“Points based” reward
scheme appeals refused by First-tier Tribunal
The First-tier Tribunal has dismissed appeals by Marriott Rewards LLC and Whitbread Group Plc in relation to points based reward schemes run by Marriott. When members of the loyalty scheme redeem points in exchange for a “free” stay, the hotel makes a charge to the points company. The F-tT agreed with the appellants that, as was the case in the “Nectar points” case of Aimia Coalition Loyalty UK Limited the redeemers made supplies to the scheme operator (Marriott Rewards LLC in the case). However, it decided that the supplies consisted of the agreement to provide reward stays generally, and that the refunds of VAT claimed by Marriott were not payable as the relevant supplies were outside the scope of UK VAT, while the refunds of output tax charged by Whitbread (in connection with supplies made before January 2010) were not due because the supplies made at that time were correctly chargeable with UK VAT. Accordingly, both appeals were dismissed. However, the decision indicates that VAT recovery may be possible in relation to many “points based” reward schemes. For further information, or to discuss the implications of the case, please contact Daniel Barlow on 0207 007 6772.
MVM: CJEU orders
input tax restriction for holding company
MVM, a Hungarian state-owned energy company, incurred VAT on professional costs relating to the acquisition and management of subsidiaries which generated electricity. It did not form a VAT group with the subsidiaries, and did not charge them for management services until several years later. The CJEU has ordered that MVM should not be able to recover this VAT as input tax. It confirmed that the activity of managing subsidiaries cannot be an economic activity unless it involves carrying out transactions which are subject to VAT. In other words, managing subsidiaries for free does not allow a holding company to recover input tax. The CJEU further indicated that the costs were unlikely to have a direct and immediate link of the MVM’s other business activities (such as leasing power plants), and could not be linked to charges made several years later. This decision does not break new ground in relation to the treatment of costs incurred by holdings companies, but is a reminder of the need to take care when considering their supplies and VAT group membership. For further information, or to discuss the implications of the case, please contact Richard Vitou on 0207 007 0578.
of “embedded VAT” on postal charges to go to Court of Appeal?
Zipvit’s appeal in relation to Mailmedia supplies received from the Royal Mail has appeared on the Court of Appeal’s register and is expected to be heard by January 2018. Royal Mail treated the supplies to Zipvit as exempt, but following the CJEU decision in TNT Post it was agreed that VAT should have been charged. Both the First-tier Tribunal and the Upper Tribunal dismissed Zipvit’s claim that it should, as a result, be entitled to recover VAT “included” in Royal Mail’s charges – partly on the grounds that it did not have a valid VAT invoice. The amounts at stake are potentially large (in 2013, the FTT noted that claims worth over £1 billion were stood behind this appeal) and those affected should consider what steps might be necessary to protect their position should Zipvit succeed. To discuss the case, or its implications, please contact Oliver Jarratt on 0121 695 5722.
DBriefs webcast: electronically supplied services
On Wednesday 8 February at 12.00 GMT/13.00 CET there is a webcast titled Electronically Supplied Services (ESS): A Changing Indirect Tax Landscape. From the indirect tax series, and hosted by Pascal Schrijver, our panel of experts will discuss the introduction, across the globe, of VAT rules that shift the place of supply of ESS supplied by overseas businesses to the place of consumption, with a particular focus on the new ESS rules in Russia. To register for the webcast, please click here.