Following a lengthy process, the European Court of Justice (ECJ) has ruled in favour of EMI in a case about the VAT treatment of providing samples and gifts free of charge to DJs, promoters and the media in order to promote an artist. The legal proceedings began when EMI contested £3.3m pounds it paid in VAT on promotional material issued between 1987 and 2003
Currently, UK law obliges VAT to be accounted for and paid in the event that more than one sample CD is given to the same person. Furthermore, there is a £50 cap on the value of gifts a business can give to an organisation without incurring an obligation to account for VAT.
The ECJ found in favour of EMI by ruling that no VAT is due on sample products irrespective of the amount given to one individual. Also, the threshold value for business gifts should apply per individual rather than per entity.
The finding will force the UK and several other Member States to amend how they treat samples and business gifts given to organisations from a VAT perspective.
It is a significant decision and will impact many businesses located in both the UK and in the EU which provide samples or gifts of small value.
Businesses who have accounted for VAT and have not reclaimed the applicable VAT on samples or gifts should submit retrospective claims as soon as possible to maximise their VAT refund.
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