HMRC is reviewing its policy position regarding 'Italian claims' by motor traders to take into account the effect of the ECJ decision in Nordania Finans A/S v Skatterministeriet Case C-98/07. The review is being led by HMRC’s CT&VAT team and will consider the impact on claims that have already been paid as well as claims where decisions have not yet been made.
HMRC aims to keep any delay to a minimum and expects the review to last until mid - late August 2010. Verification officers have been instructed not to make any further payments in respect of these claims and to take no action in respect of claims that have already been paid at this stage.
The information contained in the General Trade Note, to be read in conjunction with the detailed information in the notes on Italian and Elida claims, allowed motor dealers or their advisors to make claims for overdeclared VAT following the Marks and Spencer ECJ decision. Although claims can no longer be submitted many claims are subject to appeal to tribunal and thus HMRC’s notes have been updated to reflect current departmental guidance which claimants may still need to refer to.
Generally in the EU, VAT on goods and services used for both taxable and exempt transactions is partially deductible with the deductible proportion calculated based on the proportion of taxable activity, however, excluded from this are supplies of capital goods. The ECJ decided that the notion "capital goods" does not include vehicles sold upon termination of the respective leasing contracts, as the sale of such vehicles at the end of those contracts is an integral part of the usual business activities of a leasing company.
As the sale of the vehicles is in the nature of a normal activity of a leasing company, it would be contrary to that objective of neutrality if that taxable person was not allowed to include these sales in its pro rata calculation in arriving at the % of recoverable input vat.