David Bennett 0207 841 4052 david.bennett@saffery Lion House, Red Lion Street London WC1R 4GB

1. EVENTIA12 June 2009VAT on Events: How to make the rules work, how they are to change and how you will be affected David Bennett 0207 841 4052 david.bennett@saffery.com Lion House, Red Lion Street London WC1R 4GB

2. Introduction What is VAT? • Tax on transactions (“supplies”) • Therefore need to consider the precise nature of transactions • Place of supply rules determine where a supply is subject to VAT • A tax on consumer expenditure collected at each stage of production. Shouldn’t be a cost to businesses but often is.

3. To understand the VAT treatment of an event • What is the exact nature of the event? • What are the component parts? • Where is it being held? • What is the purpose? • Is the organiser acting as agent or principal?

4. Some pointers to agency • Contractual terms, both between the organiser and service providers and between the organiser and client • Does the organiser have obligations to the service providers? Does the client have obligations to the service providers? • Pricing • Paperwork, eg, who are invoices addressed to? Who issues them? • Payment terms, cancellation terms • HMRC disbursement conditions • Cases imminent

5. Some pointers to agency (cont’d) • If an organiser does not satisfy agency criteria, he will be a principal for VAT purposes • Agent or principal gives a very different VAT outcome: • If principal, the organiser supplies the event itself (and management fee is part of the price of the event) • If agent, the organiser does not supply the event but provides the services of organising / managing the event • Care needed because agent/principal is not seen in the same light in all member states

6. Agency • Consideration for supply is the management fee (or similar) • Event costs recovered from the client as a disbursement • Client will need invoices properly addressed from service providers if VAT is to be recovered • Management fee is normally taxed where the organiser does most of the work, which is not necessarily where the event takes place • HMRC seem to suggest that if the organiser is required to attend the event, the place of supply is where the event takes place • Treatment of the fee as that of an intermediary as per the agreement for TMCs can be beneficial

7. Principal • The supply is the event itself. • Need to consider the nature of the event, ie, what are the component parts of the event? • Article 52 of Directive 2006/112/EC: • “The place of supply of the following services shall be the place where the services are physically carried out: • cultural, artistic, sporting, scientific, educational, entertainment or similar activities, including the activities of the organisers of such activities and, where appropriate, ancillary services”.

8. Principal (cont’d) • Tax authorities normally see the event organiser as the person responsible for the local payment of VAT • See the Gillan Beach Decision (2006): • UK company liable to French VAT on boat fairs it organised in France under the above heading • What is the purpose of the event? Eg, is it for advertising purposes? • What happens when the event contains “travel facilities”? • Need to consider TOMS

9. Tour Operators’ Margin Scheme (TOMS) • Special scheme for those supplying “travel facilities” • VAT due on the margin but no recovery of VAT on related direct costs • Applies where: • the supplier is not an agent • travel facilities are supplied for the “benefit of a traveller” • the travel facilities are acquired from a third party • there is no “material alteration” of the travel facilities

10. What are travel facilities? • “Primary travel facilities” are always TOMS supplies (subject to the previous conditions): • Accommodation • Passenger transport • Hire of means of transport • Airport lounges • Trips or excursions • Tour guides

11. What are travel facilities? (cont’d) • “Secondary travel facilities” are not TOMS supplies in their own right but become TOMS supplies when supplied as part of a package with any primary travel facility: • catering • tickets for the theatre, sports events, etc • other entertainments • sports facilities • similar • Above is taken from HMRC administrative guidance.

12. TOMS (cont’d) • Travel facilities must be supplied for the “benefit of a traveller” • Private individual – TOMS applies • “Business consumer”, ie, a business which will use the service itself – TOMS applies but with an opt-out • Wholesale, ie, a sale to a business which will supply the service to someone else – TOMS does not apply but with an opt-in

13. TOMS (cont’d) • UK TOMS rules to change on 1 January 2010 • In response to the Commission’s action in 2007 • HMRC brief of 9 April 2009 • Three measures: • Loss of the TOMS opt-in • Loss of the TOMS opt-out • Market value for in-house supplies

14. The TOMS opt-out • Supplies of travel facilities to a business for its own use (“business consumer” supplies”) do fall within TOMS. • But the opt-out allows the suppliers to disapply TOMS and use the normal rules. • This means the supplier can recover VAT on event costs and charge VAT on a VAT invoice, which often allows the client to recover the VAT. • As a result, the event is often cheaper when the opt-out is used.

