Partnership taxation
Footballer loses case on assignment of rights
The First-tier Tribunal (FTT) has found that despite the transfer of a partnership interest into a limited liability partnership (LLP), it was still the transferor who should be taxed on the income, not the corporate member credited with the profit share.
The taxpayer, a former professional footballer, had interests in two film partnerships. He assigned these to an LLP. He was a member of the LLP, as was a company, which was entitled to the profits from these assignments. The intention was that the taxpayer would no longer be liable for income tax on the partnership profits, as he was no longer entitled to them. Losses generated in the earlier years of the film partnerships had been used by him, so this was a secondary scheme to prevent him from being taxed on the profits.
The FTT found for HMRC. Looking at the real arrangements as a whole, the income was still being applied for the benefit of the taxpayer, so he was still entitled to it. In addition, on review of the documentation, the assignment of the rights to the LLP may have been ineffective.
Burley v HMRC [2025] UKFTT 989 (TC)
From Tax Update September 2025, published by S&W Partners LLP
VAT
VAT treatment of loyalty schemes
Swedish company Lyko Operations AB sold hair care and beauty products in physical shops and online. Lyko was developing a customer loyalty programme whereby customers could receive points for purchases, which they could redeem for goods from a ‘points shop’, but only in connection with a subsequent purchase. Lyko applied for a ruling from the Swedish Revenue Law Commission to clarify how the programme should be treated for VAT purposes. This subsequently resulted in a referral to the Court of Justice of the European Union (CJEU) asking whether the points awarded in Lyko’s programme were vouchers (under Article 30a of the EU Principal VAT Directive (PVD)), and, if so, how the taxable amount would be determined upon redemption.
Advocate General (AG) Kokott has opined that the issue of the points did not constitute a voucher. Under the PVD, the definition of voucher requires two conditions: first, the goods/services or the potential supplier must be identifiable from the voucher or related documentation; and second, there must be an obligation to accept the voucher as consideration for a supply. While Lyko’s programme would satisfy the first condition, it would not meet the second. The points could only be redeemed in conjunction with a subsequent purchase, and therefore functioned as an effective discount. There was no obligation on Lyko to supply goods independent of a subsequent purchase. The AG also dismissed arguments that the points represented gifts or would be provided free of charge, on the basis that the value of the points is included in the price of the initial purchase. In light of the AG’s finding, it was not necessary to answer the second question, regarding the calculation of the taxable amount. It remains to be seen whether the CJEU will follow the AG’s opinion.
From the Weekly VAT News dated 22 September 2025, published by Deloitte
VAT treatment of in-game currency
‘Žaidimų valiuta’ MB (Zv), based in Lithuania, purchased ‘in-game Gold’ from players of an online game and re-sold it to other players. Customers were individuals looking to purchase in-game Gold. In-game Gold can be used to, for example, pay for player status upgrades, pay for access to in-game events, or purchase gold and items from other games. The Lithuanian tax authorities noted that Zv derived significant income from purchasing and re-selling in-game Gold, and considered that Zv should be registered and accounting for VAT. The issue was referred to the Court of Justice of the European Union (CJEU).
The first question referred to the CJEU was whether the supply of in-game Gold was VAT exempt as a financial transaction. Advocate General (AG) Kokott has concluded that the financial services exemption did not apply to in-game Gold, as it was not legal tender or used solely as a contractual means of payment, but only a means within the game.
The second question was whether, if exemption did not apply, the taxable value was the total consideration received for the sale of the in-game Gold, or the difference between purchase and selling prices. However, the AG also considered whether in-game Gold was a voucher for VAT purposes, as Zv had argued, and concluded that it was not. With respect to the taxable value, the AG considered whether the second-hand margin scheme could be extended to apply to services, such as in-game Gold, traded on a secondary market. Under the second-hand margin scheme, traders purchasing certain second-hand goods only pay VAT on their profit margin (preventing double taxation). The AG recognised that in-game Gold was a service, and not a good, but that, considering the history and objectives of the second-hand margin scheme, there was an argument for extending the scheme to include services, this being an issue for the referring body to determine with respect to in-game Gold. It remains to be seen whether the CJEU will follow the AG’s opinion. (Contact: Chris Hawkins)
From the Weekly VAT News dated 22 September 2025, published by Deloitte
VAT groups and continuous supplies
In November 2007, Silverfleet Capital Ltd completed a management buy-out and left the Prudential VAT group. Since 2002 it had been providing fund management services to one of Prudential’s with-profits funds, and was entitled to a performance-related fee in the event that the fund exceeded certain benchmarks. Those benchmarks were eventually met in 2014 and 2015, triggering performance payments of £9.3m. Given that Silverfleet carried out its fund management services before it left the VAT group, but received payment several years afterwards, should it charge VAT? Silverfleet’s management qualified as a continuous supply of services, and HMRC therefore considered that VAT had to be charged by reference to when the performance fee was invoiced and paid.
The Supreme Court has found in favour of HMRC that VAT should be chargeable. The Supreme Court found that the purpose of the VAT grouping provisions is to promote organisational fiscal neutrality between corporate groups, but that it must be read alongside the time of supply rules. In this case, Regulation 90 of the 1995 VAT Regulations provides that continuous supplies of services are treated as separately and successively supplied at the earlier of each time payment is made or a VAT invoice is issued, and the UK law does not go further than is permitted by the relevant provisions of the EU Principal VAT Directive. This meant that there was a chargeable event when the invoice for the success fee was issued or paid, and that was when Prudential and Silverfleet were no longer in the same VAT group. There is no basis for inferring a separate rule for VAT groups that depends on when the services were actually performed.
The Prudential Assurance Company Ltd v HMRC [2025] UKSC 34
From the Business Tax Briefing dated 12 September 2025, published by Deloitte
VAT and transfer pricing adjustments
SC Arcomet Towercranes SRL (Arcomet Romania) acquired cranes for sale or lease to customers in Romania. Arcomet Romania’s parent company, Arcomet Service NV Belgium (Arcomet Belgium), provided commercial support to Arcomet Romania. A 2010 transfer pricing study set an operating margin for Arcomet Romania of between -0.71% and 2.74%, in accordance with the Transactional Net Margin Method. From 2011 to 2013, Arcomet Romania’s profits exceeded this amount, and Arcomet Belgium accordingly issued invoices to Arcomet Romania. Arcomet Romania applied the reverse charge to the first two invoices, but for the third invoice, considered that the transaction was outside the scope of VAT. The Romanian tax authorities (RTA) took the view that all three invoices related to intra-EU purchases of services and so should have been subject to the reverse charge, and that Arcomet Romania had failed to produce sufficient evidence of the nature or necessity of the services to justify deduction of the reverse-charged VAT.
The Court of Justice of the European Union (CJEU) has held that, for VAT purposes, Arcomet Belgium’s activities constituted taxable supplies; there was a legal relationship with reciprocal performance, and a direct link between the services supplied and the amounts paid. The fact that the amounts were calculated by way of a transfer pricing methodology, and could vary, did not affect this analysis. The CJEU rejected the RTA’s arguments that Arcomet Romania had to demonstrate that the services were necessary or appropriate, but agreed that the RTA could require evidence, additional to the invoices, to support the substantive conditions for VAT deductibility, namely that the services were supplied to and were used by Arcomet Romania for the purposes of its taxable activities.
Arcomet Towercranes Case C-726/23
From the Weekly VAT News dated 8 September 2025, published by Deloitte
Practical Points
Every month, the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work.
