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© 2015 Grant Thornton UK LLP. All rights reserved.
ITU Summary A fairly quiet week in the world
of Indirect Tax.
The Court of Justice hears the
case relating to the Commission
v United Kingdom in a row
about whether the UK's
application of the reduced rate
of VAT at 5% on the supply and
installation of energy saving
materials into properties is legal
under EU law.
In a case to get your teeth into,
the Court of Justice also issues a
judgment relating to the VAT
liability of the importation and
acquisition of dental prostheses
by dental technicians.
The CJEU is to issue its
judgment in the e-books VAT
saga next week.
02 March 2015
Commission v United Kingdom
Last week, the Court of Justice of the European Union (CJEU) heard the above case
and will deliver its judgment in due course. The hearing is the final step in proceedings
(known as infraction proceedings) between the European Commission (the
Commission) and a Member State. If the Commission, in its role as the custodian of
European law, considers that a Member State has failed to fulfil its legal obligations
under the terms of a particular Directive, it can commence such proceedings.
In this case, the Commission considers that the application of a reduced rate of VAT
of 5% to the supply and installation of energy saving materials goes beyond what is
allowed under the VAT Directive. According to the Commission, 'there is no
provision in the VAT Directive to allow a reduced VAT rate on "energy saving
materials" specifically, and the universal application of a reduced rate for energy saving
materials is therefore not allowed. By allowing a reduced VAT rate to all energy saving
materials, the UK is therefore going beyond the scope of what is permitted under EU
law.'
If the CJEU agrees with the Commission, it is likely that the UK will be ordered to
remove the reduced rate. This will mean that the supply and installation of energy
saving materials will become liable to VAT at the standard rate of 20%.
The application of a reduced rate of VAT of 5% is linked to the UK's efforts to
improve the energy efficiency of buildings. Whilst the Commission supports those
objectives, it does not consider that breaking EU VAT rules will help in achieving
them.
It may take some months for the CJEU to publish its judgment in this case and for the
UK to implement any resulting court order. However, it seems highly likely that the
CJEU will find against the UK and equally likely that, in due course, the reduced rate
of VAT of 5% will be replaced by the standard rate. This will come as a blow to private
individuals who will see the cost of buying and installing energy saving materials
increase significantly.
If the UK wishes to encourage the installation of such goods into buildings, perhaps it
will consider introducing a VAT refund scheme!
Issu
e 0
8 | 2
01
5
Commission v UK – Reduced rate of
VAT at risk on energy saving products!
Indirect Tax Update
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A case to get your teeth into!
VDP Dental Laboratory NV – and others
This was a joined case between the Dutch Tax authorities and three businesses established in
Holland – VDP Dental Laboratory NV (VDP), X BV (X) and Nobel Biocare Nederland BV (Nobel).
The supply of dental prostheses by a dentist or dental technicians is generally exempt from VAT,
throughout the EU. VDP is established in the Netherlands and acts as an intermediary in the supply
of dental prostheses. It receives orders from dentists both in Holland and outside the EU and
arranges for the prostheses to be manufactured by dental laboratories outside of Holland. Dutch law
incorrectly implemented the VAT exemption for supplies of dental prostheses and VDP considered
that, whilst no VAT was due on such supplies, it was, nevertheless, entitled to deduct the VAT it had
paid on the importation of the goods. The Dutch authorities disagreed and the CJEU has ruled that,
in accordance with established case law, VDP cannot claim back VAT paid on the importation of the
goods without also accounting for VAT on the onward supply. The VAT Directive does not permit a
taxable person both to benefit from the exemption and to also exercise the right of deduction. In
other words, the taxpayer cannot have its cake and eat it!
On a separate point, VDP argued that, as the supply of prostheses is exempt from VAT in Holland,
the importation and acquisition of those goods should also be exempt from VAT. On this point, the
CJEU agreed with VDP. VAT should not have been charged on importation / acquisition.
Comment
Although specific to
the application of
Dutch VAT law, this
case serves as a good
reminder that having
one's cake and also
eating it does not go
down well with the
CJEU. Similarly, where
the supply of goods is
either exempt or zero-
rated in a Member
state, the importation
and acquisition of the
goods should also be
exempt or zero-rated.
E-books – this is the word! – more infraction proceedings
Comment
It is difficult to see how
the CJEU could do
anything other than to
agree with the
Commission that both
France and
Luxembourg have
breached the VAT
Directive. However,
the CJEU has been
known to deliver some
rather strange decisions
in the past. We know
what the outcome
should be, but we will
have to wait until
Thursday to be sure.
Commission v France & Luxembourg
The CJEU has announced that it will deliver its judgment in the above infraction proceedings on
Thursday 5 March 2015. In both cases, the Commission has asked the CJEU to order that by
applying a VAT rate of 3% to digital books, both France and Luxembourg have failed to fulfil their
obligations under the VAT Directive.
Readers will be aware that France and Luxembourg have applied a reduced rate for the supply of
digital books for some years. To take advantage of the 3% VAT rate, many suppliers of e-books have
established themselves in those countries. The Commission considers that France and Luxembourg
have, therefore, contravened the provisions of the VAT Directive and have distorted competition
between suppliers based in France or Luxembourg and those established elsewhere in the EU.
Reduced rates of VAT can be applied in Member States, but only if the goods or services are listed in
a particular appendix of the VAT Directive. The Commission contends that digital books are not
included in that list. Indeed, the EU VAT Committee guidelines specifically exclude digital books
from benefitting from reduced rates.
It is anticipated that the CJEU will agree with the Commission and will issue the order sought.
However, it remains to be seen what, if any, punishment will be meted out in relation to the historic
breaches. Next week's edition of the Indirect Tax Update will cover this case in more detail.
Contact Stuart Brodie Scotland [email protected] (0)14 1223 0683
Karen Robb London & South East [email protected] (0)20 772 82556
Richard Gilroy London & South East [email protected] (0)20 7728 3170
