Ireland – Appeal Commissioners’ Cases

72TACD2021 - Appellant v Revenue Commissioners – 23 February 2021

This Appeal Commissioner [AC] determination heralds some positive news for commercial landlords. However, this determination is subject to appeal to the High Court by the Revenue Commissioners.

The issue under appeal was a refusal by the Revenue Commissioners to allow VAT deduction on costs incurred in relation to the acquisition of a reversionary interest in a property subject to a legacy lease (i.e. a lease of 10 years or more created prior to 1 July 2008) - whether the appellant has a right to deduct value-added tax charged on costs incurred in connection with the acquisition of the reversionary interest in properties. It has long been Revenue’s position that VAT on costs incurred by both the vendor and purchaser in relation to the sale/purchase of such reversionary interests is not deductible. This scenario concerned the latter – the acquisition of a reversionary interest.

In short, the AC saw the question arising as being whether the legal services supplied to the appellant (input transaction) in order to effect the acquisition of the reversionary interest have a direct and immediate link with a taxable supply (output transaction) or a taxable economic activity as a whole giving rise to a right to deduct? In this context the AC indicated that, based on the case-law of the CJEU, it could be said that if there is an interpretation which makes it possible to relieve a taxable person of the burden of the VAT paid in the course of the economic activity of the taxable person, that interpretation should be favoured.

The appellant was a taxable person engaged in the economic activity of the exploitation of tangible property for the purposes of obtaining income therefrom on a continuing basis. The AC indicated that according to settled case-law, if a person is a taxable person for VAT purposes and acting as a taxable person at the time, the person is, in principle, entitled to exercise the right to deduct input tax. In this context, acquiring the reversionary interest in properties was connected with, and necessary for, the economic activity of the appellant. In this case the appellant invariably exercises the option to tax leases (other than legacy lease) in the course of its economic activity. Following from this, the AC was satisfied, having assessed the related surrounding facts, the services supplied to the appellant and the circumstances in which the transaction occurred, that there was an objective link between the costs incurred by the appellant in connection with the acquisition of the reversionary interest in the property and the economic activity of the appellant as a whole – i.e. the exploitation of tangible property for the purposes of obtaining income therefrom on a continuing basis - to establish a direct and immediate link to give rise to a right to deduct the VAT in full. The AC saw this as the correct approach to relieve the appellant of the burden of the VAT paid in the course of its economic activity. Thus, the appellant has a right to deduct VAT incurred on acquisition costs pursuant to Section 59 VAT Consolidation Act 2010.
 

35TACD2021 – Appellant v Revenue Commissioners – 10 February 2021

In this case, an Irish company purchased a newly manufactured yacht that was temporarily located in Spain from a UK supplier in 2012 but the yacht was moored outside of Ireland until 2014 (moving between France, Spain and Portugal). The supplier raised an invoice in 2012 without a VAT charge, quoting the company’s VAT number but not including an indication that the transaction was an Intra-Community Supply of goods. The company treated the purchase as an Intra-Community acquisition, self-accounted for Irish VAT of €49,776 on a reverse charge basis and took a simultaneous VAT deduction in its VAT return on the basis that the yacht would be used for promotional purposes as part of the company’s trade.

The company subsequently sold the yacht to a director of the Company (“A”) for a VAT inclusive consideration of €150,000 in February 2014 and VAT of €28,049 was reported in the company’s VAT return. “A” registered the yacht in her name with the Registrar of Ships in July 2016 and the company made an unprompted voluntary disclosure to Revenue on 31 October 2016 for an additional VAT liability of €49,776 and interest of €4,971.

However, Revenue denied the initial VAT recovery in 2012 and took the view that the yacht had been used by the company’s directors for their own personal use, thereby resulting in a self-supply for non-business purposes, as per Section 19(1)(g) VATCA 2010. Revenue raised a notice of assessment of €49,776 in respect of the 2012 return. In response, the company sought to argue that the original acquisition of the yacht did not constitute an Intra-Community acquisition of a new means of transport per Section 24(1)(b) VATCA 2010 and instead the place of supply by the UK supplier should have been determined by reference to Section 29(1)(c) VATCA 2010 which states that “in the case of goods not dispatched or transported”, the place of supply is “the place where the goods are located at the time of supply”. Therefore, the argument presented by the company was there was no requirement to self-account for the VAT on the purchase, as the 2012 supply by the UK supplier without the yacht being transported should have been subject to Spanish VAT as this is where the yacht was located at the time of sale.

