VAT Newsletter | Q. 4 – 2023

Legal Notice 231 of 2023 – 06/10/2023

The legal notice which amends the Eight Schedule to the VAT Act introduces, with effect from 1^st January 2024, a reduced rate of 12% to be applied on the following services:

• Custody and management of securities
• Management of credit and credit guarantees by a person or body other than those who granted the credit
• Hiring of pleasure boats under certain specified terms and conditions
• Services consisting in the care of the human body made by a person in the exercise of the Health Care Professions Act, including services supplied in the course of a health studio business or similar business (excluding services falling under the exemption in Item 11 of Part Two of the Fifth Schedule).

Legal Notice 272 of 2023 – 24/11/2023

The legal notice transposes Council Regulation (EU) 2020/284 as regards the introduction of certain requirements for payment service providers, the so-called Central Electronic System of Payment information (CESOP), having the scope of assisting the Member States tax administrations to effectively fight tax fraud and evasion on the basis of the payments information required to be reported by the PSPs. In terms of the legal notice, with effect from 1^st January 2024, PSPs with Malta being their “home” or “host” Member State, are required to apply for registration with the Commissioner for Tax and Revenue by not later than the 25^th of January 2024. The registration application is to be made electronically via the e-services page in the MTCA website.

Bill No. 72 – Budget Measures Implementation Bill – 30/10/2023

Although no VAT measures were directly announced by the Hon. Minister for Finance in the 2024 Budget speech, yet a number of amendments to the VAT Act were included in the Budget Measures Implementation Bill the first reading of which was carried in the House of Representatives on 30^th October 2023. The suggested amendments to the VAT Act are the following:

• Substitution of sub-article (4) of Article 10 (re VAT registration for non-established taxable persons)
• Substitution of sub-article (5) of Article 21 (tax on importations is payable to the Commissioner)
• New sub-articles (3) and (4) in Article 28 (no corrections allowed after issuing of a provisional assessment unless approved by the Commissioner)
• Substitution of sub-article (1) of Article 47 (deadline for the lodgement of appeals from decisions of the Administrative Review Tribunal)
• Substitution of sub-article (1) of Article 48 (obligation of taxable persons established in Malta to keep full and proper records of transactions)
• Amendment of Article 53 (re inspections)
• Substitution of sub-article (4) of Article 56 (re official secrecy – information that the Commissioner shall furnish)
• Substitution of sub-article (1) of Article 61 (re power of the Commissioner relating to tax on imported goods)
• Substitution of Article 74 (introducing a general anti-abuse provision)
• Substitution of paragraph (f) of Article 75 (re power to make regulations)
• Substitution of paragraphs (c) and (d) of Article 76 (re failure to furnish tax returns, notices etc and for failure to produce or provide access to documentation)

No VAT appeals decisions were published during this calendar quarter.

Case 70/2014 LM – Johan Tanti vs Kummissarju tat-Taxxi – 27/11/2023

Case 71/2014 LM – Antoine Tanti vs Kummissarju tat-Taxxi – 27/11/2023

Appellants filed the appeals in terms of Article 47(1) of the VAT Act regarding a decision of the Administrative Review Tribunal which had upheld the Commissioner’s preliminary plea invoking Article 48(5) of the VAT Act pursuant to which appellants were precluded from producing any documentation at appeal stage relating to the assessments served upon them by the Commissioner amounting to respectively EUR 252,430 and EUR 306,668 (both inclusive of administrative penalties and interest). The Court remarked that what was being requested by appellants entailed a re-examination of the facts already scrutinised by the Tribunal and as such it can reasonably be concluded that the appeals were on a point of fact and not on a point of law. The Court thus declared the appeals null and void and dismissed them entirely.

