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Weekly VAT News

Week to 25 May 2020

Welcome to the latest edition of EY VAT News, which provides a roundup of indirect tax developments.

If you would like to subscribe to receive this newsletter by email each week, please email us at eyvatnews@uk.ey.com to be added to our marketing database. You can see our Privacy Policy here.

If you would like to discuss any of the articles in more detail, please speak with your usual EY indirect tax contact, or one of the people below. If you have any feedback or comments on EY VAT News, please contact Ian Pountney.

EY Events

  • Webcast – Indirect Tax transformation & technology – Technology, Media, Entertainment & Telecommunications – 28 May 2020

    Please join us for our webcast, EY Indirect Tax transformation & technology – Technology, Media, Entertainment & Telecommunications at 2.30 on Thursday, 28 May 2020.

    In this webcast, we will focus on indirect tax transformation – diving into the technology, media, entertainment and telecommunications (TMT) industry-specific indirect tax challenges we have seen clients experiencing from a process and systems perspective, including an update on HMRC's Making Tax Digital (MTD) initiative and the Digital Journey requirements. We will also use the session to demonstrate how EY VAT reporting technology can help address some of these challenges.

    The speakers will be:

    • Rosie Higgins: EY TMT Partner
    • Liam Larke: EY TMT Director
    • Pierre Arman: EY Associate Partner, Indirect Tax

    Note: If you miss or can’t make the live broadcast, the webcast will be available to access on-demand using the same registration link.

    Please add your questions for the panel in the registration form. A link to the registration site is available here

  • Webcast – Taxation and the digitalization of the economy – BEPS 2.0 and DST update – 28 May 2020

    Please join us for the next webcast in the Taxation and the digitalization of the economy webcast series which will be held at 3.00 on Thursday, 28 May 2020.

    Gijsbert Bulk, our Global Director of Indirect Tax joins the panel and will be speaking about the proliferation of Digital Services Taxes (DSTSs) around the world and how these taxes may develop in the light of COVID-19 disruption. He will be joined by panellists from France, India and the UK who will outline the main rules and points of attention for taxpayers in these jurisdictions.

    The webcast will cover:

    • The latest developments on BEPS 2.0 and OECD plans going forward
    • Country activity implementing new and expanded DSTs
    • Country perspectives on BEPS 2.0 and DSTs in light of the new economic environment
    • What these developments mean for businesses

    The speakers will be:

    • Channing P. Flynn: Global Tax Technology Sector Leader, International Tax and Transaction Services (moderator)
    • Jeffrey M. Michalak: Global Director, International Tax and Transaction Services
    • Gijsbert Bulk: Global Director of Indirect Tax
    • Barbara M Angus: Global Tax Policy Leader
    • Jose A. Bustos: BEPS Desk, International Tax and Transaction Services
    • Marlies de Ruiter: Global International Tax and Transaction Services Policy Leader

    A link to the registration site is available here.

COVID-19

  • EY Tax COVID-19 Stimulus Tracker – Stay up-to-date with COVID-19 stimulus responses

    Governments around the world are acting decisively to protect businesses and people from economic disruption being caused by the COVID-19 virus. Whether through tax cuts, investment incentives or changes to filing deadlines, tax systems will play a significant part in helping alleviate the financial and economic turmoil that is now occurring.

    Policy changes across the globe are being proposed and implemented daily. The EY Tax COVID-19 Stimulus Tracker provides a snapshot of the stimulus measures that have been announced in countries around the world in response to the ongoing crisis, including indirect tax developments. It will be updated every 48 hours so do please check for the latest update.

    (While this document is updated on a regular basis, it has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.)

  • Government to give VAT from donated PPE to healthcare charities

    This News Story reports that the Government has announced that VAT collected on donated personal protective equipment (PPE) will be given to charities supporting the NHS and care workers.

    VAT is due on assets donated by businesses where they paid and reclaimed VAT when they originally purchased the goods. The Government introduced a temporary zero-rate of VAT on PPE on 1 May. The amount to be donated to charities will reflect the VAT collected on donations made from 1 March until 30 April – the period between PPE donations starting and when the zero-VAT rate became effective.

