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Andrew Needham, Director of VAT Solutions (UK) Ltd, reports on a selection of recent VAT cases.

Andrew Needham

Tribunal finds services of UK actress were ‘supplied where preformed’ (Round 1!)

In what has been described as a test case for the acting profession, this dispute concerned the correct place of supply analysis of an actress taking part in the making of a film. The facts related to the making of the film ‘Perfect Creature’, described as a vampire action movie, where the filming took place in New Zealand, and required the Appellant to remain in New Zealand for the duration of filming from May to August 2004.

At the hearing, HMRC argued that the acting services supplied in the making of a film are Article 9(1) services, and as the Appellant resides in the United Kingdom, were subject to UK VAT. HMRC also argued that Article 9(2)(c) treatment does not apply because:

• either the acting services for the purposes of recording a film are not cultural, artistic, entertainment activities in their own right

• or, even if the services are cultural, artistic, entertainment activities, the exemption only applies in the case of ‘live’ performances before an audience

The Chairman distilled this argument into two aspects - the plain meaning of the words of the law, and the purposive intent of the place of supply law.  He promptly rejected HMRC’s arguments and found that the place of supply of the acting services was New Zealand.  The appeal was thus allowed.

Saffron Burrows (VTD 20,454)

Tribunal finds UK tours by film crew expert ‘supplied where received’ (Round 2!)

Almost immediately after the Saffron Burrows decision, there was another Tribunal case on services relating to the entertainment industry.

The Appellant typically supplied TV location co-ordination services for Japanese film crews. HMRC accepted that this was an intellectual service involving the provision of consultancy services. As a result, such services were supplied where received (i.e. in Japan) and so were outside the scope of UK VAT. The Tribunal referred to an agreement with the Broadcasting Entertainment Cinematograph and Theatre Union (‘BECTU’) which supported this treatment.  However, around 2000, the Appellant started offering a service of organising tours in the UK for Japanese university students. HMRC accepted that these were outside the Tour Operators’ Margin Scheme (‘TOMS’), arguing instead that they were not consultancy services and as such, were subject to VAT in the UK.  The Appellant, on the other hand, argued that the work he performed was of the same order as that for the film companies.

The Tribunal Chairman accepted the Appellant’s activities relied on specialist knowledge and connections, and that it would be difficult for somebody else to arrange. Accepting that this was a marginal case, the Tribunal Chairman added that the Appellant had no specific qualifications for his film work, only his expertise. It would, therefore, be ‘strange’ to categorise location work as intellectual, and not the types of activities involved in organising the trips.

The Tribunal quoted the ECJ case of Christine Adam (C-267/99), which said that “the liberal professions, (such as consultancy), are activities of a marked intellectual character, require a high level qualification and are usually subject to clear and strict professional regulation. In the exercise of such an activity the personal element is of special importance and such exercise always involves a large measure of independence in the accomplishment of the professional activities.”
In light of this, the taxpayers’ appeal was subsequently allowed.

Mr and Mrs James Cuthbert (VTD 20,466) 

Tribunal says that purchase invoices were not detailed enough to enable deduction

This case concerned the deduction of over £1million of input tax on drinks purchases from other ‘cash & carrys’ and suppliers, where the invoice narrative was either just 'cash' or simply the names of other parties.

The Appellant claimed that, at the start of operations, it had problems in securing supplies from drinks suppliers, and had to make purchases from other cash & carrys or to get other parties to place orders on its behalf.  The Appellant maintained that all the goods shown had nevertheless been supplied to it for onward sale. The dispute concerns the refusal of HMRC to exercise its discretion to accept the invoices as prepared, as ‘alternative evidence for input tax deduction’. HMRC argued that its refusal was justified because the Appellant had not provided any satisfactory evidence to confirm that it had paid the invoices.

The Chairman found in favour of HMRC, saying that its actions in refusing to accept the invoices as alternative evidence for input tax deduction were reasonable. However, in what he describes as an 'afterword', the Chairman also expressed unease at the consequences of his decision, in that he regarded it as highly likely that many, or even all, of the invoices were paid by the Appellant for onward sale of the goods by the appellant. That being the case, the general principles of VAT required that the Appellant be given some measure of relief from the burden of the VAT. The Chairman suggested that HMRC should consider not enforcing the full assessment, and asked for an officer previously unconnected with the case to review it, with a view to reaching an eventual solution that would be regarded by both parties as clearly fair to both of them!

Baba Cash & Carry Ltd (VTD 20,416)

Tribunal agrees taxpayer should be registered despite dubious credit note condition

The Appellant, which described itself as a supplier of ‘computer components, mobile phones, and general trading including pharmaceuticals’, had applied for VAT registration on 27 February 2006.  On 30 June 2006, it sold 945 Central Processing Units (CPUs) for £77,442, without VAT. The sale to the customer took place on the condition that the Appellant would obtain a valid VAT number and the invoice relating to the order be reissued with this number within 28 days.

The transaction went ahead without the VAT number, and payment was made. The goods were delivered direct to the customer’s own customer in Spain. However, this third party customer was unable to pay, and the Appellant agreed to issue a credit note if; a) it had not received a VAT number by the end of the month, and b) it could recover the goods.

HMRC refused to register the company, arguing that the supply was made solely to obtain a VAT registration number, and that it was reliant on a VAT number being provided.  As none was given, no supply took place. The appellant argued that there was a supply, as it was paid for and delivered to the customer’s Spanish customer.
 
In spite of the transaction taking place in what the Tribunal called ‘an environment of fraud’, it found in favour of the Appellant, as it said that a supply did take place, and despite the condition of obtaining a VAT number, the customer accepted and sold on the goods anyway. The Appellant, therefore, should have been registered, and as such, its appeal was allowed.

Goldstar Distribution Ltd (VTD 20,467)