In analysing whether the supply of the yacht constituted a supply of a new means of transport for the purposes of Section 24(1)(b) VATCA 2010, the appeals commissioner drew heavily from the previous X v Skatteverket CJEU VAT case (C-84/09) in reaching his determination:

“The intra-Community acquisition as a VAT chargeable event is therefore subject to two conditions: first, the person acquiring the goods must acquire the right to dispose of them as owner; second, the goods must be dispatched or transported from the State of origin to another Member State. In order for the supply to be tax-exempt in the Member State of origin, that second condition must also be fulfilled. According to ECJ case law, it is necessary that the classification of Intra-Community supplies and acquisitions be made on the basis of objective matters, such as the physical movement of the goods concerned between Member States.

It is not apparent, however, from the wording of those provisions what temporal or substantive correlation there must be between the assumption of ownership rights and the beginning or ending of transport to another Member State. The X v Skatteverket case determined that the first paragraph of Article 20 and Article 138(1) of Directive 2006/112 are to be interpreted as meaning that the classification of a transaction as an intra-Community supply or acquisition cannot be made contingent on the observance of any time period during which the transport of the goods in question from the Member State of supply to the Member State of destination must be commenced or completed.

The X v Skatteverket case determined that, apart from the time at which transport comes to an end, significance can also be attached to where the sailing boat is registered and where the person acquiring it has a permanent mooring facility for the boat. The place of residence of a private individual acquiring goods can also be an indication of where the boat is ultimately to be permanently used. When determining the end of the period of time, the distance between the State of supply and the State of destination and the lifespan of the goods supplied can inter alia also play a role. If conveyance of the means of transport takes only a very insignificant period of time in comparison with its overall lifespan, it is to be expected that consumption of the goods will essentially take place in the State of destination.”

Applying these principles to this case, the commissioner rejected the assertion put forward by the company that the place of supply of the yacht was Spain as the yacht was only moored in Spain for circa two months and did not constitute the final destination of the goods and that the final destination of the goods was elsewhere (most likely Ireland). As such, the commissioner held that the assessment of €49,776 raised by Revenue in respect of the 2012 VAT return was valid.

EU – CJEU

CJEU (Case C-48/20): P UAB v Dryektor Izby Skarebowej w B – 18 March 2021

This Polish case involved a Lithuanian company making fuel cards available to Lithuanian transport companies, which allowed these transporters to fill up with fuel at some service stations located in Poland. P raised invoices to these transport companies and charged VAT, on the assumption that it supplies fuel to its customers. However, the Polish tax authorities identified that P’s supply of fuel cards constituted the supply of credit to its customers, a VAT exempt activity, and therefore found that (i) P should not have charged VAT and (ii) it did not have any entitlement to VAT recovery.

In particular, the inspector held that as P had declared VAT on the invoices raised, it was still liable to remit this VAT, in line with Article 203 of the VAT Directive and would not be permitted to issue revised invoices, as there was no provision in Polish domestic legislation to allow for this once a tax inspection has taken place, on the basis that there was a risk of a loss of revenue to the exchequer. However, in this regard, it is important to note that all of P’s customers would have had an entitlement to full VAT recovery.

P challenged this position and the following question was referred to the Court:

‘Must Article 203 of [Directive 2006/112] and the principle of proportionality be interpreted as precluding the application, in a situation such as that in the main proceedings, of a national provision such as Article 108(1) of the [Law on VAT] to invoices with VAT incorrectly indicated that were issued by a taxable person acting in good faith, if:

• The taxable person’s actions did not involve tax fraud, but resulted from an erroneous interpretation of the law by the parties to the transaction, based on an interpretation given by the tax authorities and a common practice in that respect at the time of the transaction, which incorrectly assumed that the issuer of the invoice was supplying goods when in fact it was providing a VAT-exempt financial intermediation service; and
• The recipient of the invoice incorrectly indicating VAT would have been entitled to claim a refund of the tax if the taxable person who had actually supplied the goods to him had duly invoiced the transaction?’

