Information Note on the Tax treatment of e-commerce operators
Through the information note the Office of the Commissioner for Revenue reminded persons who engage in an activity consisting in the purchasing in their own name of goods for the purpose of supplying them to customers for a consideration that such activity may have VAT and income tax implications. Such supplies may be subject to VAT and in this regard the supplier shall be required to register for VAT. Additionally, any gains or profits derived therefrom must be declared in the income tax return. The note contains a case example to illustrate the implications in practice.
Mandatory online filing of VAT returns – 24/11/2022
The Office of the Commissioner for Revenue announced that as from the due date of 15 February 2023 all persons registered for VAT purposes under Article 10 of the VAT Act were being required to submit their periodical VAT return online by using the VAT e-Services available on the CfR website.
Administrative Review Tribunal
Case no. 63/2015 VG – XXX vs Kummissarju tat-Taxxi – 10/10/2022
XXX referred a question to the Tribunal in terms of Art. 44 of the VAT Act disputing a decision of the Commissioner whereby his VAT registration under Art. 11 was terminated and reverted to an Art. 10 registration. XXX maintained that his activity of a gypsum installer qualified as a small undertaking under the EUR 24K threshold (supply of services with a relatively low value added) even though based on the NACE code he was registered under the EUR 14K threshold (other economic activities), which threshold he had exceeded during 2010. The Tribunal considered that whilst the NACE code had the scope of assigning the applicable threshold to small undertakings at the time of registration the determining factor remained whether in practice that small undertaking’s activity is one of services with a relatively low value added or otherwise. Given that according to the 2010 accounts the value of material represented merely 28.88% of the total turnover it is evident that XXX’s economic activity cannot be classified as one with a relatively low value added. As a result, the Tribunal dismissed XXX claims and confirmed the decision of the Commissioner.
Case no. 118/2018 VG – XXX vs Kummissarju tat-Taxxa fuq il-Valur Miżjud – 10/10/2022
The Tribunal was asked to rule on a preliminary plea raised by the Commissioner who contended that the appeal application by XXX requesting the Tribunal to cancel provisional assessments raised by the Commissioner was null and void since it was not in accordance with either Art. 43 (appeals against assessments) or Art. 44 (question referred to the Tribunal) of the VAT Act. The Tribunal observed that whilst Art. 43 provides for appeals against assessments and hence the appeal by XXX, being an appeal against provisional assessments would be null and void, it is logical to assume that XXX was also aggrieved by the assessments that were issued pursuant to and as a consequence of the provisional assessments. The Tribunal thus dismissed the Commissioner’s preliminary plea and ordered the continuation of the hearing of the case based on its merit.
Case no. 314/2012 VG – George Camilleri vs Direttur Ġenerali (Taxxa fuq il-Valur Miżjud) – 24/10/2022
The appeal was in connection with a demand note served on appellant by the Commissioner for a payment of EUR 1,077 where according to him it was the Commissioner that owed him a refund of EUR 1,438. Whilst declaring that it had no jurisdiction to treat payment claims, the Tribunal nevertheless established that according to its calculations no amounts were due by appellant to the Commissioner (the demand note was as a matter of fact cancelled during the proceedings) but that the amount of refund due by the Commissioner to appellant amounted to EUR 598 and not EUR 1,077. Accordingly, the Tribunal ordered the Commissioner to refund appellant the said amount.
Case no. 29/2015 VG – XXX vs Kummissarju tat-Taxxi – 14/11/2022
XXX appealed against assessments amounting to EUR 167,823 (including administrative penalties and interest) served on it by the Commissioner covering tax periods 01/07/2013 to 31/12/2013. The assessments were raised following a credit control exercise carried out by VAT Inspectors in the course of which appellant had failed to produce the necessary documentation in support of the credit claim. In a preliminary decision the Tribunal had ruled that Art. 48(5) was to apply with appellant thus being precluded from producing the pertinent documentation at the appeal stage. As a result, the Tribunal had no option other than to dismiss the appeal and confirm the assessments.
