David Duffy of our VAT practice discusses a Court of Justice of the EU (“CJEU”) judgment on the VAT implications of gifting a promotional item to customers and a Tax Appeal Commission (“TAC”) determination on whether the purchase and resale of cars met the conditions for the second-hand VAT margin scheme. 

Free promotional items

In Deco Proteste (C-505/22), a Portuguese magazine publisher gave an electronic device to new customers who subscribed for its magazines for no additional charge. The CJEU was asked whether giving away the electronic device constituted a free of charge supply of goods or whether it formed part of a composite supply along with the magazine subscription.

The CJEU concluded that the provision of the device was ancillary to the principal supply of the magazine subscription and was not a free of charge disposal.

By way of further background, the publisher sold subscriptions which were subject to the reduced rate of VAT in Portugal. As part of a marketing campaign to attract new customer, the publisher provided an electronic device to new subscribers for no additional charge. The electronic devices enabled the customer to read digital versions of the magazine. The publisher reclaimed VAT on its acquisition of the devices.

The Portuguese tax authority took the view that the issue of the electronic devices was a free of charge disposal by the publisher which attracted VAT at the standard rate based on the purchase price of the devices.

The taxpayer argued that the payment received for the subscription included the gift and there was no free of charge supply. The taxpayer also argued that the supply of the device was ancillary to the magazine subscription and therefore the total amount received was subject to the reduced rate of VAT.

The CJEU found that the magazine subscription and the electronic device formed a composite supply, with the subscription being the principal supply and the electronic device being an ancillary supply, the sole purpose of which is to encourage customers to purchase a subscription.

In reaching this decision, the Court noted that the provision of the devices is an integral part of the commercial strategy of the publisher, intended to increase the number of subscribers and increase profits. In addition, the devices enabled subscribers to better enjoy the main service, namely the reading of the magazines for which the subscription was taken out, as the electronic devices allowed customers to access a digital version of those magazines. 

Purchase of second-hand cars

Tax Appeal Commission (TAC) determination (124TACD2023), published on 29 September 2023, dismissed a taxpayer’s appeal which had sought to treat the purchase and resale of second-hand cars, as coming under the VAT margin scheme. Accordingly, the Commissioner concluded that Irish VAT should apply on the full resale of price of the car rather than only the profit margin.

The appellant specialised in the importation and sale of high-end second-hand cars. The cars were primarily sourced from two suppliers, one located in England and the other located in Northern Ireland. The case concerned transactions which took place before Brexit and were therefore subject to EU VAT rules.

During an audit, Revenue found that the cars acquired from one supplier were treated as intra-Community acquisitions of goods on which the Appellant accounted for reverse charge Irish VAT. However, most cars purchased from the other supplier were treated as margin scheme goods, with the appellant accounting for VAT on the margin, being the difference between the purchase price and the sales price of the vehicles, when they resold the car.

Revenue noted that none of the purchase invoices included the wording “margin scheme” and that some of the invoices quoted the VAT registration number of the appellant. Accordingly, Revenue took the view that the conditions to avail of the margin scheme were not fulfilled.

The Commissioner concluded that the appellant did not discharge the necessary burden of proof to establish that it was entitled to apply the margin scheme to the acquisition and resale of the vehicles. In reaching this conclusion, the Commissioner noted that the appellant did not take “every reasonable step that could be required” to establish that the appellant’s transactions were eligible for the margin scheme.

This article recently appeared in Chartered Accountant’s Tax.Point journal and is reproduced here with their kind permission.

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If you have any queries on the VAT matters discussed above, please contact David Duffy of our VAT practice.

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