15. The TOMS opt-out (cont’d) • Particularly useful for UK events • Many event organisers and other suppliers of travel for business consumption use the opt-out. • From 1 January 2010 this will not be available • Supplies of travel facilities for business use will therefore always fall within TOMS.

16. Loss of the TOMS opt-out Example 1 Team-building event • Event comprises team games, quiz, refreshments, lunch, free bar, dinner and after-dinner speaker. • None of these is a “primary travel facility” and therefore TOMS does not apply, either now or from January 2010. • Therefore, the loss of the TOMS opt-out makes no difference.

17. Loss of the TOMS opt-out (cont’d) Example 2 Staff incentive event (in the UK) • Event comprises flights to / from the venue, use of airport lounge, hotel accommodation, football tickets, hot-air balloon trip, lunch, dinner and coach transfers. • The flights, use of airport lounges, accommodation and coach transfers are “primary travel facilities”. The football tickets, balloon trip, lunch and dinner are “secondary travel facilities” because they are supplied in a package with “primary travel facilities”. • Therefore, TOMS applies to the whole event but currently the supplier can opt out. From 1 January 2010, TOMS will always apply.

18. Loss of the TOMS opt-out (cont’d)

19. Loss of the TOMS opt-out (cont’d) Example 2 – Illustration (cont’d) The organiser passes on costs at cost and adds a fee of £2,000. 1 Normal rules: Organiser recovers input VAT so charges £20,200 plus VAT. VAT to be charged is £20,200 x 12,200/18,200 x 17.5% = £2,370. So the client pays £22,570 but recovers the VAT, leaving a cost of £20,200. The organiser is left with a net fee of £2,000.

20. Loss of the TOMS opt-out (cont’d) Example 2 – Illustration (cont’d) 2 TOMS: Organiser cannot recover input VAT so charges £22,335. There is no additional VAT to add to this. So the client pays £22,335 but has no VAT to reclaim so the total cost is £22,335. In addition, the organiser must pay VAT under TOMS on his margin of £2,000: • Without transport company: £2,000 x 7/47 = £298 • With transport company: £2,000 x 14,335/20,335 x 7/47 = £210

21. Loss of the TOMS opt-out (cont’d) Example 2 – Illustration (cont’d)

22. Loss of the TOMS opt-out (cont’d) Example 3 Product launch (in the UK) • Event comprises the venue (including lighting, hire of equipment, displays, refreshments, name badges, decorations, models), flights, press conferences, lunch, hotel accommodation, dinner, excursions, coach transfers, limousine transfers, entertainments • The venue, press conferences and lunch arguably form an in-house supply of a product launch (as per HMRC guidance) and TOMS does not apply either now or from 1 January 2010.

23. Loss of the TOMS opt-out (cont’d) Example 3 Product launch (cont’d) • However, the flights, excursions, coach transfers and limousine transfers are primary travel facilities which do not form part of the in-house product launch. Accordingly, TOMS applies. • The dinner and entertainments are not part of the product launch and become secondary travel facilities and also therefore fall within TOMS.

24. Loss of the TOMS opt-out Example 3 – Illustration

25. Loss of the TOMS opt-out Example 3 – Illustration (cont’d)

26. Loss of the TOMS opt-out (cont’d) Example 3 – Illustration (cont’d) The organiser charges at cost and adds a fee of £100,000. 1 Current position with the TOMS opt-out – whole event falls outside TOMS. Organiser recovers all input VAT so charges £900,000 + VAT. VAT due is £900,000 x 615,000/800,000 x 17.5% = £121,078 So the client pays £1,021,078 but recovers the VAT of £121,078 (ignoring any business entertainment disallowance) leaving a cost of £900,000. The organiser is left with a net fee of £100,000.

