According to the German tax courts, swimming lessons have, at least to date, undoubtedly fallen within the scope of the Union law VAT exemption as constituting part of “school and university tuition”. The ECJ, however, recently restricted the VAT exemption for the commercial supply of tuition services by defining the term “tuition” much more narrowly. This case law has now led to the Federal Fiscal Court raising doubts and referring three questions to the ECJ. The referral shows that the VAT exemption for the supply of commercial tuition services can currently not be determined with any significant degree of legal certainty.
On 24.04.2019, the European Commission presented a proposal for a new VAT exemption. In addition to the VAT exemptions for NATO troops, a VAT exemption for supplies of goods and services to armed forces of other EU states will, in the future, also apply. A prerequisite for the application of the exemption is that the troops serve the common defence effort. For this reason, Articles 22, 143 and 151 of the VAT Directive are to be amended. The draft requires Member States to implement the amendments by 31.06.2022, at the latest.
HMRC intends to strictly implement the correct treatment of input tax deduction of import VAT in the UK: In its letter of 11.04.2019, HMRC points out the current incorrect practice whereby import VAT is often claimed as input tax by non-owners of imported goods. By referencing the example of toll operators, among other taxpayers, HMRC explains how the procedure should be handled correctly. Taxpayers should review their business processes in connection with imports to the UK and adjust them, if necessary.
VAT exemption for the supply of commercial education services was recently limited by the ECJ judgment in A & G Fahrschul-Akademie (C-449/17). In doing so, the ECJ defined a new, narrower term for “tuition” than that previously in use. The Federal Fiscal Court did not raise this issue in its most recent decision in this area. Notwithstanding this, however, it assesses the requirements for VAT exempt commercial education and training more strictly than before. According to its standards, the exemption of tango dancing lessons is only possible where a concrete professional relation exists. Due to this deviation from how the ECJ defines the term tuition, the decision is significant for all suppliers of commercial educational services.
Apparently, the German Federal Ministry of Finance had considered a No-Deal Brexit on 12.04.2019 as highly probable. Thus, in its Letter of 08.04.2019, the Ministry provided information on the applicability of German VAT regulations in this instance. In the meantime this date has become obsolete again as the EU has offered a postponement till 31.10.2019. Another date which is often mentioned is 22.05.2019, i.e. the date before the European elections. If and when a “hard” Brexit may happen, is still unclear. In any case the German Federal Ministry of Finance provides specific advice on the VAT treatment of supplies of goods and ongoing services, as well as for consignment stock transactions taking place on or around the Brexit date. The letter also includes statements on procedural adaptions for MOSS, input VAT refunds, liability for operators of online marketplaces and VAT-ID validation.
With its decision of 13.12.2018 (V R 45/17), the Federal Fiscal Court decided, for the first time, that membership fees of professional associations may partially be subject to VAT which allows them to benefit from input VAT deduction. This also depends on the extent to which the professional association is exempt from corporate tax.
The recent EU level failure of the project to introduce a European-wide digital services tax has resulted in France being the first European country to draw up a bill for a national digital services tax. German companies may also be affected by this tax, the introduction of which is planned, with retroactive effect, as of 01.01.2019. Other EU Member States may now also feel compelled to introduce a national digital services tax. In addition, the French draft law is likely to influence the debate on a global digital services tax at G7, G20 and OECD level.
In the legal case A & G Fahrschul-Akademie (C-449/17), the ECJ denied VAT-exemption for driving lessons. Here, the court interpreted the requirements for exempted supplies of commercial education services in accordance with Art. 132 para 1 (i) and (j) of the VAT Directive more strictly than before. The decision is therefore important not only for the driving school sector but for all providers of commercial educational service supplies.
It could be that Brexit will take place in less than 2 weeks. It is also possible that Great Britain’s departure from the EU will be an unregulated one. The British legislator has therefore made initial preparations to ensure that a functioning VAT law will continue to exist as from 30.03.2019 in the instance of this worst-case scenario. Unfortunately, many issues, especially for foreign taxable persons, remain unresolved.
According to Art. 53 of the VAT Directive, the place of a supply of services, in terms of admission to events supplied to a taxable person, is the place where those events actually take place. However, the question remains as to which type of events are covered by this rule. The ECJ dealt with this in the case Srf konsulterna, which concerned courses for accounting, management and payroll consultants. Unsurprisingly, the ECJ favoured a rather broad interpretation. The extensive statements of the Advocate General regarding this case are also of particular interest. The German tax authorities may take this opportunity to adjust the relevant explanations as contained in the German VAT Circular.