Indirect Tax Update for week ending 04 March 2016

1. © 2016 Grant Thornton UK LLP. All rights reserved.
ITU
Summary
The highlight of this week's ITU
is the Court of Appeal's
judgment in the on-going battle
between HMRC and the Open
University (OU). The Court
unanimously dismissed HMRC's
appeal. The question at issue was
whether the supply of
broadcasting and other services
to the OU should have been
regarded as exempt from VAT.
The Advocate General has also
issued an interesting opinion this
week in a Polish referral. The
question to resolve in this case
was whether VAT is due on the
retention of goods when a
business ceases.
Finally, Air France loses another
case in the UK – this time in
relation to whether Air Passenger
Duty (APD) was due on certain
classes of passenger transport.
HMRC and now the First-tier
Tax Tribunal consider that the
transport in question was liable
to the higher rate of APD.
08 March 2016
HMRC v The Open University – Court of Appeal
Generally, under the VAT Directive, the supply of goods and services is subject to
VAT. However, there are exceptions to this rule. One of the exceptions is to exempt
from VAT the provision of certain categories of education and training provided by
certain types of suppliers. To qualify for exemption, not only must the education be of
a specific type, but the supplier must also either be a body governed by public law, or a
private law entity recognised by the Member State as having similar objects. The British
Broadcasting Corporation (the BBC) provided broadcasting and ancillary services to
the Open University (OU) and, historically, charged VAT on those services. Being a
supplier of university education, which is exempt from VAT, the OU was unable to
reclaim any of the VAT charged to it by the BBC. However, following case law
developments (including the Horizon College case), the OU took the view that the
BBC's supplies should actually have been exempt from VAT. It contended that the
BBC was a body governed by public law and that its provision of broadcasting and
other services was in line with its stated educational aims. If it was correct, then, under
the provisions of the 6th VAT Directive (and the subsequent VAT Directive), the
BBC's services should have been exempt from VAT. The OU submitted a claim to
HMRC for a refund in excess of £21 million which HMRC refused to pay. The OU
initially appealed to the First-tier Tax Tribunal (FTT) which decided the issue in the
OU's favour. HMRC appealed to the Upper Tribunal but that appeal was dismissed.
HMRC then appealed to the Court of Appeal.
On a unanimous verdict (3-0), the Court of Appeal has, once again, dismissed HMRC's
appeal. The Court of Appeal did not accept that the BBC was a body governed by
public law – such a body is required to be an organ of the state which, clearly, the BBC
was not – it was an independent body. However it did consider that, although not
provided for expressly in UK VAT law, it was, nevertheless, a body recognised by the
UK as having similar objects to a body governed by public law. As a consequence, its
supplies of broadcasting and other services to the OU during the period of the claim
qualified for exemption from VAT.
Comment – a resounding defeat for HMRC. It will be interesting to see if it will
appeal to the Supreme Court. What is also interesting is that the Court
confirmed that a taxpayer may rely on the direct effect of EU law if it considers
that HMRC has failed to recognise it as a body with similar objects to a body
governed by public law. This should give hope to other suppliers of education.
Issue09/2016
VAT, the BBC & Education!
Indirect Tax Update

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GRT100456
Case C-229/15 - Jan Mateusiak
Court of Justice – Advocate General's opinion
This is a Polish referral to the Court of Justice. VAT law dictates that a supply of goods takes place
when a business acquires goods and then uses them for either a private or non-business purpose or,
if the business ceases, they are taken into private ownership. So even where there is, in the ordinary
sense, no real supply, where the taxpayer has reclaimed any VAT incurred on the purchase of the
goods, there is a deemed supply and output VAT is due. VAT law also stipulates that where the
goods in question are 'capital' goods (as defined by the Member State), the recover of input VAT
must be adjusted over a set term of up to ten years.
The taxpayer in this case acquired a building and incurred input tax on the purchase. As a capital
asset, he was required under Polish VAT law to adjust the input tax claim over the ten year period
applicable to the building. After the expiry of the adjustment period, the business ceased and Mr
Mateusiak took the building into his private ownership. He argued that as the adjustment period had
expired, there should be no VAT due on the cessation of the business. Unfortunately, the Advocate
General did not agree. The two VAT rules outlined above are stand-alone rules. The fact that the
adjustment period for adjusting input tax claimed on the acquisition of the asset had expired does not
preclude the requirement to account for output VAT on the deemed supply of the asset upon
cessation of the business. If no VAT was chargeable on the deemed supply, the taxpayer would be at
a distinct advantage to other private individuals purchasing the same or similar assets.
Comment
The deemed supply
rules are there to
ensure that assets
acquired by a business
but which are used for
private or non-business
purposes are subject to
VAT. This puts a
business proprietor on
the same footing as an
individual that
purchases goods as a
private person. In such
circumstances, VAT is
due on the private use
of assets or on the
retention of goods
when a business ceases.
Societe Air France – Air Passenger Duty
Comment
APD is chargeable at
the lower rate for 'the
lowest class of travel
available on the
aircraft'. Having
considered all the
various factors the
Tribunal concluded
that 'Premium Eco'
(PE) customers were
travelling in a different
and higher class of
travel to those
travelling in economy.
The PE product was
not the 'lowest class of
travel available on the
aircraft' and so APD
was due at the full rate.
First-tier Tax Tribunal
Air France does not seem to be having much luck in its VAT litigation at present. It lost a case in the
Court of Justice recently in relation to the VAT liability of 'no-show' air fares. This time, it has lost at
the First-tier Tax Tribunal in relation to the rate of Air Passenger Duty in connection with the supply
of certain classes of passenger transport.
Air France argued that the provision of 'Premuim Eco' flights should be liable to Air Passenger Duty
at the lowest rate. HMRC took the view that those flights were not at the lowest class applicable to a
flight and were, therefore, subject to Air Passenger Duty at the higher rate.
On the evidence, the Tribunal concluded that HMRC's view was correct. It was clear that not only
were Premium Eco fares not the lowest available but also the additional services available to such
passengers meant that they were clearly not the lowest class of fares. Air Passenger Duty was due at
the full rate.
As a secondary point, Air France also argued that HMRC's assessments were out of time having been
made more than one year after HMRC established sufficient facts on which to base them. Again, the
Tribunal dismissed Air France's arguments. HMRC acted correctly and issued the assessment within
the time limit specified by the law.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556