The taxpayer is a ‘vehicle reuse undertaking’. It purchases end of life vehicles. However, because these purchases are from private individuals or insurance companies, no VAT is charged. The taxpayer’s main activity is the resale of used motor vehicle parts that are removed from the purchased vehicles. The other activities of the business include environmental and waste treatment of the cars and the sale of scrap metal. The dispute concerns the taxpayer’s resale of used parts. The Advocate General (AG) has supported the taxpayer’s arguments that the onward sale of spare parts from end of life vehicles purchased from individuals and insurance companies must be covered by the margin scheme.
Historically the business had accounted for VAT on these sales at the standard rate. The taxpayer applied to the local tax authority to account for VAT under the second hand margin scheme. The tax authorities refused this application, arguing that:
The AG asked two questions:
Are the parts second hand goods?
Exclusion from the scheme would result in ‘a legal vacuum as regards the tax treatment’.
Does the absence of a specific purchase price preclude the parts from the scheme?
The Greek Government agreed with the Danish Government that inclusion in the scheme and the absence of a specific purchase price for the part could lead to misuse of the scheme. However, the AG was of the view that if the parts were second hand goods VAT must be accounted for under the margin scheme on the basis this is a ‘shall’ provision within the Directive and non-application would breach fiscal neutrality. The AG noted a number of methods using estimated percentages and ways in which the taxpayer could calculate margin (para 58) but left this down to the national court to decide.
This is a positive opinion for the taxpayer. The opinion found that there was nothing in the directive to exclude such goods but importantly it was the issue of double taxation and the potential breach of fiscal neutrality on which the AG’s opinion is based. In terms of the UK, this is not likely to have a significant impact as HMRC’s policy appears supportive of the inclusion of car parts under the global margin scheme subject to certain conditions (see Notice 718).
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