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On May 4, 2018 the Swiss Federal Department for Finance issued a press release announcing that on May 3, 2018 the Swiss Confederation and the Federative Republic of Brazil concluded an Agreement for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (Hereafter: the DTA).
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On May 3, 2018 on the website of the Court of Justice of the European Union (CJEU) the opinion of Advocate General Kokott in the Case C-249/17, Ryanair Ltd versus The Revenue Commissioners (ECLI:EU:C:2018:301) was published.
The focus in the present case is once again the interpretation of the concept of ‘taxable person’ and the definition of ‘economic activity’ within the meaning of Article 9(1) of the VAT Directive. The proceedings will give the Court an opportunity to clarify the scope of its case-law on deduction of input tax by holding companies.
In 2006 the airline Ryanair made a bid to take over the Irish airline Aer Lingus. Although the takeover failed for reasons of competition law, Ryanair had already incurred considerable costs for consultancy and other services in connection with the planned takeover. Ryanair therefore claimed deduction of the input tax paid, which was refused by the Irish tax authorities.
It is recognised in the Court’s case-law that deduction of input tax can also be claimed for abortive investments. However, the dispute arises in this instance because, according to case-law, the mere acquisition and holding of shares does not constitute economic activity within the meaning of the VAT Directive. Consequently, according to the Court’s case-law, a holding company whose sole purpose is to acquire shares is not entitled to deduct input tax.
In contrast with the situation of a conventional holding company, however, in this case an operating undertaking (and thus a taxable person) sought to make a strategic takeover of a competitor. The question therefore arises whether the limitation of input tax deduction based on the case-law on holding companies actually applies here, as the economic dimension of the case is addressed only if regard is had, in a functional analysis, to the importance of the acquisition of shares for the existing economic activity.
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On May 3, 2018 on the website of the Court of Justice of the European Union (CJEU) the opinion of Advocate General Szpunar in the Case C-153/17, Commissioners for Her Majesty’s Revenue and Customs versus Volkswagen Financial Services (UK) Ltd (ECLI:EU:C:2018:305) was published.
The parties to the main proceedings are in disagreement as to the defendant’s right to deduct input value added tax (‘VAT’) paid on goods and services used for the purposes of its hire purchase transactions.
In the context of this dispute, both parties seem to have very good arguments in support of their views. However, it seems to me that this discussion is taking place without seeing what is referred to by the well-known English expression as ‘the elephant in the room’. That ‘elephant’ is the United Kingdom’s classification for tax purposes of hire purchase contracts, which is, in my view, incorrect.
Under the legislation of that Member State, such contracts are to be treated as two distinct transactions, one being the taxable supply of a vehicle, and the other, an exempt supply of credit. Given that the price of the vehicle charged to the customer must be limited to the exact purchase price of that vehicle, paid by the lessor to the dealer, the amount of output VAT collected is also exactly equal to the input VAT on that vehicle and fully deductible in respect of that supply. The remainder of the lessor’s costs, as well as his profit margin, are, on the other hand, covered by the revenue from the exempt supply of credit. The referring court is therefore uncertain as to the correct approach for the deduction of input VAT on the lessor’s overhead costs, used to an extent for the purposes of the taxable supply of the vehicle, but which are in fact covered by the revenue from the supply of credit, which, as an exempt transaction, is not subject to output VAT.
It therefore seems impossible to give a correct response to this question without addressing the issue of the splitting of hire purchase contracts into two distinct transactions, which I very much doubt is consistent with EU legislation on VAT.
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On May 2, 2018 the Court of Justice of the European Union (CJEU) judged in Case C-574/15, Mauro Scialdone (ECLI:EU:C:2018:295).
This request for a preliminary ruling concerns the interpretation of Article 4(3) TEU, Article 325(1) and (2) TFEU, Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’) and the Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, signed in Brussels on 26 July 1995 (OJ 1995 C 316, p. 49; ‘the PFI Convention’).
The request has been made in criminal proceedings brought against Mr Mauro Scialdone for failing, in his capacity as sole director of Siderlaghi Srl, to pay, within the time limit prescribed by law, the value added tax (VAT) resulting from the company’s annual return for the tax year 2012.
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