    Businesses will have until the end of June to tell HMRC what VAT they have paid, giving them time to complete their usual accounts and identify these costs. Affected businesses should contact ppe@hmrc.gov.uk for further information.

    HMRC estimates that the donation will be between £500,000 to £1 million.

  • COVID-19 Lounge – Webinar for Japanese companies in Europe

    Please join us on Friday 29 May for our COVID-19 Lounge – Webinar for Japanese companies in Europe. Please note that this webinar will be held in Japanese only.

    COVID-19 is currently dominating the agenda of all companies worldwide – also of Japanese companies in Europe. The immediate challenges are manifold: employee health, liquidity issues or managing supply chain disruption to just name a few. But there are mid– and long-term risks and opportunities related to this crisis as well. Key questions are: How can we ensure we will be a more resilient company at the end of this crisis? How can we most effectively respond to the “new normal” in the market by adapting our business model?

    A group of seasoned EY experts will address some of the most burning short-, mid– and long-term questions in a webinar, specifically designed for Japanese companies in Europe. Topics will include:

    • Regional specifics in UK, Netherlands and Germany
    • COVID-19 and its impact on secondments, people mobility and teleworking
    • Dealing with supply chain and transfer pricing issues
    • A perspective from Japan on Europe: Strategy, Supply chain and Finance

    Time: Friday, May 29, 2020 19:00 – 20:30 (JST) (BST 11:00 – 12:30 / CEST 12:00 – 13:30)

    A link to the registration site is available here.

Brexit

  • Approach to the Future Relationship with the EU – Draft UK legal texts and Northern Ireland Protocol

    The UK Government has published draft documents setting out its approach to negotiations on a future relationship with the EU. This follows what was agreed to be a highly unsuccessful round of negotiations earlier in the month.

    The documents include:
    • A draft free-trade agreement
    • A draft fisheries plan
    • A draft air transport arrangement
    • A draft social security coordination plan
    • A draft civil aviation safety agreement
    • A draft energy deal
    • A draft civil nuclear cooperation plan
    • A draft law enforcement and judicial cooperation proposal
    • A proposal on how to deal with unaccompanied asylum-seeking children, and the “readmission of those residing without authorisation.”

    The main element of the approach is the comprehensive Free Trade Agreement (FTA), covering substantially all trade. The Government states: “We are seeking the type of agreement which the EU has already concluded in recent years with Canada and other friendly countries. Our proposal draws on previous EU agreements such as the Comprehensive Economic Trade Agreement, the EU/Japan Economic Partnership Agreement and the EU/South Korea FTA. It is consistent with the Political Declaration agreed last October, in which both sides set the aim of concluding a ‘zero tariffs, zero quotas’ FTA.

    Our approach is based on friendly cooperation between sovereign equals. Our offer represents our clear and unwavering view that the UK will always have control of its own laws, political life and rules. Both parties will respect each other's legal autonomy and the right to manage our own borders, immigration policy and taxes.”

    One area in which the UK and the EU appear to be in alignment is tax governance. Article 29 of the draft FTA states (which is consistent with the EU draft): “The UK and the EU will promote good governance in tax matters and improve international cooperation in the tax area. The Parties recognise and commit to implementing the principles of good governance in the area of taxation reflecting the OECD principles concerning fair tax competition, the global standards on tax transparency and exchange of information, and the OECD minimum standards against Base Erosion and Profit Shifting (BEPS).”

    Article 32.3 makes it clear that taxation is not generally covered by the FTA (as a domestic and tax treaty matter), and taxation is not covered by the general dispute settlement procedures proposed in Article 33.

    Northern Ireland Protocol

    The UK Government has also published a paper setting out how the UK will implement the Northern Ireland Protocol while “upholding Northern Ireland's place in the UK and respecting the Belfast (Good Friday) Agreement”.