The VAT Committee held its 123^rd meeting on 20 November 2023 with the following extensive agenda:

https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/651ed223-0ed9-4c72-9368-9a7fb85154db/details

In our view, Point 6.2 on the agenda is the pick of the topics discussed, namely Working Paper No. 1073 by the Commission regarding the new SME’s scheme that shall kick in on 1^st January 2025. The Commission Legal Services provide a deep insight into the various aspects of the scheme both from a legal and a practical perspective. For further reading:

https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/dd79859c-43f1-4d3a-b67d-aa977b68ab63/details

The VEG held its 34^th meeting on 26 October 2023 with the following items on the agenda table:

• New rules on Commission experts’ travel
• VEG No. 112 – Special Scheme for Small Enterprises – Members’ suggestions of topics to be covered in the SME Explanatory Notes
• Information points:
  • VIDA package – state of play of negotiations in Council
  • Customs reform, including the VAT proposal
  • VAT e-commerce package – update
  • Travel and Tourism package – update
  • Reporting on vouchers – update on the state of play

The GFV held its 43^rd meeting on 9 November 2023 with the following agenda:

• GFV No. 129 – Exemptions for international organisations – electronic exemption certificate
• GFV No. 130 – Amendments in a late submitted OSS/IOSS VAT return
• GFV No. 131 – Special Scheme for Small Enterprises – Member States’ suggestions of topics to be covered in the SME Explanatory Notes
• Information points:
  • VIDA package – state of play of negotiations in Council
  • Customs reform, including the VAT proposal [COM(2023)262 final]

Case C-355/22 – Osteopathie Van Hauwermeiren vs Belgium – 5 October 2023

(Council Directive 2006/112/EC – Common system of Value Added Tax – Maintenance of effects of national legislation incompatible with EU law)

Osteopathie Van Hauwermeiren (“OVH”), a limited liability company established in Belgium, had, in the years between 2006 and 2020, charged VAT on the services it supplied consisting of ‘other activities for human health’ on the basis of Article 44 of the Belgian VAT Code then in force.

In 2017, the Constitutional Court of Belgium submitted questions to the Court for a preliminary ruling as to whether, the exemption set out in Article 132(1)(c) of the VAT Directive was applicable to services by chiropractors and osteopathists even where professionally they were not recognised by the Member State as members of a regulated medical or paramedical profession. The Court ruled that to the extent that chiropractors and osteopathists had the necessary qualifications to provide personal care services of a sufficiently high standard to be considered similar to those offered by members of a regulated medical or paramedical profession, then their services should be treated as exempt in terms of the said Article 132(1)(c) of the VAT Directive (Case C-597/17 – Belgian Syndicate of Chiropractors and others, 27 June 2019).

Following this ruling the Constitutional Court, annulled Article 44 of the Belgian VAT Code with effect from 1 October 2019, but invoking a Special Belgian law, ruled that no claims for the refunding of VAT paid (even though according to the Court’s decision it was not due) on supplies made before that date were to be allowed given the impossibility on the part of the chiropractors and osteopathists to trace the persons to whom they had charged and levied the VAT over such an extensive period of time.

In the meantime, OVH had filed an adjustment for the pre-October 2019 tax periods claiming a refund of EUR 45,355 which adjustment was refused by the tax authority on the basis of the above national court decision.

This led to second request for a preliminary ruling as to whether a national court can, without submitting a request for a preliminary ruling in terms of Article 267 of the TFEU, maintain the effects, in connection with the past, of a national provision that was found to be in breach of the EU VAT Directive on grounds of the alleged impossibility on the part of the taxable persons of refunding unduly collected VAT to the recipients of those services, due to the large numbers involved and the probable non-existence of reliable accounting systems necessary to identify the persons, the date or the value related to those supplies.

The Court pointed out that where the authorities of the Member State concerned find that national legislation is incompatible with EU law, whilst retaining the choice of measures to be taken, they must ensure that national law is brought in line with EU law as soon as possible and that the rights which individuals derive from EU law are given full effect. The primacy and uniform application of EU law as guaranteed by the TFEU would be seriously undermined if national courts had the power to give provisions of national law primacy in relation to EU law contravened by those provisions even if temporarily. Furthermore, it should be borne in mind that a judgement delivered by the Court in the context of the preliminary ruling procedure provided in Article 267 of the TFEU is binding on the national court as regards the interpretation of EU law for the purposes of resolving the dispute before it.

