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Tax & Legal News October 13, 2011 10 period as at least one quarter and no more than a calendar year. If the taxpayer chose to wait until year end and, in the meantime, purchased a supply with a reverse charge obligation, it lost its right to file a refund claim. It was thus forced to recover its input tax for the entire year through the one procedure still open to it – the annual VAT return. Supreme Tax Court judgment V R 14/10 of April 14, 2011 published on August 10 Delivery documentation of intra-community supply must be complete and accurate A second-hand car dealer agreed a sale of 13 prime used cars to an Italian business. This business was represented by the son of the proprietor, who had given him the appropriate warrant. The son approached the seller with a car transporter and asked that the cars be loaded for road transport to Italy. He signed a receipt for them, made out on the letterhead of another business, and paid cash. The receipt gave Italy as the desination of the vehicles, but left the place of destination and the identity of the consignee open. The supplier then issued an invoice to the presumed purchaser. This invoice did not show VAT, but gave no indication of the reason why the sale should be exempt. The supplier took steps to establish the business identiy of the customer; however, these steps came to nothing in the face of a letter from the Italian authorities to their German colleagues to the effect that the purported customer was truly a business, but had never dealt in motor vehicles and did not have the facilities to display second-hand cars. Accordingly, the tax office took the line of least resistance and insisted that the transaction was taxable. The Supreme Tax Court has now followed the tax authorities. The transaction was taxable as a home-country sale as its documentation as an EU intra-community supply was incomplete and open to doubt. The invoice did not show VAT, but did not explain why not; thus the customer was not put on notice of his or her obligation to declare an intracommunity acquisition of goods. The delivery documentation was also incomplete, or at least contradictory. in that the receipt for the cars was on the letterhead of another supplier and did not specify the precise Italian destination of the cars. It also did not identify the invoicee as the customer of the cars, except, perhaps, by inference. These documentation deficiencies had to be laid at the door of the supplier. At best he had been negligent and could not therefore – for lack of proof – claim that the conditions for intra-community supply exemption had, in fact, been met. He also could not claim to be the innocent victim of customer deception, since with due care he could have recognised a potential problem. Supreme Tax Court judgment V R 46/10 of May 12, 2011 published on September 7 Intra-community supply taxable if intent fraudulent A partnership delivered luxury motor cars to addresses in Italy. In most cases, the recipients were dealers interested in obtaining the cars free of VAT. At their suggestion, the partnership invoiced its deliveries as tax-free intra-community supplies to a series of Italian import traders. These then failed to declare their intra-community acquisitions, leaving cars on the Italian market that had not been charged with input tax. The partnership then destroyed most of its own records of these transactions in an attempt to prevent complete follow-up by the authorities. However, it soon became apparent that all was not fully in order, and the two partners found themselves facing criminal charges for tax evasion. They pleaded guilty, made full confessions of their misdeeds and received two-year suspended prison sentences. In the view of the criminal court, they had falsely declared the names of their customers. Their records did not therefore satisfy the intracommunity supply documentation requirements which rendered the transactions taxable. They were convicted for their failure to declare and pay this tax. The tax office took note of this trial and promptly issued assessment notices on the partnership for the tax. The partnership appealed on the grounds that the persons involved could adequately demonstrate the fact of delivery to registered businesses in Italy and thus the entitlement to tax exemption of the deliveries as intra-community supplies. Incorrectly naming business partners was a minor detail when the fact of delivery was not in doubt. The Supreme Tax Court has now rejected the appeal. The VAT Directive (at the time, the Sixth Directive) specifically excludes exemption for a supplier who deliberately distorts evidence in order to conceal the true identity of the recipient of the goods and so enable him to evade VAT in his own member state. In the face of this specific disqualification, proof of delivery to another member state was irrelevant. Supreme Tax Court judgment V R 50/09 of August 11, 2011 published on October 5
Tax & Legal News October 13, 2011 11 Sausage and chip stand sells food if no seating provided Restaurant services are subject to 19% standard rate VAT, whilst sales of food are taxed at the reduced rate of 7%. Tax offices tend to see anything offered for immediate consumption on or beside the premises as a service, whilst many fast food providers like to see their supplies as sales of goods, the service element of the supply being insignificant. A number of appeals are still before the courts and in March of this year the ECJ ruled on four of them in a single, joint judgment. Sales from mobile sausage and chip wagons or from fixed sausage stands for stand-up consumption were reduced-rate sales of food, as were warmed-up cinema snacks, whilst a butcher offering a party service did so as a standard-rate supply. The Supreme Tax Court has now decided two cases involving the sale of sausages and chips (“French fries” in US parlance) to passing customers. The first was one of those tried by the ECJ and involved sales from a wagon to visitors and passers-by at weekly markets. Customers were expected to eat their food standing, but were able to lean on a shelf running around the wagon. A bin was available for discarded wrappings, uneaten sausage remainders and other litter, and an awning provided some protection from the rain. The Supreme Tax Court followed the ECJ in holding the service element of the supply to be insignificant and ruled that the transaction be taxed as the sale of food. The second case was brought by the proprietor of a fixed stand set up immediately beside a public bench where customers could (if there was room) sit to eat their sausages and chips. Later, the proprietor added a table and two benches for the use of customers. This furniture was described as “beer tent furnishings”, meaning that it was of cheap wood, collapsible and slightly unsteady. Otherwise, the conditions of sale from the stand appear to have been similar to those of the market day wagon. The Supreme Tax Court held that its wagon decision also applied to the stand for as long as any seating available was not provided by the seller. The mere fact that a bench was there, did not change the nature of the supply by the sausage and chip seller. The bench was provided by the council (local authority) and could be used by anyone. It was not a service in connection with the sale of goods. However, the situation changed with the set-up of, even primitive and inadequate, seating. Seating was reserved for customers of the stand and some customers were able to take their places there. That not all did so was irrelevant. The proprietor was also obliged to keep the seating and table clean with an occasional wipe. This enhanced the nature of the supply and increased the work necessary to provide it. It was now a restaurant service, taxable at 19%. Supreme Tax Court judgments V R 35/08 (wagon) and V R 18/10 (stand with seating) of June 6, 2011 published on August 24 and following ECJ case C-497/09 Bog and others of March 10 Registered proprietor liable for VAT on scam Three local businessmen of tarnished reputation registered a publishing business in the name of one of their mothers. The lady signed the registration in her own hand and consented to the appearance of her name on the letterhead, even though she was longsince fully retired and had - she claimed - no knowledge of the business operation. In point of fact the business was a publishing scam: it bulk-mailed 464,000 invoices to named businesses for registration in a forthcoming telefax directory. Each invoice was for a fixed amount and showed VAT. The addressees were culled from public directories; clearly, the actual invoice issuers hoped that at least some of the recipients would assume a valid agreement and pay the amount requested. There was, however, never any intention of actually producing the purported directory. Following a back duty investigation by the tax criminal investigation service (attached to the public prosecution service), the tax office assumed that 10% of the invoice recipients had paid the amount demanded and raised a VAT assessment accordingly on the mother holding the business registration. She protested that she had no knowledge of, and certainly nothing to do with, the events in question, though to no avail, as the Supreme Tax Court has now held. The Supreme Tax Court based its finding on the provisions rendering the issuer of a fraudulent invoice liable for the VAT shown. The issuer was the person shown as such on the invoice, provided that that person "had in some way contributed" to it. The contribution could be active or passive; a passive contribution could be seen in the failure of a registered business proprietor to take steps to prevent or detect any misuse of his name. The mother had met this criterion, either through her acceptance that other persons were acting in her name, or through her lack of interest in the possible use of her business registration by others.
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