Recent Irish and Court of Justice of the European Union Cases | Indirect Tax Matters May 2020
An update and our view on some recent Irish Indirect Tax Appeal cases and CJEU decisions
Ireland – Appeal Commissioners’ Cases
62TACD2020 – Name Redacted v Revenue Commissioners – March 2020
This was an appeal against a Notice of Assessment to VAT in the amount of €30,200. The Assessment was made on the basis that the taxpayer, who operates a menswear clothing retail shop, had understated sales in 2014 and 2015. Revenue had taken this view based on an estimated mark-up percentage (105%) from a sample of products on sale in the shop compared to the mark-up percentage from the company’s corporation tax returns, submitted for the years in question.
The only books/records that the taxpayer produced were hard-back daily cashbooks but these did not itemise in sufficient detail, individual transactions, sales prices or discounts granted. Therefore, on the basis the taxpayer failed to produce sufficient evidence to disprove Revenue’s assessment that the sales were understated and did not give any oral evidence at the hearing, the appeal commissioner determined that the taxpayer had failed to meet the burden of proof that the VAT was not payable.
The commissioner dismissed the taxpayers appeal but determined that the mark up percentage be reduced to 98% and the assessment reduced accordingly.
68TACD2020 – Name Redacted v Revenue Commissioners – March 2020
This appeal related to a sole trader that operated two convenience stores and was involved in the resale of petrol and diesel. The taxpayer was subject to a Revenue audit, following which, Revenue disallowed VAT deductions on the basis that the taxpayer knew or should have known that he was participating in a transaction connected with the fraudulent evasion of VAT. Revenue therefore raised assessments to VAT totalling €451,770 for the years 2010, 2011 and 2012.
In 2010, a representative LM, called to the taxpayers premises representing himself as an employee and agent of Trader B. The representative indicated that they had an agreement with Trader C and could obtain lower prices. LM stated that invoices would come from Trader B but that the Appellant would make payments directly to Trader C. The taxpayer stated that he was aware of Trader C, which was part of a well-established large fuel company. The taxpayer only had contact with LM and never contacted Trader B or C directly. While the taxpayer never queried the unusual arrangements, in 2012, the taxpayer requested a change of arrangement and insisted on receiving invoices from the main distributor, Trader C as he was paying Trader C. The Appellant denied that he was aware that some of his suppliers were involved in fraud.
As the taxpayer accepted the representatives (LM) proposal without carrying out any checks or verification and that this approach was taken notwithstanding the evidence the taxpayer gave of his awareness of the problem of fuel laundering, the appeal commissioner was satisfied that the only reasonable explanation for the purchases was that they were connected to the fraudulent evasion of VAT.
The commissioner dismissed the appeal and determined that the notices of assessment should stand on the basis that the taxpayer should have known that he was participating in a transaction connected with the fraudulent evasion of VAT.
77TACD2020 – Name Redacted v Revenue Commissioners – March 2020
The taxpayer in this case was a Subcontractor who wished to have a zero RCT deduction rate and therefore have payments, due from his Principal Contractor, paid to him without deduction of RCT. During certain periods the taxpayer ceased his income tax registration and due to the gaps in his employment history, which had not been explained despite requests issued by Revenue, Revenue took the view that the 20% RCT rate should apply on the basis that the appellant has failed to meet the conditions set out for zero rating.
In appeal cases the burden of proof falls on the taxpayer to demonstrate that the tax in question is not actually due. In this case, as the commissioner considered that the taxpayer had not produced sufficient evidence to overcome this burden of proof and therefore determined that Revenue were correct in applying the 20% RCT rate to the subcontractor.
Europe – CJEU cases
C-211/18 - Idealmed III – Serviços de Saúde SA v Autoridade Tributária e Aduaneira - 5 March 2020
Idealmed, a Portuguese company, manages and operates healthcare establishments providing medical and nursing care, as well as diagnostic, clinical analysis and physiotherapy services. From September 2012, Idealmed concluded agreements with public authorities for the supply of care services at predetermined prices. Upon carrying out an inspection, the Portuguese tax authority concluded that this activity should have been treated as being exempt from VAT, without Idealmed being entitled to opt out of that exemption. Therefore the company had wrongly deducted input VAT. The Portuguese tax authority raised an assessment of over €2m together with interest.
Upon referral, the CJEU ruled that exemption applies to services provided by a private hospital, which are in the public interest, are provided under social conditions comparable to those applicable to bodies governed by public law if those services are provided under contracts concluded with public authorities, at fixed prices fixed and the costs are partially borne by the social security institutions. The Court also considered that the fact that the taxpayer had opted for tax to apply did not affect the application of the VAT exemption to the activities in question, as these were not covered by this provision.
C-94/19 - San Domenico Vetraria SpA v Agenzia delle Entrate - 11 March 2020
Avir seconded one of its directors to its subsidiary, San Domenico Vetraria. San Domenico Vetraria received invoices from its parent company showing amounts corresponding to the costs incurred for the seconded manager. When reimbursing Avir for the costs relating to the secondment, San Domenico Vetraria applied VAT for the purposes of the subsequent exercise of the right to deduct. The Italian tax authorities took the view that those reimbursements fell outside the scope of VAT on the basis that they did not concern a supplies of services between a subsidiary and its parent company. As a result, the Italian tax authority issued an assessment for the VAT they considered to have been wrongly deducted.
The Court determined that the positon of the Italian Tax Authorities was incorrect and that the lending or secondment of staff of a parent company to its subsidiary, even when carried out in return for the reimbursement of the related costs only, should not be treated as outside the scope of VAT. The Court considered that as the amounts paid by the subsidiary to the parent company, on the one hand, and that lending or secondment, on the other, were interdependent, there was reciprocal performance and as such a taxable supply for VAT purposes.