Today I want to highlight how fiendishly open to interpretation value added tax (VAT) rules can be, such slights of syntax being an expensive construct purveyed by the legal profession.
If that opening sentence felt like a mouthful, sit down and make yourself a cup of tea. Pick up a biscuit or maybe a cake. This agreeable digression brings us to the infamous case of the ubiquitous family teatime treat, which would become Jaffagate.
McVitie’s in 1991 brought a case in the United Kingdom against Her Majesty’s Revenue and Customs (HMRC) for the right not to charge VAT on the billion-plus Jaffa Cakes that roll off their production line annually. The product is price sensitive and removing VAT would have a material effect on turnover.
Everything from the production process to the act of consumption itself was analysed comparatively to create a weighting that would demonstrate whether the product was a cake or a luxury biscuit.
In the UK, while cakes and plain biscuits are zero rated, chocolate biscuits are standard rated. Why? When the rules were formulated, cakes were perceived as generally made in homes by hardworking families whereas chocolate biscuits were factory-produced luxury treats.
McVitie’s agreed that Jaffa Cakes had biscuit tendencies but had more cake elements. As part of its evidence the company baked for the court an example that was one foot (30 centimetres) in diameter. The courts concurred and Jaffa Cakes and VAT at standard rate were, by order of court, divorced.
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At a glance
■ What: The UAE implements its value added tax on January 1.
■ Why: Decisions are about to be made about what will attract VAT.
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One more twist in this tale. Ireland has different rules relating to Jaffa Cakes, the definition there is based on moisture content so it attracts a reduced VAT rate. I didn’t investigate each of the other 26 EU countries but I would expect to find some more differences in its treatment.
Peter Whatley, the chief executive of Argent Gulf Consulting, said: “The Judiciary had unintendedly served HMRC a Dickensian bleak biscuit as copycat cases sought to exploit the judgement. Traditional teacake makers argued in 1994 that their biscuit-sized thin chocolate sheltered marshmallow domes sitting atop a biscuit base, was also a cake.
“The courts agreed and 22 years of VAT became refundable by the government. Was 22 years appropriate or would a shorter period from the date of the challenge be a more equitable remedy? Common in many jurisdictions is a prescription period before which no claim would be entertained.
“Why refund the business in any case, surely this money should be handed back to the consuming customers who had paid it? Even if there was the will, how could you identify and prove each sale?”
It is not all cake or biscuit either. I could regale you with tales of Tibetan goat skin versus gazelle skin in children’s clothes, or printed versus e-books, but I believe you probably now grasp the unexpected underlying uncertainties that can arise.
If the world of luxury changed why didn’t the rules for VAT? Changes are restrained within a greater EU framework and common sense has taken flight in fear of competitive advantage being sought. In this environment anomalies get left lingering. Wondering about the regional relevance of this? For UK insert the UAE and for EU insert GCC.
What you do need to understand is that decisions are about to be made in the GCC regarding which goods and services will attract VAT and that these will be informed by the social norms and politics of today. We can only try to imagine tomorrow’s woes that will be unintentionally born on “V day” – January 1.
Could GCC governments do anything to prevent expensive and lengthy challenges? The simplest possible rules would help but the agreed framework will allow for variable approaches by each constituent country, so we can discount that happening.
A collective pledge not to tinker with the rules would be heartening but special-interest petitioning is inevitable.
One approach might be for the supporting legislation to specify that its interpretation should read in the tradition of the law of equity rather than contract law, ie, the spirit rather than interpretation of its cold ink, although this might be seen as too controversial.
The words of Lord Justice Sedley, late of the UK Court of Appeal, should act as a rallying cry for those who would seek to prevent a commencing tribulation. He bemoaned the idiosyncrasies of VAT for having created a “fiscal theme park” where “factual and legal realities were suspended”.
Having considered various angles, I regretfully recommend overkill. The supporting legislation should be an exhaustive Gordian knot of a document, closing out attempts to undermine its intent. While this will not prevent our wily learned friends from seeping dampness into it, the scope for nuisance challenges should be reduced.
The workload pressures that the UAE courts are under have been widely reported. Given the specialist nature of VAT regulation, can we expect to see either a separate branch created or at the least a two-tiered tribunal structure to adjudicate?
Beyond that, where will individual GCC countries go to when they feel aggrieved with a national decision of another member that in their view undermines the agreed GCC framework? This suggests a requirement to create a GCC-wide court of final appeal to maintain its coherence.
To reduce a caseload confluence, it might only sit to consider Government-lodged challenges measured against the GCC framework.
I’ll leave you with this concluding example of the madness of VAT granularity.
