David Duffy highlights the latest VAT cases and discusses recent VAT developments.
IRISH VAT UPDATES
Revenue guidance updates
eBrief 218/18, issued on 27 December 2018, contained links to a number of new and updated sections of Revenue’s VAT Tax and Duty Manual. This includes:
- Confirmation of a change in Revenue practice, which will result in the VAT rate for sales of certain food supplement products increasing from 0% to 23% with effect from 1 March 2019;
- Confirmation of a change in Revenue practice, which will result in the application of 0% VAT to sales of rollators with effect from 1 March 2019. A rollator is a device, equipped with wheels, used by persons with a disability or infirm people for support while walking;
- Refreshed or updated guidance on the VAT rules applicable in certain sectors including opticians, staff canteens, pharmacists and personal contract plans (PCPs); and
- New guidance on changes to the VAT treatment of vouchers (see below for more detail).
Vouchers
New VAT regulations (Statutory Instrument No. 582 of 2018) were published in December 2018, which update the Irish VAT law applicable to transactions involving vouchers. The regulations apply to vouchers issued from 1 January 2019 onwards. This update is in line with the harmonisation of the VAT rules for transactions involving vouchers across all EU member states.
The new legislation defines the meaning of a voucher for VAT purposes and distinguishes between two types of vouchers for VAT purposes: single purpose vouchers and multi-purpose vouchers.
A single-purpose voucher (SPV) is one where the place of supply (i.e. the jurisdiction where VAT is due) of the goods or services to which the voucher relates, and the amount of VAT due on those goods or services, are known at the time of the issue of the voucher. VAT will be due by the seller of the SPV in the VAT return for the period during which the SPV is sold based on the VAT rate of the good or service against which the voucher can be redeemed.
A multi-purpose voucher (MPV) is a voucher other than a single-purpose voucher. This would include a voucher that can be redeemed against goods and services in more than one jurisdiction or at different VAT rates. For example, a voucher for a supermarket would typically be an MPV as the voucher can redeemed against products at a number of different VAT rates. VAT will be due on an MPV at the time of redemption of the voucher and the VAT rate will be determined by the goods or services against which the voucher is redeemed.
Businesses that sell vouchers will need to review their business to determine whether they are selling an SPV or MPV, and apply the VAT treatment accordingly.
VAT refund scheme for charities
In Budget 2018, the Minister for Finance announced a refund scheme for charities in respect of VAT incurred by them from 1 January 2018 onwards. Qualifying charities are now entitled to submit an annual claim for VAT incurred during 2018. The deadline for making such claims in respect of 2018 is 30 June 2019. eBrief 219/18 contains guidelines for the procedures for making such claims. In order to qualify for the scheme, a charity must hold a charitable tax exemption from Revenue and be registered with the Charities Regulatory Authority at the date of the claim and the date the expenditure was incurred. Charities will be entitled to apply for a refund of a proportion of their VAT based on the level of non-public funding they receive out of total funding. Revenue’s guidance sets out the method for calculating a refund claim and the process for submitting the claim to Revenue. There is an overall cap of €5 million for this scheme across the charity sector in respect of claims made in 2019, which will be allocated on a pro-rata basis for qualifying claims.
EU VAT CASE LAW UPDATES
Termination payments
In MEO (C-295/17), the Court of Justice of the European Union (CJEU) ruled that payments a telecom company was contractually entitled to receive as a result of the early termination of a customer’s contract were subject to VAT. The CJEU rejected the argument that they were non-VATable compensation. In the facts of the case, the telecom company offered contracts under which customers paid lower prices in return for agreeing to a minimum contract period. The contract provided that where the customer defaulted and his/her contract was terminated, the customer owed a lump sum termination amount equal to the net monthly instalments for the number of remaining months in the contract period. According to the CJEU, this termination payment was not a compensation for damages and therefore, was subject to VAT.
While the judgment is not available in English, the CJEU’s decision appears to be based on the termination amount being specified in the contract and the fact that the telecom company ended up in the same position as if the contract ran for the full duration.
It is still possible that payments which amount to compensation can be outside the scope of VAT, but this judgment highlights that the exact fact pattern and contractual arrangements are important in determining the VAT treatment.
Conditional payments
The Baumgarten case (C-548/17) considers when VAT becomes due in a scenario where there are multiple payments that are conditional on future events. The default rule is that VAT becomes due on a supply of goods or services when they are supplied. However, there are exceptions which allow for VAT to be due at a later date where successive payments are made in respect of those goods or services.
In this case, the CJEU ruled that the supply of a service by a football agent to football clubs, which was paid for in later instalments that were conditional upon future events, became subject to VAT when the payments were made rather than when the service was initially performed.
Baumgarten was a professional agent, which placed professional footballers with German football clubs. When Baumgarten successfully placed a player with a football club, it became entitled to commission from that club provided the player subsequently signed an employment contract and held a licence issued by the German Football League. This commission was paid to Baumgarten in instalments every six months after the player joined the club, for as long as the player remained under a contract with that club and held a German Football League licence.
While the service of placing the footballer took place on day one, it was paid for over the duration of the player’s contract and the exact amount due was conditional. The taxpayer argued that VAT should be payable on each payment as and when it became due. The German Tax Authorities, however, argued that VAT was due upfront on the full amount that would be due over the term of the contract. The CJEU decided that, as the full amount of the payments to be made is conditional, the VAT on those payments became due on the expiry of the periods to which the payments made relate.
David Duffy is a VAT Partner at KPMG.
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