Case no. 30/2015 VG – XXX vs Kummissarju tat-Taxxi – 14/11/2022
This appeal was identical to the preceding one and concerned assessments amounting to EUR 302,982 covering tax periods from 01/10/2012 to 31/12/2013. By application of a preliminary ruling by the Tribunal, appellant XXX was precluded from producing documentation at appeal stage as provided in Art. 48(5) of the VAT Act. Consequently, the Tribunal dismissed the appeal and confirmed the assessments served by the Commissioner.
Court of Appeal (Inferior Jurisdiction)
Appeal no. 32/2014 LM – CMI Limited vs Direttur Ġenerali (Taxxa fuq il-Valur Miżjud) – 02/11/2022
CMI Limited appealed a decision of the Administrative Review Tribunal which had dismissed its appeal application to cancel the VAT assessments raised to it by the Commissioner for Revenue amounting to EUR 26,502 on grounds that the Commissioner failed to furnish detailed workings of the provisional assessments thus impairing its right to contest them. The Court after re-examining the facts at issue found that there was nothing to fault regarding the procedure leading to the issue of the assessments by the Commissioner and as a result rejected the appeal and confirmed the decision of the Tribunal.
Court of Appeal (Superior Jurisdiction)
Appeal no. 1086/18/1 RGM – Joseph Grima vs Direttur Ġenerali (Taxxa fuq il-Valur Miżjud) – 28/09/2022
Plaintiff was requesting the Court of Appeal to reverse a decision of the Court (First Hall) that had dismissed his appeal concerning the validity of an executive title held by the Commissioner regarding a balance of EUR 151,126 which amount he had declared in his VAT returns but not paid. The Court found that in effect the executive title was valid in that it was established in accordance with Art. 59 of the VAT Act. The Court remarked that looking for a legal loophole not to pay a significant amount of tax which had been collected from other persons on supplies made was deplorable and hence rejected the appeal declaring it frivolous.
VAT in the Digital Age
On 8 December 2022 the Commission published the much awaited proposals containing measures aimed to modernise the EU VAT system with a view to making it work better for businesses and more resilient to fraud by embracing and promoting digitalisation. According to the Commission three fundamental measures are needed to make VAT fit for the digital age, namely (i) a new real time digital reporting system based on e-invoicing; (ii) updated VAT rules for the platform economy; and (iii) a single VAT registration for businesses selling to consumers across the EU. Subject to the unanimous approval by the Council, the proposed measures will be rolled out in stages with the first set intended to start to apply as from 1 January 2024 and the last as from 1 January 2028.
For further reading: https://taxation-customs.ec.europa.eu/taxation-1/value-added-tax-vat/vat-digital-age_en
VAT Committee Meetings
The 121st Meeting of the VAT Committee was held on 21st October 2022 with the following agenda:
- Consultations on VAT grouping (France) and on the Global Margin Scheme (Denmark)
- Question re the application of VAT on medicinal products sold by pharmaceutical companies (Lithuania)
- Implementation of new Legislation: the special scheme for small enterprises (Netherlands and Belgium)
- Issues arising from recent CJEU judgments (Commission and Croatia)
For further reading: https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/769a12ab-5859-45df-80ab-5059a8b724f8?p=1&n=10&sort=modified_DESC
VAT Expert Group Meetings
The VEG held its 32nd Meeting on 6th December 2022 with the discussions focusing on the VEG rules of procedure and the purpose and remit of the VEG. In addition, the group was updated on VAT e-commerce and state of play of (i) VAT in the digital age package; (ii) Travel and Tourism package; and (iii) Financial Services.
CJEU decisions – latest update
Case C-293/21 – UAB Vittamed – 06/10/2022
(RE: Deductions of Input VAT – Goods and services used by the taxable person to produce capital goods – Adjustment of deductions – Obligation to adjust deductions where taxable person is placed in liquidation and de-registered from VAT)
Vittamed, a Lithuanian company engaged in scientific research and the practical applications thereof had claimed input VAT on supplies of goods and services acquired in connection with the realisation of an international project funded by the EU, the objective of which was to develop a prototype of a medical diagnostic and monitoring device. Depending on a successful outcome of the R&D, Vittamed would thus be able to derive income by exploiting intangible property (the licensing) and tangible property (the devices). However, following the conclusion of the project Vittamed was placed in liquidation due to overwhelming losses and absence of orders to the extent that no supplies were ever made. Pursuant to an inspection following de-registration from VAT, the tax authority concluded that Vittamed had failed to carry out adjustments to input tax on capital goods and proceeded to raise an assessment amount to EUR 88K to recover the overclaimed VAT.
