On 27 June 2016, after more than 10 years of work, the EU Council finally adopted a directive which harmonises national VAT rules in the area of transactions involving vouchers. The directive is narrower in scope than the one proposed by the Commission in 2012. It defines single-purpose vouchers and multi-purpose vouchers and sets out rules to determine the taxable value of transactions in both of these cases.
The directive is directed at increasing legal certainty for such transactions and stopping double taxation and non-taxation by reducing the risk of mismatches in national tax legislation. Such tax mismatches can arise in situations where a voucher is issued in one Member State and is ultimately used in another, particularly where vouchers are traded.
Vouchers are used most frequently in situations such as: pre-paid telecom cards, gift cards and price discount coupons for the purchase of goods or services.
Member States will have until 31 December 2018 to transpose the directive into national law. The provisions adopted will apply only to vouchers issued after that date.
The Council directive can be found here.
This morning it was announced that a majority of the British electorate voted to leave the European Union in yesterday’s referendum. The formal procedure for leaving the EU is likely to begin in around 3 months and once a new Prime Minister has been appointed after David Cameron’s resignation earlier today.
The only procedure available for exiting the EU is that provided in article 50 of the Treaty of the European Union. This requires the negotiation of a withdrawal agreement with the withdrawing state by the Council acting by a qualified majority and with the consent of the European Parliament. The withdrawal agreement is to regulate the future relationship of the withdrawing state with the EU. Estimates given for the period of negotiation have been from 4 to 9 years. Article 50(3) prescribes that the EU Treaty shall cease to apply to the UK from the date of entry into force of the withdrawal agreement or, failing that, two years from notification of withdrawal unless extended by agreement. Accordingly, treaty rights will likely continue to apply for a minimum period of 2 years from notification of withdrawal, which the Prime Minister has said today will not occur for 3 months.
Please contact us if you would like to discuss further the legal implications of “Brexit” on your tax affairs.
This article appears in the JHA June 2016 Tax Newsletter, which also features:
By Jivaan Bennett
In Degano Transporti, the District Court of Udine (Italy) was presented with an application by Degano Transporti (“the Taxpayer”) for approval of a debt compromise arrangement similar in nature to a Company Voluntary Arrangement. The proposed arrangement would result in the Italian tax authorities receiving only a partial payment of the Taxpayer’s VAT liability. The Court, of its own motion, requested a preliminary reference from the CJEU on the question of whether the acceptance by the Italian tax authority of a partial payment of the Taxpayer’s VAT liability would be in breach of the provisions of TFEU and the VAT Directive (Directive 2006/112/EC) concerning the principle of the fiscal neutrality and the obligation on Member States to take the necessary administrative and legislative measures to ensure the proper collection of VAT due.
The Court, largely following the Opinion of AG Sharpston, reasoned that the acceptance of the partial VAT liability would not constitute a breach of EU law. In particular, it noted three safeguards about the Italian insolvency legislation which militated in the Member State’s favour. First, the legislation in question permitted the arrangement to be valid only if an independent expert attests that the tax authority, as a creditor, would not enjoy better treatment in the event of the taxpayer being declared insolvent and subsequently liquidated. Secondly, the arrangement must be voted on by the creditors. This offers the tax authority the opportunity to oppose the partial payment of the tax liability. Thirdly, even if the arrangement is agreed between the majority of the creditors and the company, it requires court approval. During this final stage, the tax authority has a second opportunity to oppose the arrangement and demand full payment of the outstanding VAT liability.
For EU jurisdictions where there is an insolvency regime similar to the Italian system, this judgment will allay the concerns of insolvency practitioners as to compatibility with EU law.
This article appears in the JHA June 2016 Tax Newsletter, which also features:
By Jivaan Bennett
This appeal concerned financing arrangements compliant with Sharia law (Ijara arrangement). Under an Ijara arrangement, a financial institution buys an asset which its customer wishes to own and leases it back to him. The rent is calculated so that the financial institution will receive a return on its investment. The customer will also have an option to purchase the asset. On 31 January 2008, the Ministry of Defence sold the Chelsea Barracks to Project Blue Limited (“PBL”) for a sum of £959m (“Transaction 1”). However, pursuant to an Ijara arrangement, PBL completed a sale to Masraf al Rayan (“MAR”), a Qatari bank on the same day for a sum of £1.25b (“Transaction 2”). MAR simultaneously granted a 999 year lease to PBL along with various put and call options.
PBL sought to rely on ss. 45(3) and 71A of Finance Act 2003 which, it argued, granted a “double exemption” from SDLT on Transaction 1 and Transaction 2. Section 45 operates such that the disposal from MoD to PBL is disregarded because it occurred at the same time as, and in connection with the completion of the notional secondary contract. Parallel to this, PBL argued that it was entitled to s. 71A exemption from SDLT. Section 71A serves to relieve refinancing/alternative financing arrangements such that, where property belongs to the customer of a financial institution, neither a sale to the financial institution nor a subsequent lease-back of the property attracts SDLT. HMRC was willing to accept PBL’s argument but countered that, if accurate, it could rightly invoke the anti-avoidance provision, s. 75A so as to charge SDLT on the sum paid by MAR, £1.25b.
