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Comment: ECJ case could give timeshare businesses more VAT certainty
The Advocate General of the European Court of Justice, has delivered her preliminary opinion in the Macdonald Resorts case. If the ECJ follows this opinion in its final ruling - likely to be delivered in the next six months - this should provide some welcome certainty on the VAT treatment of supplies made by timeshare businesses under points schemes.
Before 2003, Macdonald Resorts operated a traditional timeshare business selling the right to occupy a specified property for a specified week each year. In 2003, Macdonald resorts introduced an "options" scheme. Customers were allocated "points" redeemable by occupying one or more properties each year. Points could be acquired for cash, or by depositing "weeks" (the conversion between "weeks" and "points" being based on the type of property, its location, and the time of year in which the weeks fell).
HMRC decided that the provision of "points" was a supply of services which took place in the UK, where Macdonald Resorts is based, and was subject to VAT at the standard rate. Macdonald Resorts argued that the supply of "points" was the supply of (or of a right to occupy) land which should be treated as taking place where the underlying properties are located; and that the exemption from VAT for letting of land should apply.
The question was whether the supply of "points" was a supply of services "connected with immoveable property" (treated as taking place where the property is located) or a general supply of services to consumers (treated as taking place where the supplier belongs) and whether the supply was a "leasing or letting of immoveable property" which could in principle benefit from exemption from VAT.
In the Advocate General's view the supply of "points" is a service connected with the underlying properties available to customers which should therefore be apportioned between jurisdictions based on the location of the properties that are available when the "points" are bought. However, she does not say how this apportionment should be done: by reference to the number of properties, for example, or their "points" value, or some other criterion. As a result, there could be some practical difficulties with this approach not least because tax authorities in different jurisdictions may not agree on the principles to follow. Although the Advocate General concluded that in her view the exemption for letting of land could apply, as she notes, the VAT rules exclude the supply of accommodation in the hotel sector and similar sectors from the exemption. In the UK, holiday accommodation is also excluded from the exemption.
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09 September 2010