The Supreme Administrative Court of Lithunia, where the dispute ended up, decided to stay the proceedings to ask the CJEU (the “Court”) whether in the circumstances such as those at issue a taxable person was obliged to adjust input VAT deductions connected with the production of capital goods whilst taking into account the factors leading to the liquidation of the company namely growing losses and lack of orders.
Referring to settled-case law the Court recalled that the right of deduction, once it had arisen, is retained even where subsequently the intended economic activity was not carried out and thus did not give rise to taxable supplies to attribute to the input VAT incurred. Any other interpretation would be contrary to the principle that VAT should be neutral as regards the tax burden on a business. However, this principle must be combined with the adjustment mechanism provided in Articles 184 to 187 of the VAT Directive that determine an obligation for an adjustment on the basis of the establishment of a close and direct relationship between the right to deduct the input VAT paid and the use of the goods or services for taxed output transactions. Therefore, where this close and direct relationship ceases to exist as a result of the impossibility to carry out taxed output transactions then the obligation for an adjustment is triggered irrespective of the factors which had determined the termination of the economic activity.
The Court thus ruled that Article 184 to 187 of the VAT Directive must be interpreted as meaning that in a case such as that in the order of reference the taxable person, without prejudice to the right of deduction when such right had arisen, is nevertheless obliged to adjust the input tax deductions relating to the acquisition of goods or services intended to produce the capital goods he had intended to exploit in the course of his economic activity.
Case C-458/21 – CIG – 22/09/2022
(RE: Art. 132(1)(c) of Council Directive 2006/112/EC – Provision of medical care in the exercise of the medical and paramedical professions – Service used by an insurance company to review the accuracy of a medical diagnosis and to provide best possible care and treatment abroad)
CIG, a Hungarian insurance company, offered a health insurance product under which it undertook to provide to the insured natural person medical care abroad in relation to five specified serious illnesses. To enable it to manage this product, CIG entered into a cooperation agreement with Best Doctors, a Spanish company, under which the latter were engaged to review, on the basis of the documentation furnished to it by CIG, the medical information concerning the insured natural person with a view to ascertaining whether that person was actually entitled to the insurance services provided by CIG. Once the insured person had been certified as eligible for the insurance services Best Doctors would handle all the administrative formalities related to the medical care abroad and assist the insured person to ensure that the appropriate medical treatment is administered. For the provision of these services CIG paid Best Doctors an annual payment for each insured person irrespective of whether that insured person actually had used the services or not. CIG, did not self-charge the VAT on the services provided to it by Best Doctors taking the view that they had the characteristic of medical care services. On the other hand, the Hungarian tax authority considered the services as not falling under the exemption and proceeded to raise assessments on CIG giving rise to the dispute.
The Supreme Court of Hungary, where the case ended up, stayed the proceedings and asked the CJEU whether the exemption set out in Art. 132(1)(c) of the VAT Directive was applicable to the services at issue consisting in the verification of the accuracy of a diagnosis of a serious illness with which the insured had been diagnosed and finding the best medical care available to treat that insured person abroad.
Referring to its settled case-law the Court reminded that for the Art. 132(1)(c) exemption to apply two conditions must be satisfied, namely that it constitutes a provision of medical care and secondly that it is carried out in the exercise of the medical and paramedical professions as defined by the Member State concerned. The concept of medical care is intended to cover services that have as their aim the diagnosis, treatment and insofar as possible, cure of diseases or health disorders and include also medical care services that have a therapeutic aim. The referred question must therefore be examined in the context of this concept. It is apparent that although the performance of the service, namely the review of the medical information supplied by the medical doctor of the insured person, may require the medical skills of (Best Doctors) medical professionals, nevertheless being merely a medical report, it does not per se have the aim to diagnose, treat or cure diseases or health disorders. Neither does the second phase of the service consisting of handling the administrative formalities relating to the medical care abroad.
In the light of the foregoing the Court ruled that Art. 132(1)(c) of the VAT Directive must be interpreted as meaning that services such as those at issue in the main proceedings are not covered by the exemption provided for in that provision.
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