    In relation to customs processes, it says: “This entails some new administrative process for traders, notably new electronic import declaration requirements, and safety and security information, for goods entering Northern Ireland from the rest of the UK. These are needed to make sure that tariffs are not paid on trade within the UK and that goods going to Ireland pay tariffs when they should. We will ensure these electronic processes are streamlined and simplified to the maximum extent, and we will set out more detailed plans for extensive HMRC support for businesses engaged in them. We will also review these new procedures on an annual basis, and, if they should turn out to impose a disproportionate burden on goods moving wholly within the UK, we will consider how this burden can be reduced further or removed.”

    For further information please contact Andy Bradford

  • UK Trade Bill passes second reading in House of Commons

    On 20 May 2020, the UK Trade Bill passed its second reading in the House of Commons by 355 votes to 254. The legislation will implement existing EU trade deals that Britain has agreed to roll over when the Brexit transition period ends and will also set up a new Trade Remedies Authority.

    This Bill is now being considered by a Public Bill Committee which will scrutinise the Bill line by line and is expected to report to the House by Thursday 25 June 2020.

    Please also refer to Department for International Trade -Trade Bill Guidance available here.

    For further information please contact Marc Bunch or Sally Jones

Global Trade

  • UK Global Tariff

    Following consultation in the Spring, on 19 May 2020, the UK Government published the UK's new Most Favoured Nation (MFN) tariff schedule, along with brief guidance. A summary of public responses to the consultation, and Government's response, have also been published and are available on the consultation page.

    Known as the UK Global Tariff (UKGT), the new schedule will enter into force on 1 January 2021 following the end of the Brexit transition period, provided this is not extended before 30 June 2020. The UKGT will replace the EU's Common External Tariff, which is currently applied on imports into the UK.

    The UKGT will apply to all goods imported into the UK, unless an exception, such as a preferential arrangement or tariff suspension, applies. For example, the tariffs will apply to goods from EU countries should a trade agreement not be reached in time as a part of the EU/UK negotiations into the future relationship. According to the Government, from January 2021, it expects 60% of trade will come into the UK tariff free on World Trade Organisation terms or through existing preferential access. The UK is maintaining tariffs on several products to support UK industries such as agriculture, automotive and fishing, and some tariffs will also be maintained in order to support imports from the world's poorest countries, giving them continued preferential access to the UK market.

    In a news story accompanying the release of the UKGT, the Government states that the schedule is “a simpler, easier to use and lower tariff regime than the EU's Common External Tariff”. Furthermore, it will “scrap red tape and other unnecessary barriers to trade, reduce cost pressures and increase choice for consumers and back UK industries to compete on the global stage”. The changes include scrapping “unnecessary” tariff variations, rounding tariffs down to standardised percentages, and removing all tariffs below 2%.

    The Government also gives examples of common consumer products, as well as goods that promote a sustainable economy, that will have zero tariffs under the new schedule. It is further noted in the published guidance that temporary relief from tariffs for certain goods for tackling COVID-19 will continue to apply in 2021 if necessary, and this will be reviewed throughout 2020.

    Groups can use the UK Global Tariff tool to check the tariffs that will apply to goods they import from 1 January 2021.

    Please also refer to our Tax Alert or for further information contact Marc Bunch or Sally Jones

Court of Justice of the European Union

  • Calendar update

    Thursday 28 May

    Judgment – C-684/18 World Comm Trading Gfz – A Romanian referral asking whether Article 90 of the VAT Directive and the principle of neutrality preclude national legislation, or an administrative practice based on unclear legislation, which denies a VAT adjustment on national supplies in proportion to the value of a discount applied where the tax invoice issued by the supplier shows a global discount for both intra-Community and domestic products supplied under the same framework agreement?

    Thursday 4 June

    Opinion – C-335/19 E. (TVA – Réduction de la base d’imposition) – A Polish referral asking whether the VAT Directive, in particular Article 90(2) – having regard to the principles of fiscal neutrality and proportionality, permit the introduction into national law of a restriction on the ability to reduce the taxable amount in the event of partial or total non-payment by reason of the specific tax status of the debtor and the creditor? Does EU law preclude the introduction of a rule in national legislation which provides for the option of taking advantage of ‘bad debt relief’ only on condition that on the date on which the service or goods are supplied and on the day preceding the date on which the tax return adjustment is filed, the debtor is not subject to insolvency or liquidation proceedings and the creditor and debtor are both trading and VAT registered?