In this case, the Court found, referring to the principles set out in the Terracult VAT case (C‑835/18) and on the guiding principle of fiscal neutrality, that it is up to Member States to put in place procedures in its domestic legislation to allow taxpayers acting in good faith to be able to adjust any tax that was incorrectly invoiced. On this basis, it was found that Poland’s domestic legislation (specifically Article 108(1) of the Law on VAT) ran contrary to this principle.

CJEU (Case C-7/20): VS v Hauptzollamt Münster – 3 March 2021

VS, a German resident individual, brought his registered passenger car from Türkiye to Germany, with the vehicle passing through Bulgaria, Serbia, Hungary and Austria, and failed to declare same to the customs authorities of the countries involved. The importation of the vehicle was identified by German authorities in late February 2018. VS subsequently drove the car back to Türkiye and sold it there in March 2018.

The Principal Customs Office took the view that VS had failed to present the vehicle to the customs authorities and declared that VS was liable to German import customs duties of €1,589 and import VAT of €3,021. VS sought to argue that the vehicle was only used for a short period of time, was exclusively used for private journeys and therefore should not be subject to import duties. As identified by the referring court, however, as VS is resident in Germany, he cannot avail of the customs procedure for temporary admission and is therefore liable to pay customs duty in respect of same.

However, a question emerged in respect of the location of where import VAT arose in this case, as the car entered the EU in Bulgaria before being transferred through a number of EU and non-EU countries, before finally arriving in Germany for actual use. As per Article 60 of the VAT Directive, the place of importation of goods is the Member State within whose territory the goods are located when they enter the Union. However, Article 71(1) allows Member States to link the chargeable event (e.g. where the taxpayer is liable to customs duty) and the date on which the VAT on importation becomes chargeable with those laid down for customs duties.

However, as recognised in the Federal Express Corporation Deutsche Niederlassung CJEU VAT case (C‑26/18), “there may also be a requirement to pay VAT where, on the basis of the particular unlawful conduct which gave rise to the customs debt, it can be presumed that the goods entered the economic network of the Union and, consequently, that they may have undergone consumption, that is, the act on which VAT is levied”. In this case, the Court found that, while VS failed to comply with customs obligations in Bulgaria, as the Member State where the vehicle entered the EU, the first use of the vehicle in the EU occurred in Germany (i.e. VS’ place of residence). On this basis, the Court held that, as the vehicle entered the EU economic network in Germany, German import VAT therefore arises.

CJEU (Case C-907/19): Q GmbH v Finanzamt Z – 25 March 2021

This German case involved an insurance agent charging a brokerage fee to its customers in respect of the provision of combined insurance related services, which comprised of (i) a licence fee to allow the insurer the right to issue insurance policies designed by Q, (ii) intermediary services and (iii) administrative services including claims handling.

In 2009, Q submitted a ruling request to the German tax authorities to confirm that the above were a single supply of exempt services, with the authorities eventually finding that they constituted a single supply of taxable services. The primary difference to the previous Aspiro CJEU VAT case (C-40/15), was that Q’s services did result in new insurance policies being created, whereas Aspiro only settled claims. The question that was therefore raised to the Court is whether the VAT exemption in respect of insurance agents and brokers, as outlined in Article 135(1)(a) of the VAT Directive, could apply in a situation where the same entity is both providing intermediary services as well as providing the insurance product to its customers.

While the referral was not very clear regarding the exact logic used by the authorities in determining that the above constituted a single supply, the Court did not review this but did identify that if some of the supplies were optional, it may indicate that it constituted separate supplies. However, the Court proceeded with its judgement on the assumption that the above supplies did constitute a single supply (without considering in detail), with the licenced insurance product being the primary supply and the other services as being ancillary to same, whereby the VAT treatment of the single service would be determined by the nature of the principle element. In this regard, the Court rejected the application of the insurance exemption applying to the supply of the policies as Q did not take on the risk of the policies and also rejected the intermediary exemption on the basis that Q was not introducing the insurer and customer to an insurance contract. Therefore, taken as a whole and as a single supply, the services supplied by Q were found to be subject to VAT.

