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VAT treatment of digital newspapers

VAT treatment of digital newspapers

The Upper Tribunal in the News Corp case has decided that digital newspapers could be zero rated.

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Christmas Eve saw the release of the Upper Tribunal (UT) decision in News Corp UK and Ireland Ltd v Revenue and Customs: [2019] UKUT 404 (TCC), a taxpayer win which overturned the earlier First-tier Tribunal (FTT) decision and decided that digital newspapers could be zero rated. This is despite the EU law provision that said e-services may not be subject to a reduced rate. This EU provision has changed subsequently in December 2018 (after the FTT decision was released) to permit the reduced rate for e books and newspapers etc. HMRC argued that this change to the EU Directive must mean that any reduced rate (including the zero rate) could not legally apply to such supplies before then.

Under the standstill provision in Article 110 of the EU Principle Vat Directive (PVD), the UK is not permitted to extend the scope of any zero rate reliefs beyond what applied in 1991.

The relevant issues that the taxpayer appealed were:

  • Whether the digital issues were newspapers within the meaning of Schedule 8 Group 3 Item 2 of the Value Added Tax Act 1994 (VATA); and if not 
  • Whether fiscal neutrality nonetheless required they be zero rated. 

HMRC, even though they won at the FTT, raised two additional issues:

  • Whether the FTT’s finding that digital editions were similar to printed versions was one which no reasonable Tribunal could have reached (on the basis of the test in Edwards v Bairstow); and
  • Whether the FTT decision was supported on the grounds that the taxpayer’s case was inconsistent with the PVD (standstill provisions and prohibition on taxing e-services at the reduced rate).

The UT decided that the digital issues were newspapers, applying the ‘always speaking’ doctrine, even though digital newspapers only came into existence after 1991, and so fiscal neutrality did not need to be considered as they were already entitled to the zero rate in law.

The UT rejected the Edwards v Bairstow challenge. That challenge had been based on the FTT dismissing some evidence that pre March 2016 there was a rolling news element to some editions, meaning they were not newspapers. However the FTT had preferred some specific and first-hand knowledge based evidence about the content of these editions before March 2016, and the UT considered the FTT was entitled to do this.

It also decided that the taxpayer’s case was not inconsistent with the PVD and this is where the area of greatest interest probably arises.

Although zero rating digital newspapers would result in a zero rating applying to something that was not zero rated in 1991 (when the zero rate standstill provision was imposed by Article 110) this was only because the product did not exist in 1991. Had it existed then though, the UT decided that it had the characteristics of a newspaper, (edition based, subject to editorial control about what is included, etc.) so zero rating it is not an unlawful extension of the zero rate. Group 3 is not limited to goods.

The UT also decided that the fact EU law prohibited a reduced rate applying to all e-services at the relevant time was irrelevant. Since December 2018 a Member State can apply a reduced rate to e books and newspapers etc. and HMRC relied on this to argue that zero rating at the time covered by the appeal was not permitted.

The UT did not consider the zero rate to be a super reduced rate. Instead it is an exemption with credit, and the only bit of the Directive that governs it is Article 110.

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