    Thursday 11 June

    Judgment – C-43/19 Vodafone Portugal – A Portuguese referral asking whether services are subject to VAT where a telecoms provider, who has offered favourable terms in return for a minimum ‘tie-in’ period, charges an additional amount (calculated in accordance with a pre agreed formula) to former customers for failure, on their part, to comply with the contract terms? is it impossible for the amount concerned to be treated as consideration for the supply of services when the amount at issue does not reflect the amount which the operator would have received during the remainder of the tie-in period if the contract had not been terminated?

    Judgment – C-146/19 SCT – A Slovenian referral asking whether Article 90(2) of the VAT Directive permits a derogation from the right to reduce the taxable amount for VAT purposes even with respect to cases of definitive non-payment, where such non-payment is a consequence of a failure on the part of the taxable person liable for the VAT to take proper steps, such as lodging a claim in bankruptcy proceedings commenced against a debtor? If such a derogation is permissible, must there nevertheless be a right to reduce the taxable amount where the taxable person is able to demonstrate that, even if he had lodged a claim in the bankruptcy proceedings, it would not have been satisfied, or is able to demonstrate that there were reasonable grounds for not lodging a claim? Does Article 90(1) of the VAT Directive have direct effect even if the legislature of a Member State has exceeded the scope of the possibilities for derogation established by Article 90(2)?

    Judgment – C-242/19 CHEP Equipment Pooling – A Romanian referral asking whether the transport of pallets from one Member State to another, for the purpose of subsequently being leased in the latter Member State to a taxable person established and registered for VAT purposes in Romania, is disregarded as a transfer in accordance with Article 17(2) of the VAT Directive?

    Thursday 18 June

    Judgment – C-276/18 KrakVet Marek Batko – A Hungarian referral asking whether the VAT Directive, particularly the requirements for the prevention of jurisdictional conflicts between Member States and double taxation, should be interpreted as precluding tax authorities from one Member State from attributing to a transaction (distance sales) a qualification differing from that of another Member State, and which therefore gives rise to the double taxation of the taxable person? Secondly, how should the concept of ‘transport by or on behalf of the supplier’ be interpreted where the buyer is able to opt for a carrier with which the seller cooperates or for another carrier? Is there an abuse of rights where the taxpayer circumvents the application of the distance selling arrangements by arranging transport in this way?

First-tier Tribunal

  • Ultrasound scanning services are exempt supplies of medical care

    (1) Window to the Womb (Franchise) Limited, (2) D I Harries Limited, (3) DJC Studios Limited

    The First-tier Tribunal (FTT) has released its decision in these lead cases concerning the VAT treatment of supplies of certain ultrasound scanning services to pregnant women. The issue in each appeal is whether the supplies are standard-rated for VAT purposes, as HMRC contend, or exempt as supplies of medical care as asserted by the appellants as either:

    • Supplies of services constituting the provision of medical care by a person registered or enrolled in the register kept under the Health and Social Work Professions Order 2001 pursuant to Item 1 Group 7 Schedule 9 VATA94, or
    • The provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital or state regulated institution pursuant to Item 4 Group 7 Schedule 9 VATA94

    Window to the Womb (Franchise) Limited (WTTW) operates a franchise model for businesses which supply various packages of ultrasound scans for pregnant women. Harries and DJC are franchisees. There are 9 other franchisees making the same or similar supplies and their appeals are stayed pursuant to Tribunal Rule 18.

    All the franchisees operate from high street premises (clinics) and staff at each clinic fall into one of three defined roles – a registered manager who has been assessed and approved by the Care Quality Commission (CQC); Sonographers who conduct the scans; and Sonographer Assistants who support the Sonographers and are responsible for customer service. Sonographers are registered with the Health and Care Professions Council and are full members of the Society of Radiographers and hold professional indemnity insurance providing cover for mis-diagnosis.

