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Weekly VAT News - 08/05/2017

Cost-sharing exemption: CJEU rules against Luxembourg’s 70% threshold
The CJEU has ruled that Luxembourg's legislation on the cost-sharing exemption has been drawn too widely. Services supplied by a “cost-sharing group” to its members can be exempt where those services are “directly necessary” for the non-taxable activities of the members. Luxembourg accepted that this test was automatically satisfied where members' exempt activities were more than 70% of their turnover. The CJEU found that this threshold was not compatible with the Principal VAT Directive and appears to restrict the exemption to those instances where direct attribution can be demonstrated. The Court also ruled that members should not be able to deduct VAT invoiced to their cost-sharing group, and that transactions carried out by a member in its own name but on behalf of the group should not fall outside the scope of VAT. The Court's confirmation that a cost-sharing group should be treated as an entity that is separate from its members is unsurprising. However, the rejection of the de minimis threshold may have an impact in other Member States, including the UK which currently applies a 15% threshold. To discuss the case, please contact Richard Insole on 020 7303 0062.

Brockenhurst: CJEU judgment on exemption for College’s training restaurant
In Brockenhurst College, the CJEU has ruled that supplies to paying customers in a College training restaurant (or to the audience attending performances in its theatre) were “closely related” to education and should be exempt from VAT. It considered that the services were essential to the education – the restaurant was tantamount to a classroom for the students. It suggested that the purpose of charging for the meals was not to obtain additional income (in competition with commercial restaurants), as the restaurant was only open to people on a mailing list (generally, friends and family of the students), was entirely organised by students, and ran at a significant loss. The appeal will now return to the Court of Appeal for determination, and it is possible that further guidance will be issued by HMRC following the General Election. However, it should be noted that HMRC distinguish between education in higher education institutions (which is exempt) and in further education colleges (where it is frequently non-business). To discuss the case, please contact Stuart Savage on 0113 292 1689.

Colaingrove: electricity in holiday caravans – CA finds for HMRC
The supply of electricity for domestic purposes is subject to 5% VAT. However, does that reduced rate still apply when a fixed charge is made for electricity used when renting a static holiday caravan? Electricity supplied to caravan owners is subject to the reduced rate; but where holidaymakers rent a caravan for a week, any charge for electricity forms only a small part of the overall price for the accommodation. In Colaingrove Ltd, the Court of Appeal has determined that VAT should be charged at 20% on charges for electricity in these circumstances, even if they are separated from the charge for the accommodation. The Court held that the meaning of the relevant UK legislation was plain: where the electricity was part of a composite supply of holiday accommodation, there was no separate supply of electricity to which the reduced rate could be applied. Identifying the electricity as a “concrete and specific” part of a supply did not trump this principle. To discuss the case, please contact Oliver Jarratt on 0121 695 5722.

A Oy: CJEU considers “direct needs” of cargo ships
In A Oy, the CJEU has considered whether the loading of cargo ships qualifies for zero-rating as being for the “direct needs” of the ships. A Oy outsourced loading services to sub-contractors, and recharged the costs to ship owners, freight forwarders, and other parties. The CJEU has ruled that loading is an essential part of operating a cargo ship (and, therefore, for its “direct needs”). The CJEU also held that the sub-contractor could zero-rate its services, distinguishing its 2006 decision in Elmeka, on the basis that (unlike the fuel oil in that case) there was no risk of the loading services being diverted for non-qualifying purposes. Charging VAT would merely oblige intermediary suppliers to finance a VAT cash flow, which would be counter to facilitating international transport. To discuss the case, please contact Helen Thompson on 020 7007 3713.

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