Businesses eagerly await result of European VAT ruling entertainment

A VAT windfall could be in the pipeline for UK businesses two European cases result in favourable judgements in relation to input tax claims on business entertainment expenses.

The Advocate General, who provides opinions to the European Court of Justice has delivered an opinion in the joined Dutch cases of X Holding BV and Oracle Nederland BV (C-538/08 and C-33/09), concerning the inability of businesses to claim input tax on business entertaining expenditure that applies in the Netherlands and if this contravenes EU regulations. In the Advocate General’s opinion it does.

UK VAT rules also block recovery on input tax spent on goods and services used for the purposes of business entertaining (excluding staff). If the Dutch case goes in favour of the taxpayer, as is expected, the HMRC will need to consider UK policy.

If there is a taxpayer victory, then the UK position is likely to take several years to resolve, if HMRC test the first claims in court. UK businesses with entertaining expenditure should therefore consider submitting protective claims to HMRC going back to April 2006, the current time limit for retrospective VAT adjustments, following publication of the European Court’s judgement.