    All franchisees are registered with the CQC to carry out a ‘regulated activity’ at specified premises. The regulated activity on the certificates of registration is ‘diagnostic and screening procedures’.

    There are different ‘scan packages’ offered (see below) which are sold at various prices ranging between £55 and £91. Packages involving 4D imagery are marketed at higher prices ranging from £99 to £135, however, they are invariably discounted to within the aforementioned range.

    HMRC considered that the appellants’ business model does not suggest that the primary purpose of the supplies is the protection of health or the provision of medical care. In its view, the core feature of the supplies is the opportunity to see and keep the images provided, determine the gender of the baby and/or have a ‘baby bonding’ experience. The fact that part of the service might involve a medical diagnosis is not determinative of the issue. Any diagnosis, including the detection of abnormalities is an “incidental benefit”.

    Considering each type of scan package separately, the FTT found that:

    • ‘Early pregnancy scans’ provide an obstetrics report directed towards confirming whether there is a viable pregnancy, including the identification of any medical issues arising in the pregnancy. The only imagery available is from the Sonographer's monitor; a single 2D image. The FTT did not consider that these scans involve mothers whose principal purpose in purchasing the scans is a baby bonding service or obtaining imagery. Scans which are purchased as viability scans and dating scans confirm the existence of a viable pregnancy and provide medical information about that pregnancy. The principal purpose of typical customers of theses scans is the diagnosis, prevention or monitoring of a medical condition, the appellants’ supplies are therefore exempt as a supply of medical care.
    • Considering ‘Well-being scans’, the FTT considered these to be the same as ‘early pregnancy scans’. There is only a single 2D image provided together with a ‘well-being report’ which confirms a single or multiple pregnancy and a heartbeat, detects certain abnormalities, provides a growth check and confirms the position of the baby and the placenta. This is all information which either diagnoses or monitors a medical condition in the mother or the baby and is an exempt supply of medical care.
    • Turning to ‘Well-being + Gender scans’, the FTT considered it unlikely that a mother would purchase such a scan with the principal purpose of identifying the gender of the baby when that information is very likely to be available at the NHS 20-week scan. The FTT considered the principal purpose is likely to be obtaining a ‘well-being report’, as such, the scan is an exempt supply of medical care.
    • Considering the ‘Growth and Presentation Scan’, the FTT noted that customers receive very little in the way of imagery. It provides a ‘Well-being report’ and information as to the position of the baby and placenta, head circumference, femur length, and estimated weight. The only reason to be interested in this additional information is to diagnose possible abnormalities, monitor the mother's medical condition and prevent illness associated with a breech baby or the way in which the placenta is lying. The need for such a scan may not be clinically indicated, but as a matter of fact it enables a Sonographer to monitor the mother's medical condition and medical care, as such, the scan is exempt as a supply of medical care.
    • The remaining scans offered all involve the provision of 4D imagery in addition to the ‘well-being report’ and gender of the baby. The FTT considered that most of those purchasing the scan do not do so for the 4D imagery. Some may well do so, but most will be principally concerned to satisfy themselves that the baby is healthy. Their purpose is to monitor the pregnancy and if necessary receive a diagnosis of any abnormality. The FTT accepted that the position is less clear compared to the other scans/packages, but it was satisfied that these scans are also exempt as supplies of medical care.

    Appeal allowed.

    For further information please contact Russell Moore

  • Supplies are of staff and not exempt medical care

    Mainpay Limited

    The FTT has released its decision in this case which considers the nature of supplies made by Mainpay to intermediary companies, principally a company called Accident & Emergency Agency Limited (A&E).

    Mainpay considered its supplies to be exempt medical care pursuant to Group 7 Schedule 9 VATA94 whilst HMRC assert that the supplies fall short of the exemption and should properly be considered standard-rated as a supply of staff. Mainpay contracts to supply A&E with GP Specialists and Consultants, and A&E contracts to supply NHS Trusts. The dispute focusses on the terms of the contracts, the effect of those terms and the nature of the supplies made pursuant to the contracts.