In the UK, gingerbread men with two chocolate drops for eyes are zero rated, standard rated if they have similar sized chocolate buttons on their torsos. Those buttons add up to an additional 20 per cent on the selling price.
David Daly is a chartered accountant (Cima) typically serving in chief financial officer or finance director roles.
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More Value Added Tax coverage
■ New UAE taxes not likely to change consumer behaviour, experts say
■ Analysis: Who should worry most about VAT in the UAE?
■ Analysis: All in the details for value added tax in the GCC
■ VAT to generate Dh20 billion in second year for UAE, Minister of Economy says
■ Q&A: Sultan Al Mansouri, the UAE Minister of Economy, and his views on VAT, infrastructure spending and the investment law
■ Comment: The basics of value added tax
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Jordan cabinet changes
In
- Raed Mozafar Abu Al Saoud, Minister of Water and Irrigation
- Dr Bassam Samir Al Talhouni, Minister of Justice
- Majd Mohamed Shoueikeh, State Minister of Development of Foundation Performance
- Azmi Mahmud Mohafaza, Minister of Education and Minister of Higher Education and Scientific Research
- Falah Abdalla Al Ammoush, Minister of Public Works and Housing
- Basma Moussa Ishakat, Minister of Social Development
- Dr Ghazi Monawar Al Zein, Minister of Health
- Ibrahim Sobhi Alshahahede, Minister of Agriculture and Minister of Environment
- Dr Mohamed Suleiman Aburamman, Minister of Culture and Minister of Youth
Out
- Dr Adel Issa Al Tawissi, Minister of High Education and Scientific Research
- Hala Noaman “Basiso Lattouf”, Minister of Social Development
- Dr Mahmud Yassin Al Sheyab, Minister of Health
- Yahya Moussa Kasbi, Minister of Public Works and Housing
- Nayef Hamidi Al Fayez, Minister of Environment
- Majd Mohamed Shoueika, Minister of Public Sector Development
- Khalid Moussa Al Huneifat, Minister of Agriculture
- Dr Awad Abu Jarad Al Mushakiba, Minister of Justice
- Mounir Moussa Ouwais, Minister of Water and Agriculture
- Dr Azmi Mahmud Mohafaza, Minister of Education
- Mokarram Mustafa Al Kaysi, Minister of Youth
- Basma Mohamed Al Nousour, Minister of Culture
The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
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Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
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Engine: 2x201bhp AC Permanent-magnetic electric
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Price estimate: Dh200,000
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Business Insights
- As per the document, there are six filing options, including choosing to report on a realisation basis and transitional rules for pre-tax period gains or losses.
- SMEs with revenue below Dh3 million per annum can opt for transitional relief until 2026, treating them as having no taxable income.
- Larger entities have specific provisions for asset and liability movements, business restructuring, and handling foreign permanent establishments.
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Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
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Electoral College Victory
Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate.
Popular Vote Tally
The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.
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Director: Alfonso Cuaron
Stars: Cate Blanchett, Kevin Kline, Lesley Manville
Rating: 4/5
Opening weekend Premier League fixtures
Weekend of August 10-13
Arsenal v Manchester City
Bournemouth v Cardiff City
Fulham v Crystal Palace
Huddersfield Town v Chelsea
Liverpool v West Ham United
Manchester United v Leicester City
Newcastle United v Tottenham Hotspur
Southampton v Burnley
Watford v Brighton & Hove Albion
Wolverhampton Wanderers v Everton
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Killing of Qassem Suleimani
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Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
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The Intruder
Director: Deon Taylor
Starring: Dennis Quaid, Michael Ealy, Meagan Good
One star
'Nope'
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'Falling%20for%20Christmas'
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THE SPECS
Engine: 1.5-litre
Transmission: 6-speed automatic
Power: 110 horsepower
Torque: 147Nm
Price: From Dh59,700
On sale: now
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Transmission: seven-speed
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Sectors: Internet, e-commerce
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How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
Keane on …
Liverpool’s Uefa Champions League bid: “They’re great. With the attacking force they have, for me, they’re certainly one of the favourites. You look at the teams left in it - they’re capable of scoring against anybody at any given time. Defensively they’ve been good, so I don’t see any reason why they couldn’t go on and win it.”
Mohamed Salah’s debut campaign at Anfield: “Unbelievable. He’s been phenomenal. You can name the front three, but for him on a personal level, he’s been unreal. He’s been great to watch and hopefully he can continue now until the end of the season - which I’m sure he will, because he’s been in fine form. He’s been incredible this season.”
Zlatan Ibrahimovic’s instant impact at former club LA Galaxy: “Brilliant. It’s been a great start for him and for the club. They were crying out for another big name there. They were lacking that, for the prestige of LA Galaxy. And now they have one of the finest stars. I hope they can go win something this year.”
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Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
