How European VAT decisions could impact UAE businesses

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

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Photo for illustrative purposes. - File photo
Photo for illustrative purposes. - File photo

By Pankaj S. Jain

Published: Sat 26 Nov 2022, 4:12 PM

Last updated: Sat 26 Nov 2022, 4:16 PM

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.

(Pankaj S. Jain is the managing director of AskPankaj Tax Advisors. For feedback and queries, you may write to Views expressed are his own and do not reflect the newspaper’s policy.)

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