Indirect Tax News 1 - March 2012 - BDO International

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4 INDIRECT TAX NEWS 1 GERMANY EUROPEAN COURT OF JUSTICE RULES ON THE TRANSFER OF A BUSINESS On 10 November 2011, the European Court of Justice (CJEU) gave its ruling in the Christel Schriever v Finanzamt Lüdenscheid case (number C-444-10). The question for the Court to decide was whether there had been a non-taxable transfer of an entire business where the vendor retained the business premises and leased them to the purchaser. Background Until 30 June 1996, the complainant Christel Schriever had run a retail sports equipment business in business premises belonging to her. On that date, Ms. Schriever sold the stock and shop installations to Sport S. GmbH for a total amount of DEM 455,000, with no VAT being shown on the related invoice. Ms. Schriever then leased the shop premises to Sport S. GmbH from 1 August 1996 for an indefinite period, subject to a quarterly period of notice by either party. Sport S. GmbH continued to run the sports shop until 31 May 1998. Ms. Schriever treated the sale of the stock and fittings as a non-taxable transfer of an entire business according to paragraph 1 (1a) of the German VAT Act. The German tax authorities refused to grant this treatment to Ms. Schriever due to the fact that the business premises, as an essential element, were not sold to Sport S. GmbH. However, the local fiscal court confirmed the treatment of a nontaxable transfer of an entire business, as the totality of assets had been sold to Sport S. GmbH, and Sport S. GmbH had actually continued to run the business. The mere theoretical possibility of being able to give notice on the lease agreement at any time was of no consequence in this regard. This led to the reference for a preliminary ruling from the German Federal Fiscal Court. Questions referred 1. Is there a “transfer” of a totality of assets within the meaning of the Sixth Directive, where a trader transfers the stock and fittings of his retail outlet to a purchaser and merely leases the premises which he owns to the purchaser? 2. Is it relevant in that regard whether the premises were leased on the basis of a long-term lease contract, or whether the lease contract is for an indefinite period and may be terminated by either party at short notice? CJEU judgment According to the CJEU, a non-taxable transfer of the totality of business assets for the purposes of the Sixth Directive requires that the purchaser is able to continue the business as an independent economic undertaking. However, the mere sale of stock is not sufficient to satisfy this requirement. To determine whether the transaction at issue can be regarded as a transfer of a totality of assets, an overall assessment of the factual circumstances has to be made, subject to the following distinctions: (1) If an economic activity does not require the use of particular premises or any premises with a fixed shop installation that would be needed for continuing the economic activity, then the totality of the assets can be transferred even without the transfer of the business premises. (2) However, if the purchaser can only continue the economic activity by using the same premises as were used by the vendor, then a transfer of the totality of assets would at least require the purchaser to obtain possession of the business premises. (3) The possession of the business premises does not necessarily require the transfer of the premises. A transfer of assets may also equally take place if the business premises are made available to the purchaser by means of a lease contract, or if the purchaser has their own appropriate premises to which all of the transferred goods can be moved and where the purchaser can carry on the respective economic activity. (4) If the continuation of the economic activity requires the purchaser to use the same premises as the vendor did, the CJEU raises no objections if the possession of the premises is transferred by means of a lease contract. In this connection, it is irrelevant whether the lease contract is indefinite and can be terminated at short notice by either party. It is solely decisive whether the lease contract terms are an obstacle to the long-term continuation of the economic activity of the purchaser. Following the above-mentioned considerations, the CJEU concluded that a non-taxable transfer of the totality of business assets had taken place, as Sport S. GmbH continued the acquired business for nearly two years, and did not just liquidate the business activity immediately after the purchase. Practical impact of the judgment A non-taxable transfer of the totality of business assets can apply even in cases where substantial parts of the business are retained. However, the purchaser must be able to continue the business as an independent economic undertaking. An issue which still remains unexplained within the present CJEU judgment is the question of whether a non-taxable transfer of the totality of business assets applies even if the business premises are sold to a third party who then enters into a lease contract for the business premises with the purchaser. ANNETTE POGODDA CLAUS WAGNER Germany – Berlin annette.pogodda@bdo.de claus.wagner@bdo.de
IRELAND RECENT VAT DEVELOPMENTS INDIRECT TAX NEWS 1 5 With effect from 1 January <strong>2012</strong> the standard rate of VAT applicable in Ireland has increased from 21% to 23%. Whereas the reduced rate of VAT is still 13.5%, a temporary reduced VAT rate of 9% was introduced with effect from 1 July 2011 with a view to stimulating the Irish economy. 9% Rate The 9% rate applies to certain goods and services which were previously liable at the reduced 13.5% rate, although the 13.5% rate continues to apply to other items. The supplies liable at the 9% VAT rate include the following: • restaurant and catering services; • hotel and holiday accommodation; • admissions to: • cinemas, theatres and certain musical performances; • museums and art gallery exhibitions; • pet farms; and • fairgrounds or amusement park services; • the provision of facilities for taking part in sport; • hairdressing services; and • printed matter such as brochures, maps, programs, leaflets, catalogues and newspapers. It is intended that the VAT rate applying to these goods and services will revert to 13.5% with effect from 1 January 2014. 13.5% Rate The following items continue to remain liable to Irish VAT at the 13.5% rate: • bakery products, excluding bread (bread related products qualifying for 0% are specially defined); • residential property; • building services related to residential property, including installation; • routine cleaning of residential property; • minor repairs of bicycles, shoes or leather goods, clothing or household linen; • non-oral contraceptive products; • goods used for the agricultural production of bio-fuel; • agricultural services; • certain nursery or garden centre stock; • animal insemination services and livestock semen; • children’s car safety seats; • waste acceptance and disposal services; • greyhound feeding stuff and live poultry and live ostriches; • fuel for power and heating, coal, peat, timber, electricity, gas (other than auto LPG), heating oil; • non-residential property; • building services related to non-residential property, including installation; • routine cleaning of non-residential property; • concrete; • tour guide services; • short-term hiring of cars, boats, caravans, mobile homes, tents or trailer tents; • repair and maintenance of cars, other vehicles, vessels and aircraft; • services consisting of the care of the human body; • jockey services; • photographic services including photographic prints; • car driving instruction; • veterinary services; and • certain works of art, antiques and literary manuscripts. VAT on medical services and bakery products The Irish Revenue have also recently issued an information leaflet in respect of the VAT treatment of medical services which makes a distinction between those services that are regarded as exempt from VAT, and those liable at the reduced and standard VAT rates. A Revenue e-Brief has also been issued, clarifying the VAT treatment of bakery products and food supplements. Both of the above documents were produced by the <strong>Tax</strong> Authorities in response to the perception that the VAT exemption and lower VAT rates were being incorrectly applied to the supplies of certain goods and services. IVOR FEERICK Ireland – Dublin ifeerick@bdo.ie
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Page 7 and 8: LUXEMBOURG A 3% VAT RATE FOR E-BOOK
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