VAT Insights – February 2025

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Welcome to the first edition of VAT Insights for 2025. 2025 is certainly shaping up to be an interesting year in the world of indirect tax. The Executive Orders already issued by President Trump imposing import duties on imports from Mexico, Canada and China into the US appear likely to be the tip of the iceberg, with other jurisdictions expected to respond in kind unless there are deals to be done. Quite whether these measures herald a new era (“tariffs are my favourite word”) or are in reality a negotiating instrument remains to be seen – though the hasty deal apparently struck by Mexico might suggest the latter. The European Union appears to be next in line with President Trump describing it as an “atrocity”. What seems certain is that President Trump seems set to upset the status quo in terms of world trade and that none of the fall out is likely to be easy for businesses involved in cross border trade between the US and his target jurisdictions.

In this edition, we also cover the following developments:

• A decision of the CJEU rejecting arguments of the Romanian tax authorities that input VAT deduction should be denied if a taxpayer cannot show that expenditure was “necessary and appropriate”
• An AG opinion on the VAT treatment of an administrative fee charged to customers using a VAT free export scheme, suggesting it was either simply further consideration for the underlying goods or part of a single supply
• An Upper Tribunal decision on the correct interpretation of the VAT exemption for fund raising events, and
• HMRC guidance on VAT and cladding remediation works.

We also have updates from across our European network, including the Netherlands.

In addition, we produce more detailed reports on the most significant tax developments so if you scroll to the bottom, there's a list of the most important issues we have covered, with links to our more detailed reports.

If you are interested in finding out more about the below or have a specific indirect tax query, please don't hesitate to get in touch. Our contact details are at the bottom.

Input VAT on intra-group services

In Weatherford Atlas Grip SA (Case C-527/23), the CJEU has, fortunately, decisively rejected arguments of the Romanian tax authorities that input VAT incurred on intra-group services could not be deducted on the basis that those services were not necessary or appropriate. The case concerns supplies of administrative services (such as HR, IT, accounting and marketing) received by the taxpayer from overseas group companies (not part of a VAT group) and on which the taxpayer accounted for VAT in Romania via the reverse charge. When it sought an input VAT deduction on the basis that those services were attributable to its taxable activities, the Romanian tax authorities refused that deduction on a number of grounds, including, it appears, that the services were not exclusively supplied to the taxpayer and that the taxpayer had not shown that the services were necessary and appropriate for its business.

The CJEU’s judgment makes clear that the question whether a sufficient link exists between the services on which VAT has been incurred and the taxpayer’s taxable activities must be based on an objective assessment, taking into account the actual use of the services and the reason for their purchase. If, on the facts, the services were not used exclusively for the taxpayer’s activities but for the activities of third parties, then the existence of a direct and immediate link would be partially broken so that the taxpayer would only be able to deduct input VAT on part of the expenditure. However, the CJEU’s judgment makes it clear that the fact that the administrative services were provided simultaneously to several recipients appears to be irrelevant as does the question whether the purchase of the administrative services was necessary or appropriate. In this connection, it is important that group companies (which are not part of a VAT group) do, however, respect their independent nature and ensure that they do not inadvertently bear costs properly attributable to other group companies.

Read the CJEU decision here

Administrative fees

Hatar Diszkont Kft (Case C-427/23) concerns the question of the correct VAT treatment of a fee charged by a seller of goods for export processing the VAT free export documentation. At first sight, one would be forgiven for thinking the issue straightforward. It is consideration for carrying out a supply of services and subject to VAT. The Advocate General has, however, adopted a much more nuanced analysis and suggested that the fee was in reality simply additional consideration for the goods sold or, alternatively, subject to the same VAT treatment as incidental to the main supply.

The seller in this case charged a 15% administrative fee when selling goods for export outside the EU. This involved checking customers travel documents and a required tax refund form. On refund of the amounts initially paid as VAT, the taxpayer issued an invoice for payment of the 15% administration fee. It treated the administration fee as exempt from VAT.

The correct VAT treatment of this charge has been referred to the CJEU, raising a number of issues of interest. Firstly, the AG has suggested that in these circumstances, there is no separate supply at all. The fee simply represents an additional amount charged for the goods and, as such, subject to the same VAT liability as the goods. In the alternative, the AG has suggested that, if there is a discrete service, then it is one that is entirely dependent and ancillary to the main supply of the goods and should share the same VAT treatment in any event.

Finally, the AG also points out that the taxpayer’s objectives to the assessment, on the basis that the Hungarian tax authority’s failure to query the treatment over several years gave rise to a legitimate expectation, were without basis since “precise assurances” are needed to give rise to a legitimate expectation.

Read the Opinion in full here

Fund raising activities

The VAT exemption for fund raising activities is found in VATA 1994 Sch 9 Group 12 item 1 and exempts: “The supply of goods and services by a charity in connection with an event (a) that is organised for charitable purposes by a charity or jointly by more than one charity, (b) whose primary purpose is the raising of money, and (c) that is promoted as being primarily for the raising of money”.

HMRC took issue with the activities of the Yorkshire Agricultural Society in organising the Great Yorkshire Show. HMRC rejected the contention that the admission charge to the 2016 show was exempt since it had a dual purpose of raising money and promoting the charity and, furthermore, it had not been promoted as being primarily for the raising of money.

The Upper Tribunal has held that, in applying the exemption, it was necessary to interpret it in context and take into account the purpose of the exemption. As such, the requirement in Item 1(b) was not failed where the primary purpose of the event consisted of fund-raising which was inextricably intertwined with the furthering of the charity’s charitable purposes. As the Tribunal noted, HMRC’s interpretation would produce the seriously odd result that an event can only fall within the exemption if it was organised for charitable purposes but not primarily for charitable purposes!

