly, the Tribunal

held that there was one single supply of zero-rated books in the present case. Appeal allowed.

Comment: The Tribunal found it difficult to rationalise all of the relevant case law authorities and to arrive, with confidence, at

the correct tests to apply in identifying the nature of the single supply. Indeed, the Tribunal observed that this decision may

well lead to appeals to a higher court, and quite possibly a referral to the Court of Justice of the European Union for guidance.

Please contact Damian Shirley for further information.

Decision : Corporation tax treatment of VAT repayment and associated simple interest

Coin-A-Drink Ltd

The Tribunal held that a corporation tax liability arose from the Appellant's receipt of a ‘Fleming’ VAT repayment and

associated interest.

An appeal concerning the liability to corporation tax of sums paid to the Appellant by way of a refund of overpaid VAT and

associated simple interest. The Appellant, which operated full service automatic food, beverage and snack vending machines,

submitted a Fleming claim for repayment of overpaid VAT on sales of hot drinks in the period from 1973 to 1984. HMRC

accepted this claim and made the VAT repayment together with statutory interest (although the Appellant also claimed further

interest on a compound basis). This income was treated as non-taxable in the Appellant's financial statements.

It might have been thought that the liability of such sums to corporation tax was definitively resolved by the case of Shop

Direct Group and others, in relation to which the Court of Appeal's decision is now final. Indeed, the parties were agreed that if

considered solely in the light of UK law, the appeal had to fail (following the various decisions in Shop Direct). However, this

appeal was pursued entirely on the basis of EU law arguments that were not put forward to (nor, therefore, considered by) any

of the First Tier Tribunal, the Upper Tribunal or the Court of Appeal in Shop Direct. Thus, the dispute centred on the impact, if

any, of the application of EU law principles to the facts of the case. In this regard, the Tribunal held that there was no basis for

the corporation tax liability referable to either the VAT repayment or the interest payment (or indeed any further interest paid

pursuant to the Appellant's compound interest claim) to be disapplied. Appeal dismissed.

Upper Tribunal

Associated Newspapers : VAT treatment of retailer vouchers used in sales promotion schemes

The Upper Tribunal's updated listing of forthcoming hearings and pending cases confirms that, as expected, HMRC has

appealed against First Tier Tribunal decision TC04586 in favour of Associated Newspapers Ltd. The First Tier Tribunal held

that VAT arose on the taxpayer's purchases of high-street retailer gift vouchers and this VAT was recoverable as input tax in

circumstances where the vouchers were subsequently given away to customers as part of the taxpayer's sales promotion

schemes. This case followed the First Tier Tribunal's earlier (2014) decision (TC03256) that no output tax was due when the

vouchers were given away to customers as part of the taxpayer's sales promotion schemes, which HMRC has also appealed.

Both appeals were scheduled to be heard together on 5-7 October 2015 (the hearing dates set originally for the appeal

against the 2014 decision).

Comment: The Upper Tribunal's decision could have important implications for the VAT treatment of vouchers, or indeed other

services (e.g. tickets to concerts or sporting events), used in external sales promotion schemes or internal staff incentive

arrangements.

Please contact Joanna Crookshank for further information.

Court of Justice of the European Union (CJEU)

Calendar update

Thursday 15 October 2015 - Opinion C-128/14 Het Oudeland Beheer BV - Dutch referral concerning the acquisition by a

taxable person of an interest in land together with a building under construction, and the issue of which related costs should

be included in the value of any taxable deemed (or self) supply arising under Article 5(7)(a) of the Sixth Directive.

Thursday 22 October 2015 - Judgment C-264/14 David Hedqvist - Swedish referral asking whether transactions involving

the exchange of virtual currency for traditional currency and vice versa constitute supplies of services effected for

consideration for VAT purposes and, if so, whether such supplies are exempt from VAT. Please contact Andrew Bailey for

further information.

Thursday 22 October 2015 - Judgment C-277/14 PPUH Stehcemp Sp. j. Florian Stefanek, Janina Stefanek, Jarosław

Stefanek - Polish referral asking whether a taxable person is entitled to deduct input tax in respect of a supply of goods in

circumstances where the identity of the actual supplier of the goods and/or the person who issued the invoice is unknown

(case proceeding to judgment without a written Advocate General's opinion).

European Commission

Changes to customs valuation following the introduction of the Union Customs Code

The Union Customs Code (UCC) will serve as the entire new framework of the rules and procedures for customs activities

throughout the EU. It is due to come into force on 1 May 2016 and will entail radical changes to some customs regimes and

controls.

However, key issues still need to be outlined by the European Commission by means of Delegated and Implementing Acts.

The final versions of these Delegated and Implementing Acts are expected to be made public during October 2015. An

informal draft was published in July 2015. Based on this draft, there will be substantial changes to customs valuation which

will have considerable financial consequences for multinational companies that import goods into the EU. Our global tax alert

focuses on such customs valuation issues, more specifically the possible changes relating to the inclusion of royalties and

license fees in the customs value and the existing ‘first sale for export’ valuation rule.

Please contact Arjen Odems for further information.

France

Proposal to reduce the distance selling threshold from 1 January 2016

We understand that France is proposing to reduce its annual VAT distance selling threshold from €100,000 to €35,000 with

effect from 1 January 2016.

Comment: If enacted, this change will be relevant to any EU businesses making distance sales of goods (e.g. by mail order) to

non-taxable persons in France.

Organisation for Economic Co-operation and Development (OECD)

Publication of final Base Erosion and Profit Shifting reports : Wider indirect tax implications

On 5 October 2015, the OECD released its final recommendations on tax policies and treaties as part of its Base Erosion and

Profit Shifting (BEPS) project. The BEPS package is designed to be implemented through changes in domestic law and

practices, and through treaty provisions, with negotiations for a multilateral instrument under way and expected to be finalized

in 2016. The exact timeline for new rules entering into force depends on the length of time needed to negotiate these

agreements and for the subsequent domestic law procedures to ratify the treaties.

Only BEPS Action 1 (Tax challenges of the digital economy) specifically refers to VAT/GST in the context of effective tax

collection with respect to the cross-border supply of digital goods and services. However, there are several important

interactions between direct and indirect taxation across other BEPS action points. For example, Action 7 (Artificial avoidance

of permanent establishment status) could influence the application of VAT/GST on supplies of goods and services, and BEPS

actions that have an impact on tangible product pricing, additions to value and supporting documentation also will be likely to

have an effect on customs duty. Our global tax alert provides further details.

Comment: While any links between VAT/GST and BEPS outside of Action 1 may have been unintended, these links do

require careful consideration by businesses to manage their impact, which could be significant within a supply chain.

Please contact Rosie Higgins for further information.

Further information:

EY has a global indirect tax practice which is experienced in providing support in relation to technical VAT issues. If you would

like to discuss any case generally or in relation to your own circumstances, please speak with your usual EY indirect tax

contact.

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