Recalling settled case-law the Court remarked that the administrative and practical difficulties that the competent national authority or the economic operators may encounter to pay back the VAT which was charged but not due did not constitute a valid reason for the purpose of overriding the legal certainty considerations.

The Court thus ruled that according to the TFEU, a national court is precluded from making use of a national provision empowering it to maintain certain effects of a provision of national law which was found to be incompatible with the VAT Directive on the basis of alleged administrative and practical difficulties in paying out the VAT to the customers to whom the VAT (but not due) was charged.

(Council Directive 2006/112/EC – Taxable transactions – Article 2(1)(a) – Supply of goods for consideration – Free supply of a tablet or smartphone in exchange for a new subscription to a magazine – Concept of ‘single supply’ – Second paragraph of Article 16 – Application of goods for business use as gifts of small value)

Deco Proteste Editores (“Deco”), a Portuguese company, published magazines that it sold only on a subscription basis against the payment of a monthly rate. To bolster subscriptions, Deco offered a gift of either a tablet or a smartphone (with a unitary value not exceeding EUR 50) to first time subscribers and in the absence of a minimum subscription period subscribers were eligible to retain the gift upon the cancellation of the subscription irrespective of the number of months elapsed. Deco acquired the subscription gifts from EU suppliers and self-charged the VAT thereupon whilst deducting the equivalent as input VAT.

A dispute arose when following an inspection, the tax authorities noted that between 2015 and 2018 the subscription invoices made no mention of the subscription gift, which gift they considered as constituting a taxable supply in its own right since it exceeded the set annual national free gift threshold. As a result, they proceeded to raise an assessment applying VAT at the standard rate of 23% for an amount of EUR 3,472,125 of which Deco initially agreed to pay a corrected amount of EUR 2,851,550. However, on second thoughts Deco decided to challenge the assessments in the national court.

The Portuguese Tax Arbitration Tribunal, where the dispute ended up, decided to stay the proceedings to ask the Court for a preliminary ruling as to whether Article 2(1)(a) and the first paragraph of Article 16 of the VAT Directive must be interpreted as meaning that the giving of a subscription gift in return for a subscription to periodicals falls within the concept of a ‘supply of goods for consideration’ within the meaning of those provisions, or whether the first paragraph of Article 16 must be interpreted as meaning that the giving of such a gift, constituting a transaction separate from the subscription transaction, must be regarded as a disposal of goods free of charge within the meaning of that provision.

Referring to its settled case-law the Court recalled that an economic transaction constituted a single supply where one or more elements were to be regarded as constituting the principal supply, while, by contrast, other elements were to be regarded as one or more ancillary supplies which share the tax treatment of the principal supply. Moreover, from a perspective of the average consumer, a supply must be regarded as ancillary to a principal supply if it does not constitute for customers an end in itself but a better means of enjoying the principal service supplied. It is apparent from the information provided by the referring court that the provision of subscription gifts for new subscriptions was an integral part of the commercial strategy of the applicant that created a link between the provision of a gift and the subscription to a magazine, which link however, does not appear to be systematic or sufficiently close for those supplies to be considered indivisible. On the other hand, the circumstances of the case appeared to illustrate (for the referring court to determine) a main supply accompanied by an ancillary supply, the free gift, which has the sole purpose of increasing the magazine subscriptions.

In the light of the above considerations, the Court ruled that Article 2(1)(a) and the first paragraph of Article 16 of the VAT Directive must be interpreted as meaning that the provision of a subscription gift in return for taking out a subscription to periodicals constitutes a supply that is ancillary to the principal service of supplying periodicals, which falls within the concept of a ‘supply of goods for consideration’, within the meaning of those provisions, and must not be regarded as a disposal of goods free of charge within the meaning of the first paragraph of Article 16.