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Weekly VAT News - 11/09/2017

Cussens: property planning is an abuse of law – AGO
In Cussens, AG Michal Bobek has considered whether the leasing of Irish holiday homes was an abuse of law. Although Member States have embraced the abuse of law principle “with a passion”, he notes that its true nature has remained “hazy and unexplored”. In this case, the taxpayer made a “first supply” of holiday properties by leasing them to a connected party. The leases were cancelled a month later and the properties sold to third parties (VAT exempt on the basis that the first supply had already taken place). In the AG’s Opinion, this was an example of an abuse of law. The structure resulted in a “tax advantage” which was contrary to the purpose of the VAT Directives, as the leases did not result in the properties “leaving the production process”. They were entered into with a related party, lasted only a short time, and were in any event subject to a leaseback. The “essential aim” of the leases (not the broader commercial objective of selling the properties) appeared to be achieving that advantage. The Irish tax authorities were entitled to apply abuse of law even though the facts pre-dated Halifax, and even in the absence of national legislation on abuse of law principles. They were therefore entitled to ignore the leases and treat the third party sales as subject to VAT as if they were "first supplies". To discuss the case, please contact Ben Tennant on 0121 695 5828.

Avon Cosmetics: UK’s derogation for direct sales endorsed by AG
Avon representatives (who are not normally VAT-registered) purchase goods from Avon Cosmetics and sell them to consumers. In order to ensure that this direct selling model does not result in profits on retail sales escaping VAT, HMRC obtained a derogation allowing it to direct companies like Avon to account for VAT on the retail price: the company might sell goods for 75, but had to account for VAT on a final selling price of 100. Avon claimed that this derogation was being operated unfairly, in that it failed to take into account products which Avon representatives purchased for demonstration purposes. Avon was expected to account for output tax on the representatives' retail sales, but did not get any credit for input tax in relation to products consumed in the individual retail businesses. In AG Michal Bobek’s Opinion, however, the UK’s derogation is valid. The derogation does not refer to notional input tax, and it is not meant to reflect precisely what would happen if Avon representatives were VAT-registered. This does not mean that the derogation breaches fiscal neutrality or proportionality. The UK's failure to refer to notional input tax when seeking the derogation was irrelevant, as the existence of such VAT would have been obvious. In the AG’s Opinion, Avon’s claim for overpaid VAT should therefore be rejected. To discuss the case or its implications, please contact Matt Davies on 0121 696 8559.

Pienkowski: Polish rules on travellers breach proportionality & fiscal neutrality
Travellers from non-EU countries are permitted to a VAT refund on goods that they take back home in their luggage. Poland, concerned that small operators would apply these provisions incorrectly, applied a minimum turnover condition to the scheme, or required the use of authorised operators. In AG Yves Bot’s Opinion in Pienkowski, Poland’s additional conditions breached the principles of fiscal neutrality and proportionality. Poland’s attitude, that the risk of error and fraud was higher in small operators “does not seem… to be in the least convincing.” Therefore, travellers purchasing goods from Mr Pienkowski should be entitled to a VAT refund. To discuss the case, please contact David Walters on 0113 292 1552.

DBriefs webcast: SAF-T And Other E-Audit Developments
On Wednesday 13 September at 12.00 BST/13.00 CEST there is a webcast titled SAF-T And Other E-Audit Developments. From the tax management and tax accounting series, and hosted by Daniel Lyons, our panel of experts will discuss the growing trend for tax authorities to request large volumes of detailed information from businesses for processing and e-auditing tax returns, especially for VAT. This includes looking at the OECD’s Standard Audit File for Tax (SAF-T), and approaches being adopted in Europe. To register, click here.

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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