This month in indirect tax: Uber wins UK VAT case but challenges remain
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This month in indirect tax: Uber wins UK VAT case but challenges remain

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Developments included Uber’s court victory in the UK, the EU’s likely decision to delay ViDA, turnover tax cuts in France, and more.

Uber wins VAT court case but faces HMRC challenge

Uber Britannia, the UK subsidiary of Uber Technologies, won a VAT dispute at the England and Wales High Court on Friday, July 28.

The case was against Sefton Metropolitan Borough Council, which licenses Uber to operate in the area, and a group of private hire taxi firms. It concerned the application of VAT across all private hire firms.

Uber Britannia argued that the national 20% rate of VAT should apply to the whole industry, in accordance with the Local Government Act (1976), whereas the private hire firms opposed this claim.

Judge Alison Foster said: “I have come to the clear conclusion that Uber’s suggested construction of the 1976 Act is correct.”

The case goes back to the VAT dispute brought against Uber by the Good Law Project. The UK Supreme Court ruled in February 2021 that Uber was the principal service provider and therefore liable to charge VAT.

Previously, Uber drivers were responsible for charging VAT to customers. However, most of them did not meet the UK threshold of £85,000 ($108,000) and, as a result, most Uber rides were VAT free until March 2022 when the company began collecting the 20% tax on journeys.

However, the same standard did not apply to all private hire tax operators in the UK. So, Uber took legal action to try to level the playing field with around 16,000 private hire firms.

Despite its recent victory, Uber is facing more scrutiny from HM Revenue and Customs (HMRC) over its VAT position, as revealed by Tax Policy Associates.

HMRC is disputing that the company has paid the correct amount of VAT, arguing that it owes £386 million. Uber has already paid the fee up-front, despite having appealed.

This follows a 2022 VAT case with HMRC in which Uber ended up paying £615 million.

EU Parliament committee to call for one-year delay to ViDA reforms

On July 18, the European Parliament’s Committee on Economic and Monetary Affairs confirmed its plan to push for a one-year delay on the implementation of the European Commission’s VAT in the Digital Age reforms.

It comes shortly after the committee had discussed delaying for two years, on July 6.

The committee is likely to suggest that all measures that were originally set to be phased in between 2024 and 2028 are to be pushed back by a year, giving businesses more time to prepare.

Other suggestions likely to be put forward include extending deadlines for e-invoices and digital reporting, allowing non-EU formats for e-invoices, and removing the mandatory reverse charge rule.

It is unclear how the call for a delay will affect the ViDA proposal. ITR previously reported, at the Indirect Tax Forum in May, that the convergence deadline was in doubt.

France drags out end of CVAE over deficit concerns

The French government is dragging out the plan to abolish contributions on added value (CVAE) pledged by President Emmanuel Macron during his successful 2022 re-election bid, reported Bloomberg.

Finance Minister Bruno Le Maire said on July 25 that the abolition of CVAE would not take place in 2024 but by the end of Macron’s second term in 2027. This tax cut would save French businesses an estimated €8 billion ($8.8 billion).

France has seen its credit rating downgraded over its growing budget deficit. As a result, the government is slowing down its plans for fiscal reform.

“Heavy debt is unbearable and a danger for the French nation,” said Le Maire. “Everyone knows we have to start cutting debt when things are going better.”

CVAE is levied on business turnover, employees and property rather than profit. This value-added levy applies to businesses with revenues of more than €500,000 and rises from 0.5% to 1.5% at €50 million in turnover.

Cyprus introduces new 3% and 0% VAT rates

The Cypriot parliament enacted a super-reduced 3% VAT rate on July 13 and extended the implementation of a 0% VAT rate for goods used by people with disabilities.

These reforms have been made possible under the new EU VAT rate freedoms, which were enacted on April 5 2022 and increased the rights of member states to introduce reduced VAT rates on certain goods.

EU members are now free to introduce some rates below the previous 5% lower limit.

Goods from newspapers and books to orthopedic items and splints have been included in the new 3% rate, as have services such as street cleaning and sewage to recycling and debut musical performances.

The 0% bracket will include products such as typewriters with braille characters and special electronic typewriters used by people with disabilities, as well as wheeled and other vehicles for the disabled.

EU carbon border tax has dangerous loophole, say aluminium companies

European aluminium companies have warned that a loophole in the EU’s carbon border tax will allow heavily polluting nations to sidestep the rules and flood the bloc with cheap and environmentally damaging metals.

Under the Carbon Border Adjustment Mechanism (CBAM) proposal, offcuts of aluminium can be melted down and sold as zero-carbon products, therefore forgoing the levy.

Aluminium companies including Norsk Hydro and Speira told the Financial Times on July 9 that the loophole incentivises non-EU producers to make as much scrap metal as possible for remelting.

CEO of Norsk Hydro, Hilde Merete Aasheim, told the FT: “This loophole enables the widespread greenwashing of imported aluminium products and undermines the effectiveness of CBAM in preventing carbon leakage.”

Kuwait delays introduction of VAT, again

Kuwait has delayed the long-awaited introduction of VAT in 2024 over concerns about the impact of inflation, according to the Kuwait Times on July 14.

A VAT regime would be rejected by the National Assembly and by the public because of inflation, sources at the Ministry of Finance told the Kuwait Times. This is despite past commitments by the Gulf Cooperation Council (GCC) to implement VAT.

The Kuwaiti government reportedly favours excise tax as an alternative means of raising revenue and left VAT out of its economic plans for the next three years. Inflation is one reason for this, but previously Kuwaiti officials told ITR that the price of oil is a key factor in stalling on VAT reform.

As part of the 2017 GCC agreement on VAT, Kuwait agreed to introduce VAT at a rate of at least 5% by 2019. This would have matched VAT rates implemented across most of the GCC, whose other members are Bahrain, Oman, Qatar, Saudi Arabia and the UAE.

Kuwait and Qatar are the only GCC member states not to have introduced VAT.

Brazil moves towards new VAT system

Brazil may be close to a landmark tax reform after lawmakers in the lower house of Congress voted through a proposal to simplify the tax system, according to the Financial Times on July 6.

The Chamber of Deputies approved the bill to reform the tax system and simplify federal and local taxes with the introduction of VAT. However, the Senate still has to vote on the bill before it becomes law.

The bill would replace a host of different taxes with just two forms of levy: a federal VAT rate and local VAT rates. This would end the system of taxing goods where they are produced rather than where they are sold. It would also impose a standard rate of 25%.

Businesses will have a transition period – with the new rates coming into force between 2026 and 2032 – if the bill becomes law. It comes just after Brazil has secured a historic transfer pricing reform.

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