News Corp wins VAT dispute at Upper Tribunal

HMRC has lost an appeal at the Upper Tribunal over zero rated VAT on digital newspapers with the publishers of The Times arguing that digital versions of its newspapers are not a service

The judge ruled in favour of the newspaper stating ‘that item did not exist in 1991’ - referring to digital newspapers. Currently print newspapers are zero rated for VAT, while all online versions and website subscriptions pay VAT at 20%.

At the Upper Tribunal News UK and Ireland's appeal raised two issues: whether the digital editions of the newspaper titles were ‘newspapers’ within the meaning of Item 2, Group 3 of Schedule 8 of Value Added Tax Act 1994 (VATA 1994), and whether the application of the principle of fiscal neutrality required zero-rating.

In News Corp UK & Ireland Limited v Commissioners for HMRC [2019] UKUT 0404 (TCC) News UK contended that the principle of fiscal neutrality applied as the similarities between the print and digital versions of the newspapers from the perspective of consumers meant they should receive the same VAT treatment.

Zero-rating is an exception to the general rule on standard VAT rates and the provision must be construed strictly. The meaning of a ‘strict’ interpretation was recently re-stated by the Supreme Court in SAE Education Ltd v Revenue and Customs Comrs [2019] 1 WLR 2219.

The Upper Tribunal made the decision that while it might be correct to observe that digital versions of newspapers are zero-rated would result in an item being zero-rated under UK domestic law that was not zero-rated in 1991, this is solely because ‘that item did not exist in 1991 and the item is properly to be characterised as within the genus of things that the pre-1991 legislation did exempt’, said Upper Tribunal Judge Greg Sinfield.

The 1991 law refers to a provision on zero-rating in Article 110 of the Principal VAT Directive (PVD) - Council Directive 2006/112/EC, which the decision was based upon.

Sinfield added: ‘In such circumstances, we do not think that this would constitute an extension of the category of zero-rated items so as to offend Article 110.’

The publisher first brought the case to the First Tier Tribunal (FTT) in 2018, arguing that its digital editions were 'newspapers' under Item 2 and should be zero-rated.

The FTT ruled in favour of HMRC, stating that the content of The Times and The Sunday Times during the periods of September 2010 to June 2014, and 28 January 2013 to 4 December 2016 was 'fundamentally the same or very similar' as between the digital and printed editions, it concluded that the digital editions provided services rather than goods, whereas the relevant Schedule in the legislation relating to zero rating was confined solely to goods.

The publisher had also argued that the word 'newspaper' should be interpreted in a way which keeps pace with technological developments, but the FTT decided that a strict interpretation should apply.

The FTT accepted HMRC’s argument on Talacre Beach Caravan Sales v C&E Comrs C-251/05 [2006] STC 1671. This case concerned provisions of UK domestic law which zero-rated caravans, but which excluded from zero-rating the contents of caravans.

The taxpayer contended that, since the sale of a caravan and its contents constituted a single supply, the contents of the caravans should follow the zero-rating treatment for caravans.

For this reason, if and to the extent that the FTT concluded that the same ‘standstill’ argument based on Article 110 that was fatal to the taxpayer’s case in Talacre Beach, this necessarily precluded reliance on the ‘always speaking’ doctrine.

The Upper Tribunal concluded that it was wrong of the FTT to accept the Talacre argument in the previous appeal.

Philip Munn, a VAT partner at RSM said: 'While we expect that HMRC will attempt to overturn this decision on appeal, it is a significant win for News UK and one which could impact many media organisations that publish digital editions.

'This ruling is also good news for those concerned about the future sustainability of journalism. Last year's Cairncross Review specifically recommended extending the zero-rating of VAT to digital newspapers and magazines. This outcome, assuming it is not successfully appealed to a higher court, may mean that new legislation in this area is unnecessary.'

The EU is currently debating whether to change the rules on VAT on digital books and online published media.  

News Corp surpassed the £1bn pound profitability revenue mark for the first time in fiscal 2018 as they recorded $1.4bn in revenues from customers in the UK.

An HMRC spokesperson told Accountancy Daily: ‘HMRC is carefully considering the decision.’

News Corp UK & Ireland Limited v Commissioners for HMRC [2019] UKUT 0404 (TCC)

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