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A VAT windfall could be on the cards for UK firms if two European cases are ruled in favour of the taxpayers in relation to input tax claims on business entertainment expenses.
The Advocate General – who provides an opinion to the European Court of Justice, which the judges consider and normally follow – has delivered an opinion in the joined Dutch cases of X Holding BV and Oracle Nederland BV (C-538/08 and C-33/09), concerning the input tax block on business entertaining expenditure that applies in the Netherlands.
The challenge relates to the issue of whether the block is compliant with EU regulations, and the Advocate General has indicated that it is not.
UK VAT rules apply an input tax block to goods and services used for the purposes of business entertaining (excluding staff), but they do not appear to block specific expenditure. If the Dutch case goes in favour of the taxpayer, as is expected, the taxman will need to consider UK policy.
Independent VAT consultant Neil Warren said, ‘If the cases go in favour of the taxpayer, it will be worthwhile for UK businesses with entertaining expenditure to submit a protective claim to HMRC going back to April 2006, the current time limit for retrospective VAT adjustments.
'The Revenue is likely to challenge the application of the Dutch cases to UK VAT law, so the process could involve test cases and counter-appeals before the issue is decided, which could take many years.'
