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EMI score court win in promo CD VAT dispute

By | Published on Friday 1 October 2010

Hey, some good news for the guys and gals at EMI, which is nice, they could do with some of that. The London-based major music firm has won an action in the European Court Of Justice with regards the payment of VAT on promo CDs.

The UK’s tax authorities have long since applied a rule that, while companies can provide one sample copy of a product to another company without paying the VAT on that free item, any more freebies handed to the same company do incur a VAT charge.

This is a pain for record companies distributing promo CDs to DJs and journalists because if they send a copy to every DJ at Radio 1 only one of those CDs is VAT free. Worse still, if the label uses a plugging agency, as most do, VAT is payable on all but one of the CDs given to the PR firm, even though they then pass those CDs on to individual DJs and journalists at a plethora of media.

EMI argued that this by-the-letter application of the VAT rules unfairly ignored the way its industry worked. The one-free-promo-product rule should apply to individuals rather than companies, it argued, and PR agents who receive multiple copies to pass on to third parties should be excluded. The Inland Revenue did not concur, so EMI took the tax men to the European courts, who have jurisdiction over such disputes. And the Euro-judges have just ruled in the record company’s favour. 

The ruling means EMI can claim back VAT paid on promo CDs for the last four years, and possibly have a nice little party with the proceeds. Or at least buy owner Guy Hands a nice new jumper for his upcoming court battle with Citigroup. The judgement will also benefit many other companies, and not just music firms, which have paid VAT on promotional samples or even corporate gifts, which also fall under this VAT rule.

Deloitte’s chief tax dude Giles Salmond told the Telegraph: “This is a significant decision from the ECJ and will impact many businesses both in the UK and across the EU which distribute samples or gifts of small value. Businesses which have accounted for VAT, or not reclaimed the appropriate VAT on samples or business gifts, should consider submitting retrospective claims as soon as possible, if they have not already done so”.

Speaking for the evil tax men, who have been deviously screwing all this extra VAT out of poor record companies for all these years, and then pissing away all that cash on silly things like schools and hospitals, a spokesman for HM Revenue & Customs said: “This judgment does not mean that all the UK’s legislation on samples and business gifts is wrong. In principle they are relieved from VAT, and the ECJ has not ruled against restricting the scope of that relief where appropriate. We will need to carefully consider the judgment and determine the extent to which UK legislation may require amending”.