This month in indirect tax: VAT rulings on NewsCorp and OnlyFans
NewsCorp loses its VAT appeal at the UK Supreme Court, while the CJEU rules against Fenix International in a dispute over VAT on OnlyFans transactions.
The UK Supreme Court ruled on Wednesday, February 22, that News Corp UK & Ireland cannot apply a zero rating for VAT on its digital editions of The Times and The Sun.
News Corp UK & Ireland will be unable to claim back £35 million ($42 million) in VAT because its digital output does not count as VAT-free newspapers, according to the Supreme Court ruling.
The Supreme Court found that the publishing company could not claim a zero VAT rating for its digital editions because the term ‘newspaper’ in the 1994 VAT Act does not include digital news services.
As a result, NewsCorp UK & Ireland cannot reclaim VAT paid on digital editions from September 2010 to December 2016 even though its online products have the same content as its physical newspapers.
This means the full 20% VAT rate will apply to pre-2020 online subscriptions.
However, UK law changed on May 1 2020 and digital editions of newspapers are now zero-rated for VAT purposes.
A zero rating for VAT purposes may save the newspaper and magazine industry £50 million a year, according to Press Gazette research last year. The Times and Sunday Times are estimated to gain £15 million a year from the zero rating.
OnlyFans company liable for VAT on Italian content, rules CJEU
The Court of Justice of the EU ruled yesterday, February 28, that Fenix International, widely known for its OnlyFans platform, is liable to pay VAT in the UK on content regardless of where it is produced.
UK-registered company Fenix International is subject to 20% VAT on any sum paid to OnlyFans content creators even if they are outside the country, according to the ruling. Under the EU VAT Directive, the company was presumed to be the supplier of services when acting as an intermediary.
Fenix International collects and distributes payments made by users to creators, and charges creators 20% on the sums paid by way of a deduction. The company applies VAT to the 20% deducted, but the UK tax authority disputed the tax base.
HM Revenue and Customs (HMRC) sent VAT assessments to Fenix International for the period from July 2017 to January 2020. HMRC argued that the company should have accounted for VAT on the amounts passed on to the creators, and not just the amount deducted.
In response, Fenix filed an appeal with the First-tier Tribunal, which referred the case to the CJEU on December 15 2020. The CJEU still had jurisdiction on UK cases until December 31 2020.
UK-EU agree Windsor Framework to amend Northern Ireland Protocol
The European Commission and the UK government announced an agreement in principle on a new framework to revise the Northern Ireland Protocol, with implications for VAT and customs rules.
A new internal UK trade scheme will be established if the Windsor Framework goes ahead, according to the agreement, reached on Monday, February 27.
The Windsor Framework would introduce a ‘green lane’ for goods imported for internal use to Northern Ireland from the UK mainland and a ‘red line’ for goods imported to the EU through Northern Ireland. This is intended to ease the supply chain problems holding back trade.
Under the protocol, Northern Ireland is still subject to EU VAT and excise rules on goods and services bought and sold there even though it is within UK borders. The framework would change this and extend UK VAT and excise rules to Northern Ireland.
Meanwhile, the Northern Ireland Assembly will gain a greater say – a so-called ‘Stormont brake’ – over whether to adopt EU legislation. But the Court of Justice of the EU will still arbitrate over tax disputes related to the protocol.
However, the Windsor Framework is controversial in Northern Ireland because it does not mean the end of the sea border between the UK and the island of Ireland. The ruling Conservative Party in the UK is facing opposition from its own ranks over the deal.
Malaysian government rejects calls to bring back GST
Malaysian Prime Minister Anwar Ibrahim rejected calls from business groups to scrap the sales and services tax in favour of the goods and services tax ahead of the 2023 budget.
The Malaysian government stuck to its opposition to bringing back GST in its budget on Friday, February 24. Malaysia introduced GST in 2015 but it was very unpopular with the public because of its impact on prices. It was later scrapped in favour of SST in 2018.
Prime Minister Anwar had made it clear his government would not scrap SST in favour of GST on February 14. He argued that the GST regime could return, but only if the average Malaysian income rose from RM3,000to RM4,000 ($668 to $891) a month.
The Federation of Malaysian Manufacturers called on the government to reintroduce the GST in January. It proposed implementation in 2024 with a GST rate of 4% and a registration threshold of RM500,000 ($117,000).
Many manufacturing companies want the return of GST because it would simplify indirect tax compliance and could allow for reductions in direct taxes. Nevertheless, Malaysia is sticking with SST for now.
Italy investigates Meta for VAT on Facebook user data
Meta Platforms is facing a potential VAT bill of €870 million ($924 million) on Facebook data sourced in Italy after Milan prosecutors decided to investigate the company.
The European Public Prosecutor’s Office (EPPO) asked the Milan Prosecutor’s Office to investigate the US company, according to daily newspaper Il Fatto Quotidiano on Wednesday, February 22.
Meta could face a bill of €220 million in Italy for 2021 alone, while the total figure backdated to 2015 could be as high as €870 million. These figures were calculated by the Italian Revenue Agency and the Guard of Finance.
Investigators reportedly believe that free access to Facebook data should be classified as an exchange of services and therefore subject to VAT under Italian law. This could have widespread implications for other tech companies operating in Europe.
A Meta spokesperson told the press: “We strongly disagree with the idea that providing access to online platforms to users should be charged with VAT.”
Meta stressed that it pays all taxes required in the countries where it operates and will cooperate with the investigation.
The EPPO does not comment on ongoing investigations.
Turkey joins QR code compliance trend
The Turkish Revenue Authority announced on February 17 that it plans to impose e-invoicing requirements including QR codes on taxpayers.
Businesses in Turkey will be expected to use QR codes for VAT compliance from September 1 2023, according to the TRA. QR codes will be used in e- invoices for business-to-customer transactions, as well as for business-to-business and business-to-government transactions.
Tax authorities hope the use of QR codes will ease the compliance burden for businesses, as well as make tax enforcement easier.
QR codes were invented in 1994 for the automotive industry, but this means of linking users to data has become widespread in recent years.
Turkey is joining a growing list of jurisdictions that use QR codes as part of e-invoicing requirements. These countries include Greece, India, Mexico, Portugal and Spain. The COVID-19 pandemic has only accelerated the rise of QR codes in tax compliance.