Unravelling the issues, the Court found that while Transaction 1 fell to be disregarded (s. 45), s. 71A was not intended to create an exemption for the acquisition by MAR. To enable this would create a huge gap through which arrangements (such as the Ijara arrangement) would attract no SDLT at all. Overall, the transaction was to be viewed as an acquisition from MoD by MAR (at a sum of £1.25b). Accordingly, the appeal was to be dismissed as the party responsible for the SDLT was MAR (and not PBL). On the basis that the chargeable consideration was £1.25b, reliance on s. 75A proved futile as the condition in s. 75A(1)(c) would not be satisfied.
This article appears in the JHA June 2016 Tax Newsletter, which also features:
Originally printed in Taxation on 15 June 2016
Part 10 of the Finance Bill 2016 contains a further raft of measures introduced as part of the government’s ‘war’ on tax avoidance. These days there is almost no point in questioning whether such measures are required or will make any real difference to the tax that is lost each year through avoidance. It will therefore be essential for advisers to be clear on the scope of these rules even if, as is likely, they are of limited practical importance to most taxpayers and advisers.
The new proposals cover changes to the general anti-abuse rule (GAAR), including a penalty, new controls intended to combat ‘serial tax avoiders’, sanctions on unco-operative large businesses and a range of additional measures directed at the offshore world.
On 8 June 2016, the EU Commission’s proposal for an EU wide Anti-Tax Avoidance Directive was approved by the EU Parliament, with 486 votes for, 88 against and 103 abstaining.
Although the directive was welcomed, MEPs have recommend stricter rules in a number of areas. They suggested, inter alia, more stringent limits on tax deductibility of interest and a stricter switch-over clause; adoption of a common definition of patent box, tax havens, and permanent establishment; drawing up an exhaustive black list of tax havens and countries (including those in the EU) and a list of sanctions for non-cooperative jurisdiction and financial institutions operating within those jurisdictions.
The CCCTB has also been put back on the table together with a pitch for creating a harmonised-common EU Taxpayer Identification Number (TIN) to be used as a basis for automatic exchange of information between EU tax authorities.
The text adopted can be found here.
It is now up to the Council either to accept or ignore the Parliament’s amendments, adopt the proposed Directive as it is or reject it.
The Senior Costs Judge, Master Gordon-Saker, has applied the new proportionality test introduced by the Jackson reforms in determining the costs to be awarded in a breach of privacy case. In doing so, he reduced the amount due to the claimant to approximately half of what he had previously deemed as reasonable on a line by line assessment.
One of the main issues in the case was whether the new test applies to additional liabilities as well as to base costs. The master held that it did but added that, contrary to the position under the old rules, the court is not required to consider these items separately.
He stated that it is clear that the new test was intended to bring about a real change in the assessment of costs, but nevertheless admitted that there is presently little guidance as to how it should be applied.
Originally printed in Business Tax Voice in May 2016
Even by today’s standards when anti-avoidance legislation seems to be more and more radical, the Transactions in Securities rules (TIS) were widely seen as condemning tax avoidance transactions to history with some early judicial comment describing them as making tax avoidance no longer possible. As is now clear, this was true only so far as the tax avoidance was within their scope and over the intervening years the Revenue found that the scope of these provisions was very limited indeed. So much so that in the cases of Kleinwort Benson, Sema Group Pension fund and Laird Group, arrangements that the Revenue could reasonably believe were fairly within the cross hairs of the TIS rules escaped. Thus it is clear that where they did apply their impact was severe, so much so that even fifty years on no other provision operates quite like them, but they did not apply very often.
Ray McCann takes a look at the history of the TIS rules and considers the impact of the Tax Law rewrite programme and the 2016 changes.
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Originally published in Tax Journal on 27 May 2016
Swiss leaks, Luxembourg leaks, the Panama papers, BEPS and the EU Commission’s Anti-Tax Avoidance Package – where will all this get us? Despite the public furore over the tax affairs of multinationals, there is still no clear dividing line between acceptable and unacceptable tax planning arrangements for groups. This is because the OECD, the EU Commission, the CJEU, HMRC and other tax authorities employ a number of different doctrines that try to identify what tax avoidance means. All that is certain is that the boundaries are constantly shifting and may be defined differently by different players.
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Originally printed in Tax Journal on 11 May 2016
The Court of Appeal has handed down its judgment in the Prudential case, in what is hoped to be one of the final steps of this long lasting action between taxpayers invested in cross border portfolio holdings and HMRC. HMRC’s appeal was allowed on three esoteric issues of computation relating to ACT but was otherwise dismissed. The judgment sends out a broader message: it is not permissible, as HMRC sought to do in relation to ACT, to disregard the legislative system and seek to superimpose a newly devised system to replace it in circumstances where EU law was engaged. The issue of Prudential’s entitlement to compound interest remains subject to further litigation. Simon Whitehead and Philippe Freund (Joseph Hage Aaronson), who acted for the taxpayers, summarise the outcome of this judgment and explain why it has taken so long.
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