Solicitors may think that this topic does not apply to them, but an upcoming case at the Court of Justice of the European Union affects lawyers directly.
VAT, in my view, falls within the scope of boring topics that can sometimes be interesting.
There is a VAT case coming up at the Court of Justice of the European Union, which both affects lawyers directly, and turns out to be interesting. It is C‑516/14, Barlis 06 – Investimentos Imobiliários e Turísticos SA v Autoridade Tributária e Aduaneira, and concerns invoices where a lawyer merely put ‘legal services’ as a description of the services on the client’s invoice.
The lawyer used a mix of ‘legal services between 1December 2007 and today’s date’ and ‘legal services supplied up until today’s date’ for the date of the services. The question at stake was whether this was enough for the client to claim deductions for VAT purposes.
The Portuguese tax authority refused the deductions on the grounds that the invoices were not detailed enough. At this stage, only the conclusions of the advocate general have been presented to the court – but the advocate general’s advice is usually followed. (For those who want to read the original conclusions, they have been published in 21 EU languages, but not yet in English, I assume because the English translators at the court are under particular pressure.)
VAT invoices need to satisfy certain criteria, including describing ‘the extent and nature of the services rendered’ and ‘the date on which the supply of goods or services was made or completed’ (Article 226 of the VAT directive 2006/112/EC).
According to the advocate general, the invoices in question described the nature of the services adequately for EU law purposes. However, they did not satisfy Portuguese national law, which still allowed then a differential VAT amount for certain legal services addressed to, say, the unemployed or pensioners. The advocate general raised a quizzical eyebrow at this exception, which is not foreseen in EU law and was permitted in Portugal only as a result of a transitional exemption used by the government. It appears that it has now been abolished.
At any rate, for general EU purposes, since the description is required to allow the authorities to decide on whether the tax has been correctly calculated, just putting ‘legal services’ is enough.
It is not enough, though, for describing the extent of the services. The advocate general said that the extent of services corresponds to the quantity of services supplied, and just putting the dates between which the legal services were supplied gives no indication of quantity.
The lawyer played no part in the proceedings, which was entirely between the client and the tax authorities. If the lawyer had been a party, there might well have been questions of how much more detail can be given on an invoice going to a third party without breaking client confidentiality. That was not raised at all in the advocate general’s conclusions, and will be a concern for the future.
As for the date, those invoices which used the equivalent of ‘legal services between 1 December 2007 and today’s date’ were satisfactory, but not those which said ‘legal services supplied up until today’s date’.
Good solicitors may feel that none of this applies to them, because they will satisfy the Solicitors Regulation Authority Code of Conduct’s indicative behaviour 1.14 of ‘clearly explaining your fees’.
In general, VAT is a horribly complex tax. I run a small business, with all of my services provided either cross-border in the EU, or on VAT-exempt services. I am probably stupid, but I need regular professional advice on how to complete my invoices. The EU is aware that VAT regulations are a burden on small businesses, and is trying to address the problem. Just last month, it issued an action plan, with aims including: to tackle VAT fraud (there is a shortfall of over €100bn (£79bn)); granting member states greater flexibility in setting VAT rates; and a comprehensive VAT package to make life easier for small and medium businesses (for example, me).
The Law Society has also recently submitted a response to an EU consultation on the establishment of an EU VAT web portal, which would in due course provide a single access point for consulting VAT rules and procedures applicable in and across the different EU member states.
I won’t - I can’t - imagine what the UK will do about VAT, an EU-wide tax, in the event of a Brexit. I am sure some bright spark in HM Revenue & Customs has clear and easy plans, particularly for cross-border services into what remains of the EU. Good luck to us in that event.
Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs