Khaleej Times, Sunday, Nov 27, 2022 | Jamadi Al Awwal 3, 1444
How European VAT decisions could impact UAE businesses
Emirates :The European Court of Justice (ECJ) is amongst the leading
judicial authorities whose decisions are accepted as authoritative precedents by
the tax authorities across the globe. In this week’s tax conversation, let us
discuss important ECJ decisions to get global tax insights. I must caution that
one has to examine the context and facts of each case to determine if the ECJ’s
jurisprudence will also be applicable in the GCC region.
1. A written contract in place of a tax invoice
In Raiffeisn Leasing case, the ECJ held that a written agreement concerning the
supply of goods or services, between two VAT-registered persons, could be
regarded as a tax invoice for recovering input credit. The contract should
contain all the information necessary for the tax authorities to determine that
the material conditions for the right to recover VAT credit have been satisfied.
2. Transaction between head office and branch in different countries
In FCE bank case, the ECJ held that transactions between head office and its
branches situated in different countries are not to be regarded as a supply for
VAT purposes because the head office and its branches form a single legal
entity.
However, in subsequent decisions, the ECJ held that if the head office or the
branch are a part of a VAT group, the transactions should be recognised as a
taxable supply. For VAT purposes, a VAT group should be recognised as a separate
taxable person which supersedes the individuality of the group members.
As UAE is an attractive investment and economic destination for multinational
companies, the tax compliance of branch operations must be ensured.
3. Place of supply for educational services
In Srf konsulterna AB case, a company based in Sweden provided accounting and
management courses in the form of seminars for a price. For the seminars held
outside Sweden, the issue arose whether VAT is payable in Sweden or in the
country where the seminars were physically held.
Services in respect of admission to cultural, artistic, sporting, scientific,
educational, entertainment or similar events is generally the place where those
events actually take place. The ECJ held that the ‘services in respect of
admission to events’ include a service in the form of a five-day course on
accountancy and management.
With the increase in online courses/events being supplied by suppliers based
outside UAE to the people based in the UAE, the ECJ decision could have
significant implications on the overseas service providers.
4. Issue of shares by a company
Should the issue of shares by a company be treated as an exempt supply? If yes,
the companies would not be able to recover input tax credit on the costs
relating to the IPO, share issue, listing and other related costs.
With the ever increasing IPOs activities in the UAE, the aforesaid question
gains significant importance.
In multiple cases, the ECJ took up the exact issue to determine whether or not
companies can recover input credit relating to issue of shares/IPOs.
5. Place of supply of an actor’s services
Though not a decision by ECJ, a UK Tribunal decision holds a special importance.
My work experience in the United Kingdom started with the review of this
tribunal’s decision on the European taxation.
In Saffron Burrows case, the UK Tribunal examined the place of supply of
services by film actors and the VAT implications thereon. The Tribunal held that
that the acting services should be treated as supplied in the country where
performed, and not at the place of residence of the actor.
Accordingly, if a movie actor based in India or USA performs an acting
assignment in the UAE, the actor may be required to pay UAE VAT on his/her
acting fee.
Concluding remarks
Taxation is far more intriguing and complex than otherwise perceived in general.
It is important that the business owners and their finance teams should ensure
that their tax positions are well tested and supported by judicial precedents.