In the case of Golf Holidays Worldwide Ltd., a dispute has arisen over the treatment of Value Added Tax (VAT) within the framework of the Tour Operator's Margin Scheme (TOMS). TOMS, designed to simplify VAT calculations for tour operators, has become the focal point of contention for Golf Holidays Worldwide Ltd.
The company originally followed the guidance of its advisors, accounting for wholesale supplies under TOMS. However, a revision in their stance now asserts that this approach was in error.
This revision has triggered a denied VAT refund claim and set the stage for a crucial examination of TOMS treatment within the context of Golf Holidays Worldwide Ltd.
Background of the Case
In the case of EC Commission v Kingdom of Spain (Case C-189/11), the European Court of Justice (ECJ) ruled that supplies made to business customers, not to the traveller (wholesale supplies) should be considered under the Tour Operator's Margin Scheme (TOMS).
Following this decision, HM Revenue and Customs (HMRC) in the UK issued updated guidance in Revenue & Customs Brief 05/14.
This guidance clarified that TOMS rules within the UK would remain unchanged i.e., wholesale supplies not to be under TOMS. However, UK businesses now had the option to align with EU law and include such supplies under TOMS, as indicated by the ECJ's judgment. This gave businesses more flexibility in their VAT treatment.
HMRC's position was that since the UK's domestic law aligned with the terminology used in EU law, there was no violation of the Principal VAT Directive regarding the application of TOMS to wholesale supplies.
Therefore, according to HMRC, wholesale supplies can be applied for TOMS, as using TOMS for wholesale supplies was in line with UK domestic law when interpreted in accordance with EU law as per MarLeasing SA Case C-106/89.
As per HMRC any confusion regarding applicability of TOMS for Wholesale supplies is stemmed from an administrative mistake made in Revenue & Customs Brief 05/14 which meant that there was, effectively, a concession that allowed wholesale supplies to be treated as outside TOMS by UK businesses if they chose to do so.
Golf Holiday stated that the MarLeasing Case can not be used as a base that enables Tribunal to effectively change the UK domestic legislation of non-applicability of TOMS for wholesale supplies if looked independently without reference to EU law.
In addition, Golf Holiday Worldwide Ltd. argued that the company hadn't deliberately chosen to apply TOMS; instead, they had relied on their accountant's guidance and were unaware that TOMS didn't cover wholesale supplies (as per UK domestic legislation).
They claimed that this was a mistake, causing them to pay more VAT than if they had followed the standard UK tax rules. Golf believed they had the right to rectify this error and receive the appropriate VAT treatment.
According to Golf, UK law explicitly excludes wholesale supplies from TOMS and obligates taxable entities to follow the regular VAT regulations in such cases.
HMRC therefore believed that the application of TOMS by Golf was not an error as it was open to them either by way of UK domestic law or by direct effect to account for the relevant supplies under TOMS, and there had been no relevant error which could be corrected by way of an Error Correction Notice (ECN).
Based on the initial HMRC judgment, Golf filed an appeal to First Tier Tribunal stating HMRC relied on the principle of direct effect from ECJ in this case. Golf also contended that the rejection of the ECN was a breach of the principle of fiscal neutrality.
Golf submitted that HMRC’s rejection of the ECN imposes direct effect upon Golf and so the company suffers discrimination in comparison to its competitors as their supplies were subject to a different VAT treatment
Judgement by the First Tier Tribunal
The First Tier Tribunal concluded that an incorrect assessment of the most advantageous position, within the law, is not an error of fact or law which can be corrected through the use of ECN.
Regarding the principle of direct effect from ECJ, as per FTT, it was Golf, not HMRC which applied direct effect. HMRC is not relying on direct effect to impose a VAT charge; it is declining to allow Golf to reverse its application of direct effect.
The rejection of the error correction by HMRC does not impose a direct effect by the State. Instead, it upholds the direct effect initially applied by the company. From FTT perspective, Golf is obligated to accept the repercussions of its own decisions, rather than being compelled by HMRC to take specific actions.
Regarding the violation of the principle of fiscal neutrality, the FTT (First-Tier Tribunal) has determined that no breach has occurred. This is because taxpayers were provided with a choice of methods for handling these supplies, and Golf Holidays Worldwide Ltd voluntarily selected its approach.
The regret expressed by Golf now does not indicate that its supplies received less favourable treatment in comparison to those of other taxpayers.
Based on the above reasons, FFT concludes that Golf has not made an error which is capable of being corrected from ECN and dismisses the appeal of Golf Holidays Worldwide Ltd.
What now for Golf Holidays Worldwide Ltd.?
The company or any party dissatisfied with the decision from FTT has a right to apply for permission to appeal within 56 days from the date the FTT decision was sent (3 August 2023).
The Bigger Picture!
The First-tier Tribunal denied an appeal that argued picking a less profitable VAT method by mistake could be fixed with an error notification to HMRC (Regulation 35 of the VAT Regulations 1995). So, correcting the mistake and getting a refund was not allowed.
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