In some parts of the US there is a debate about creationism versus evolution. If there was ever evidence needed that evolution is part of the factual matrix of life, the VAT world might be a place to start. There are various exciting developments in that sphere:
Review of partial tax exemption
The European Commission has issues proposals to amend the deduction system for non business use for immovable property. Essentially, the up front full deduction would go and an apportionment needed at the beginning as between business/ non-business use. This is similar to the partial exemption regime. The issue is of great importance to charities who are procuring property for both business and non business use.
The Commission is also looking more strategically at the rules governing the deduction and whether the partial exemption regime and the non –business use regime should be more aligned.
Review of the application of VAT to financial services
The Commission is going to propose a Council Directive to modernise the current VAT rules applied on the supply of insurance and financial services. Its proposals will be issued on 28 November. CMS Cameron McKenna have been actively lobbying the commission on behalf of insurance clients in particular, as well as working closely with the British Bankers Association on proposals for the proper VAT treatment of derivatives
Developments in VAT case law: Compensation and supplies
There are two universal legal theories underlying the law of contract. First, the "will" theory, which derives from Roman law, and sees the minds of the parties as governing the terms of the contract. This had its high water mark in its reception into English and Irish law in the 19th century but its popularity fell away since. It is however familiar to Scottish practitioners. Second, the "exchange" theory of contract, a logical development of the common law, which sees the agreement as setting out the bilateral exchange of promises for reciprocal performance; on the one hand to deliver or perform, on the other to pay.
In its Judgment in Société thermale d’Eugénie-les-Bains –v-Ministère de l’Économie, des Finances et de l’Industrie, Case C-277/05 of 18 July 2007, the European Court of Justice examined the boundary between the bilateral exchange of obligations for reciprocal performance and compensatory payments flowing from a contractual right to exercise a cancellation option.
This boundary line is of vital importance, for example in identifying where a payment is for the supply of goods or services, including indemnities, and where it becomes a payment for cost or expenses flowing from not only breach, but failure to supply anything. Financial institutions and other exempt bodies should now examine the extent to which they charge penalty fees and charges, and whether these are currently included in their pro rata. Removal from the pro rata as "exempt" services and treatment as a non–supply can have a beneficial effect on the "recovery rate".
CMS Cameron McKenna - VAT CHAT seminar
CMS Cameron McKenna are holding their second VAT CHAT seminar on 6th December 2007 in London, and 7th December in Edinburgh, and will be covering in detail all of the above topics.
We are delighted that representatives from the European Commission, HM Revenue and Customs and HM Treasury will also be attending. This will allow a full discussion of all of these issues. Please click here for the agenda.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 16/11/2007.