27. Loss of the TOMS opt-out (cont’d) Example 3 – Illustration (cont’d) 2 Position without the TOMS opt-out: the product launch part still falls outside TOMS but the rest is now in TOMS. • Product launch: organiser recovers the £61,250 VAT on launch costs. Selling price of the launch is £350,000 + (350,000/800,000) x 100,000) = £393,750 + VAT of £68,906. Total price is £462,656 but the client recovers the VAT, leaving a cost of £393,750. • Non product launch: organiser cannot recover the VAT so charges £496,375 + (450,000/800,000 x 100,000) = £552,625. There is no additional VAT to add to this so the client pays £552,625 but has no VAT to reclaim so the total cost is £552,625.

28. Loss of the TOMS opt-out (cont’d) Example 3 – Illustration (cont’d) In addition, the organiser must pay VAT under TOMS on his margin on the non-product launch part:

29. The loss of the TOMS opt-out (cont’d) Example 3 – Illustration (cont’d)

30. The TOMS opt-in • Wholesale supplies do not fall within TOMS. • But the opt-in allows for the voluntary application of TOMS to wholesale supplies. • Can be useful as a simplification. • Can also mean a lower VAT liability in some circumstances, notably where the travel is in the UK and a proportion of costs is not subject to UK VAT. • To be discontinued on 1 January 2010 so from then TOMS cannot be applied to wholesale supplies.

31. Loss of the TOMS opt-inExample: purchase of UK land arrangements

32. Loss of the TOMS opt-inExample: purchase of UK land arrangements (cont’d) VAT liability without TOMS: • Output tax: £1,000,000 x 640,000/790/000 x 7/47 = £120,657 • Input tax: £100,000 • Net due: £20,657

33. Loss of the TOMS opt-inExample: purchase of UK land arrangements (cont’d) Summary VAT due: With TOMS but no transport company £16,383 With TOMS and a transport company £13,622 Without TOMS £20,657 NB Normal calculation assumes that proper VAT invoices are held for all VATable costs

34. Place of supply of services • New rules agreed by all member states • To be introduced on 1 January 2010 and 1 January 2011 • The new general rules: • For B2B supplies: where the customer is located • For B2C supplies: where the supplier is established • But there will be a long list of exceptions to the general rules • New requirements to submit a sales list for services falling under the general rules supplied to a VAT-registered customer in another member state • TOMS not affected. The TOMS changes are separate and the same implementation date is coincidental

35. Place of supply of services (cont’d) • Impact on events • New Article 53 (replacing Article 52): “The place of supply of services and ancillary services relating to cultural, artistic, sporting, scientific, educational, or similar activities, such as fairs and exhibitions, including the supply of services of the organisers of such activities, shall be the place where those activities are physically carried out.” • Now mentions “fairs and exhibitions”. Current equivalent does not.

36. Place of supply of services (cont’d) • Current position for the supply of the event and the organising service very likely to continue from January 2010 • But the rules for intermediaries will change • And more changes on 1 January 2011!

37. Place of supply of services (cont’) • Intermediaries • B2B supplies will fall within the new general rule • Therefore, VAT will be due where the customer is established • Location of the event does not matter • Intermediary will need to include details of transactions with clients in other member states on the new Sales List. • Will apply to commissions from hotels, etc • But is the organiser’s fee the consideration for an intermediary supply or is it a service supplied where performed? This distinction will be more important under the new rules.

38. Place of supply of services (cont’d) • The changes on 1 January 2011 • No further changes then to intermediary rules • But the rules for the supply of an event will change: At that time: • Events sold to non-businesses – No change, VAT still due where the event takes place • Events sold to businesses – New general rule will apply, ie, taxable where the client is established and location of the event becomes irrelevant • So, for example, an event in France organised for a UK client will be subject to UK VAT and French input VAT will be recoverable by the organiser

39. Place of supply of services (cont’d) BUT • “Services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admission, supplied to a taxable person”, will remain subject to VAT where the event actually takes place. • But what is admission? • HMRC have promised “comprehensive guidance”.

40. Questions & Answers