    Mainpay maintains that it contracts with A&E to provide services in the form of medical care directly to NHS Trusts. Pursuant to the agreement Mainpay retains responsibility for those services. It considers that Consultants are not under the control of NHS Trusts as regards the medical care they provide to patients and the clinical decisions they take in relation to patients. No-one other than the individual consultant has control over such care and decisions. Mainpay has control over the assignments carried out by consultants, including where and when those assignments are carried out. It considers that in a supply of staff, control of the individual must be given to the client. Because the consultants do not come under the control of the NHS Trusts, its supply cannot be a supply of staff. Moreover, it retains contractual responsibility for the way in which the services are performed, which is consistent with a supply of medical care and not with a supply of staff.

    The FTT noted that what Mainpay supplied to A&E according to the A&E Agreement was the services described in the Assignment Schedule. Those services might be described for example as “the services of a consultant anaesthetist”. The FTT did not consider that is consistent only with a supply of medical care. In its view, an agreement to supply the services of a consultant anaesthetist is equally consistent with a supply of staff, in the form of a consultant anaesthetist.

    Also, the FTT was not satisfied that Mainpay arranged professional indemnity insurance for consultants (as it had suggested). The absence of any evidence that Mainpay itself was insured against liability for professional negligence suggests that it was supplying staff, and not medical care.

    The FTT considered that the key issue in this appeal is whether NHS Trusts have a power of control, direction and supervision over the consultants. In this regard it concluded that based on the evidence as whole, including the contractual arrangements and the circumstances in which consultants worked, it was satisfied that throughout the relevant period consultants were under the control, direction and supervision of the NHS Trusts and operated within the framework of the NHS Trusts. They effectively became part and parcel of the organisation which were themselves providing medical care to patients.

    The FTT also considered that it is not inconsistent with the purpose of the exemption for the supplies in the present case to fall outside the exemption. Clearly a supply of staff would come with an additional VAT cost but that is effectively a choice for the parties involved which will depend on the nature of the agreements entered into by the parties.

    Turning to the position of GP Specialists engaged by Mainpay, the FTT found that in the absence of any evidence, Mainpay had not satisfied it that in relation to their work it makes a supply of medical care as opposed to staff.

    Dismissing the appeal, the FTT concluded that in relation to consultants’ services Mainpay supplied staff and not medical care. That supply was standard-rated for VAT purposes. The FTT was not satisfied that the position is any different in relation to GP Specialists.

    For further information please contact Russell Moore

HMRC Material

  • Guidance – Pay no import duties and VAT on miscellaneous documents and related articles

    This Guidance explains the relief available from import duties and VAT for:

    • Educational, scientific and cultural materials
    • Certain miscellaneous goods of a general nature

    The Guidance details the Tariff classifications covered, conditions for relief and claim procedures.

    Guidance updated – VAT MOSS rates for UK e-publications

    HMRC has updated its Guidance on the VAT MOSS rates for the UK and EU countries. It has clarified that from 1 May 2020 in the UK electronic supplies of the following products are zero-rated, unless they are mainly used for advertising, or audio or video content:

    • books
    • booklets
    • brochures
    • pamphlets
    • leaflets
    • newspapers
    • journals and periodicals (including magazines)
    • children's picture and painting books

EY Global Tax Alerts

  • UK

    UK – Following consultation in the Spring, on 19 May 2020, the UK Government published the UK's new Most Favoured Nation (MFN) tariff schedule, along with brief guidance. A summary of public responses to the consultation, and the UK Government's response, have also been published and are available on the consultation page.

    Known as the UK Global Tariff (UKGT), the new schedule will enter into force on 1 January 2021 following the end of the Brexit transition period, provided this is not extended before 30 June 2020. The UKGT will replace the EU Common External Tariff, which currently applies to UK imports.

  • Mauritius

    Mauritius – The National Assembly has passed the COVID-19 (Miscellaneous Provisions) Act 2020. The Act amends 56 legal provisions and indirect tax measures include extension of zero-rating to include:

    • Protective masks against dust, odours etc
    • Other breathing appliances and gas masks, excluding protective masks having neither mechanical parts nor replaceable filters
    • Hand sanitizers