In his latest monthly column for Tax Journal, Victor Cramer analyses the Court of Justice of the European Union’s decision in a case brought by parking management company Apcoa.
Alice first found her way to Wonderland by falling down a rabbit hole. Later, she climbed through a mirror into a world where everything was reversed.
And so it is with Apcoa Parking Danmark v Skatteministeriet (Case C-90/20) – an apparently simple case about VAT on parking penalty charges which hides a deep rabbit hole and may reverse some of the world as we know it.
Apcoa operated car parks on behalf of their owners. It charged penalty fees for breaches of parking conditions. The case concerned the VAT treatment of those penalty fees. The CJEU decided the penalties were consideration for a VATable supply of services, being an extension of the original parking fee. Importantly, it concluded that the domestic law analysis of the nature of the fee and its relation to the value of the primary parking charge were irrelevant (see paras 45 and 46).
Through the looking glass?
Apcoa potentially affects the decision in Vehicle Control Services v HMRC [2013] EWCA Civ 186) (VCS), which dealt with the same issue although on different arguments. In VCS, the court analysed the result that flowed from a purely domestic law analysis of the tripartite arrangements. It held that fees were outside the scope of VAT as damages for trespass or breach of contract.
The CJEU’s approach in Apcoa suggests that the focus on the domestic law analysis in VCS may have been wrong. See, in particular para 46, which says: ‘the assessment of whether payment of a fee is made as consideration for a supply of services is a question of EU law which needs to be determined independently of the assessment made under national law.’
Absent Brexit, there is a strong argument that VCS was wrongly decided. But Brexit is, of course, not absent. In the sunlit uplands of the Mad Hatter’s tea party, CJEU decisions no longer displace domestic decisions. The impact of Apcoa therefore depends on a close analysis of the foundations on which the judgment is built. It is possible VCS was incorrect based on pre-Brexit jurisprudence, and Apcoa merely brings the error into focus because the subject matter is so similar.
The domestic position
HMRC’s new guidance (VATSC05910) comes into force on April Fool’s Day 2022. The VAT treatment of parking fines will depend on whether the charge is a genuine fine or an additional charge for parking: ‘The level of the fee for breaching the parking terms in comparison to the standard parking fee may be indicative of which category a particular fine would be in.’
This guidance has already been changed once, following industry pushback. Although it is unlikely to change again, it may nevertheless be wrong.
Conclusion and additional thoughts
Clarity on the VAT treatment of compensation and termination payments will take time, despite HMRC’s guidance. A lack of clarity and a multitude of commercial arrangements leave plenty of scope for difference of opinion. There are more things in heaven and earth than are dealt with in HMRC’s guidance.
Those in need of a spare rabbit hole may note what the court said at para 42 of the judgment: ‘The need for … such … fees would not exist if the service of providing a parking space was not supplied in advance.’
Despite valiant attempts by Royal Opera House Covent Garden [2021] EWCA Civ 910, the ‘but for’ test fails as a proxy for a ‘direct and immediate link’ to input VAT costs. Nevertheless, it still creates a ‘direct link’ between supply and consideration for output VAT. Does the word ‘immediate’ really change the test so much?
The article in the Tax Journal can be found here.
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