As regards the requirement in Item 1(c) that the event be promoted as being primarily for the raising of money, that requirement was ultra vires as not compatible with the provisions of the Principal VAT Directive (Article 132(1)(o)) from which Item 1 was derived and it was necessary to apply a conforming interpretation of Item 1(c) by removing the word “primarily” from the provision.

Read the full decision here

VAT treatment of cladding remediation

HMRC has published guidance on the VAT treatment of cladding remediation work carried out on residential buildings in Revenue & Customs Brief 3 (2024) and Guidelines for Compliance (Gf11). In particular, the guidance deals with the question whether remediation works can be treated as “snagging” and part of the original zero-rated construction of the building or should be treated as a separate (taxable) supply of services.

HMRC defines snagging as the carrying out of remedial works to correct faulty workmanship or replace faulty materials. Normally, it is carried out by the original developer under the terms of the original contract. This means it is not seen as a separate supply of construction services. In contrast, if a property is considered as complete for VAT purposes, then any future work would normally be considered as repair or maintenance of the existing building and subject to the standard rate of VAT.

The guidance also covers the question whether any input VAT incurred on remediation work can be recovered on the basis that it has a direct and immediate link with the original construction or whether there may be a direct and immediate link to general business activities as an overhead.

Read the guidance in full here

The Netherlands: VAT and holding companies

In a decree published on 10 December 2024, the Dutch Secretary of Finance has revoked the application of existing decrees on the VAT treatment of holding companies. Instead, the VAT treatment of holding companies will be governed by a newly amended decree on the VAT grouping more generally. The changes will take effect from 1 July 2025.

Pursuant to the terms of a 1991decree:

• Pure holding companies have no right to input VAT recovery. This type of holding company engages solely in holding shares and related activities. It is not considered to be a VAT taxable person, consequently cannot form part of a VAT fiscal unity, and its activities are characterised as passive asset management.
• Management holding companies: This type of holding company charges fees for its services within the group, and as such qualifies as a taxable person. Such holding companies can join a VAT fiscal unity if the financial, organisational, and economic integration conditions are met. VAT deduction depends on the activities of either the management company or the fiscal unity, as appropriate.
• Active top holding companies, such as a top holding company which functions within a group as a decision-making and supervisory entity for affiliated companies, are allowed to join a VAT fiscal unity on (written) request even if they do not qualify as a taxable person because they do not charge a fee for their activities. So, even though the general rule for a Dutch VAT group is that a VAT group can only exist between VAT taxable persons, the Secretary of Finance nonetheless allows such holding companies to join a VAT fiscal unity even if it does not charge a fee and therefore does not qualify as a VAT taxable person. The VAT deduction position of the holding company is governed by the fiscal unity's overall activities.

In addition, in an August 2004 decree, the Secretary of Finance stated that if the acquisition, holding, and sale of shares occurs within the scope of a business, the associated costs are considered to be part of the general expenses of the business. The related VAT is deductible according to the pro rata rule for general expenses. The proceeds from the sale of shares are not regarded as turnover and as such do not affect the right to deduct VAT.

Those earlier decrees have now been revoked with effect from July 2025. From that date, the Dutch guidance on the VAT treatment of holding companies will now be that set out in the separate decree on VAT groups more generally.

In practice, the guidance has not changed significantly. However, the new guidance specifically extends the VAT treatment of top holding companies also to intermediate holding companies.

In addition, following the revocation of the 2004 decree, the Secretary of Finance now simply refers to the case law of the CJEU and the Dutch Supreme Court on the question whether VAT incurred in relation to the acquisition, holding and sale of shares is deductible. Whilst the post July 2025 position may no longer suffer from certain contradictions between the old policy and the case law on the right to deduct input VAT connected with shares, most likely there still will be discussions on this topic with the Dutch tax authorities.

Other issues we have recently covered

Payments in settlement of regulatory breaches
The Court of Appeal has overturned the decisions of the FTT and Upper Tribunal and held that payments made by Scottish Power pursuant to agreements with regulators in settlement of various regulatory investigations into matters such as mis-selling, complaints handling and costs transparency were deductible for corporation tax purposes: ScottishPower v HMRC [2025] EWCA 3. The Court held that, on the facts, the payments were not fines or penalty payments and so did not fall within the scope of the reasoning in earlier jurisprudence that fines and penalty payments are not deductible.

Salaried member rules: members with significant influence
The Court of Appeal has held that the FTT and UT incorrectly interpreted Condition B in the salaried members’ rules and has referred the case back to the FTT on this issue: BlueCrest Capital Management (UK) LLP v HMRC [2025] EWCA 23. The Court has held that on a true construction of Condition B, it is only those enforceable rights and duties that arise from the LLP agreement, statute or potentially elsewhere that may be taken into account in determining whether a member has significant influence over the affairs of the LLP. In taking into account the de facto influence wielded by members with capital allocations of $100m or more, the FTT and UT had made an error of law and the correct procedure was now to refer the matter back to the FTT for a decision based on the correct interpretation of the law.

LPP claims and standing to resolve disputes
The FTT has held that a taxpayer does not generally have standing to bring proceedings under the Information Notice: Resolution of Disputes as to Privileged Communications Regulations 2009 to resolve a dispute in relation to legal professional privilege (LPP) concerning documents requested by HMRC of its advisers: Castlet Holdings Ltd v HMRC [2024] UKFTT 1101.

Top ten cases of 2024
The best thing about Christmas lunch? That each year offers variants on a theme, with something for everyone. So too it is with tax disputes. Please join us at our festive table as we savour the most significant tax disputes cases of 2024.

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