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Value Added Tax

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Having been confined for what seemed like hours in the Carphone Warehouse outlet in Bluewater shopping centre I panicked, and, as a result, am now sharing my life with an Android.

According to the OED an android is ‘an automaton resembling a human being’.  Well this Smartphone has certainly got a mind of its own: it does everything it thinks I want it to do, at the expense of what I actually want it to do, which is no more taxing than reliably make and receive phone calls and send email (okay, it can do this, but it insists on going via its little friend Gmail).  I’m beginning to hate it.  Last week I was close to throwing the phone out of a train window when it wouldn’t let me have my voice messages.  Luckily for the smart-alec Smartphone the window wouldn’t open.

I should have read the reviews before I succumbed.  Not a single mention of the wretched thing’s capacity to make and receive phone calls.  They refer to the screen ‘being good for web-browsing, gaming and watching movies’.  It’s a ‘useful travel companion because it fits easily on even the smallest train or plane table’.  I’m not Phileas Fogg – I don’t need a robotic version of Passepartout.  And as for its ability to fit on a table, what kind of recommendation is that for goodness sake?

Apart from converting me to anthropomorphism, and reminding me that ‘smart’ has more than one meaning, this frustrating experience brings me not so neatly to the subject of VAT on phone cards and phone calls.  Having seen the adverts for cheap phone calls to faraway places plastered everywhere I wondered (as every right-minded tax person does) whether it made any difference to the VAT liability of the call if you used a phone card rather than putting it on your mobile bill (assuming that you can get your Android to talk to you).

Fortunately for me (and for you, as it will help keep the answer brief), the European Court has just made a ruling clarifying when VAT is chargeable on prepaid phone cards.  The dispute was between mobile phone network Lebara and HMRC.  The European Court decided that VAT should be paid when, and in the place where, phone cards are sold by telecoms operators to their distributors, and so on down the distribution chain, but it should not be levied again when (and where) the consumer uses them to make calls.  HMRC had argued that Lebara should pay two lots of VAT – once on the sale of the card to the distributor and again when the card was used to make calls.

This means that the VAT rate applicable to calls made using a phone card is the rate of the country in which the distributor from whom you bought the phone card is based.  If you use your mobile service to make the call the supply will be made by your network provider in the country where they are based and hence subject to that country’s rate of VAT.  Needless to say, the rules are different if the telecoms operator is based outside the EU.

So if you buy a phone card from a distributor in Luxembourg (where the VAT rate is 15%) and use it in Hungary (where the VAT rate is 27%) you stand to make quite a saving.  If you live in a Member State with a high VAT rate, buying phone cards from Luxembourg makes more sense than using your local mobile service.

Tax lawyer specialising in business tax, SDLT and VAT

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