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Employee vouchers not VAT-able according to the CJEU – what happens post-Brexit?

Posted on 3 January 2023

Before 31 December 2020 (the end of the Brexit transition period), national courts could make preliminary references to the Court of Justice of the European Union (CJEU) where the CJEU’s expertise was required in the interpretation of EU law. The CJEU did not itself apply EU law, as its prescribed role was to help resolve any issues and allow the national courts to draw its own conclusions. Post-Brexit, the national courts are no longer able to exercise this discretion and will be required to act independently: relying on, or departing from, existing CJEU authority.

VAT is an area where EU law plays such a role.

A successful VAT referral was released in November 2022 in the case of GE Aircraft Engine Services Limited C‑607/20 (for which Mishcon de Reya acted for GE) over the interpretation of Article 26(1)(b) of the VAT Directive 2006/112/EC.

Article 26(1)(b) effectively provides that services supplied for free by a taxable person for his (or his staff's) non-business use shall be treated as a supply of services for consideration, and hence subject to VAT.

The case debated whether employee-incentive vouchers issued by employers without consideration was chargeable for VAT. The First-Tier Tax Tribunal (FTT) chose to seek the CJEU’s guidance before issuing a judgment, given the parties' differing views and potential impact of the decision on similar matters.

GE argued the vouchers were issued for a business purpose (and therefore VAT was not chargeable). HMRC contended VAT was chargeable considering the private use and enjoyment of the vouchers by staff. Ultimately the CJEU agreed that, considering all circumstances, the nature and objective of the voucher scheme was for promoting business and so VAT was not3 chargeable. Although the CJEU’s judgment was clear and concise, it is now up to the FTT to exercise its discretion and interpret the judgment accordingly. 

As we enter the post-Brexit era of tax cases, the absence of references to the CJEU and its implications remains to be seen. Arguably, without the benefit of submissions from each Member State as well as the EU Commission and Advocate General, the national courts may be reluctant to depart from existing CJEU authority. They may also avoid approaching the CJEU for interpretations when balancing public interest and public finance. Given the complexity and wide berth for interpretation of EU law, it will be interesting to see how UK cases deal with such challenges going forward.

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