CJEU (Case C-802/19): Firma Z v Finanzamt Y – 11 March 2021

In this German case, a Dutch pharmacy issued prescription-only medicinal products to persons located in Germany that were insured under both German statutory health insurance schemes and private insurance schemes. Firma Z offered discounts to the end customers, referred to as “compensation for participation”, in exchange for answers to questions about the respective illnesses.

When Firma Z delivered prescription-only drugs to persons covered by private health insurance, it considered that it had entered into sales contracts for these drugs with these individuals and had delivered these goods directly to them. On this basis, Firma Z treated these sales as distance sales (as per Article 33 of the VAT Directive) that were subject to German VAT.

However, when Firma Z delivered prescription-only drugs to persons covered by statutory health insurance schemes, it considered that it supplied the goods to the schemes as Intra-Community supply of goods from the Netherlands to the insurance scheme in Germany and that the scheme made a subsequent supply of the goods to the insured. In addition to this, Firma Z took the view that the “compensation for participation” resulted in a rebate for the end customers, which should give rise to a reduction in the amount subject to VAT, in line with the findings of the Elida Gibbs VAT case (C-317/94) and the principles outlined in Article 90 of the VAT Directive. This position was challenged by the German tax authorities and the dispute was sent to the CJEU for resolution.

The CJEU found that as Firma Z did not have a tax base in respect of the sales made to the statutory health insurance schemes (e.g. that it was an Intra-Community supply of goods), Article 90 could not apply to the rebates provided to the end customers and, as such, Elida Gibbs procedures could not be used to reduce the tax base of the sales of prescription-only drugs to German individuals covered by statutory health insurance schemes.

CJEU (Case C-581/19): Frenetikexito – Unipessoal Lda v Autoridade Tributária e Aduaneira – 4 March 2021

This Portuguese case involves a company that operates sports facilities and undertakes a number of activities promoting mental and physical health, including nutrition monitoring and advice provided by a certified nutritionist. The company made a number of programmes available to its customers where each customer was able to choose the desired programme and whether or not to take advantage of all the services available under the programme selected. All items were separately identified on any invoices raised to customers.

The tax authorities raised an inspection and identified that some customers had paid for the nutrition monitoring service even where they had not used it. As a result, the tax authorities were of the opinion that the supply of that service was ancillary to the taxable supply of the physical well-being and fitness service. Accordingly, the authorities sought to raise an assessment of €13,253 for this VAT liability and associated interest on the late filing of same. The company appealed this decision and upon the case being heard in the domestic courts, the following queries were raised:

“1. Where, as occurs in this case, a company

(a) carries on, principally, fitness and physical well-being activities and, on a secondary basis, human health activities, which include nutrition services, nutrition/dietary advice, fitness assessment services and massages; and

(b) offers its customers plans that include only fitness services and plans that include nutrition services in addition to fitness services,

for the purposes of Article 2(1)(c) of [Directive 2006/112], must the human health activity, and the nutrition service in particular, be regarded as ancillary to the fitness and physical well-being activity, with the effect that the ancillary supply must be given the same tax treatment as the principal supply, or, on the contrary, must the human health activity, and the nutrition service in particular, be regarded as independent of and distinct from the fitness and physical well-being activity, with the effect that the tax treatment established for each of those activities will apply to that activity?

2. For the purposes of applying the exemption under Article 132(1)(c) of [Directive 2006/112], must the services listed in that article actually be supplied, or is it sufficient in order for that exemption to apply that they are merely made available, so that use of those services depends solely on the wishes of the customer?”

The Court analysed the previous case law in the area of the exemptions outlined in Articles 132(1)(b) and (c) of the Directive surrounding ‘medical care’ as part of activities in the public interest and found that the provision of a nutritional monitoring service, while as a whole beneficial to a person’s health, are not of a therapeutic nature and therefore could not fall within the concept of medical care as outlined in previous case law. The Court also found that the supplies made by the company were sufficiently identifiable from one another to constitute separate supplies, noting that the services were invoiced separately, were optional and were clearly distinguishable for customers as separate.