EU Court Aide Ruling Delivers Blow to Uber’s U.K. VAT Case

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By Ben Stupples

The EU’s top legal adviser has dealt a blow to Uber Technologies Inc.’s plan to fight claims for unpaid value-added tax in the U.K., classifying it as a transport provider instead of a technology platform.

As a transport service supplier, Uber may be liable for value-added tax imposed on businesses that provide goods and services.

Rejecting Uber’s argument that it is simply a car-hailing application, EU Court of Justice Advocate General Maciej Szpunar said May 11 that the company “falls within the field of transport.” It is “undoubtedly” transport that provides the “main supply” of Uber’s service, the Luxembourg-based court aide added in his non-binding opinion, which the EU’s highest court follows in most cases.

U.K. Court Tax Battle

In London, San Francisco-based Uber is preparing for a courtroom battle about whether it avoids paying VAT, levied on the sale of goods or services by U.K. businesses.

The case will focus on whether Uber, which does not charge VAT on its fares, supplies transport services. If a U.K. court finds it does, the car-hailing company may have to charge the U.K.’s 20 percent VAT on fares and face back-taxes to pay to Her Majesty’s Revenue and Customs, the U.K.’s tax agency.

A key attraction to Uber, one of the world’s largest private hire car companies, is how much cheaper it is compared to traditional taxi businesses. In London, a ride in Uber’s standard uberX car costs around 1.25 pounds ($1.61) a mile, while a one-mile journey in the city’s minicabs starts at 5.8 pounds.

The Advocate General’s identification of Uber as a transport provider is “hugely helpful to our VAT case,” The Good Law Project, the claimant behind the U.K. case, said in a May 11 tweet.

Worker vs. Self-Employed

Uber’s VAT dispute came about due to an October 2016 employment tribunal that defined its drivers as workers instead of self-employed individuals. The ruling gave the drivers certain employment law rights, such as the national minimum wage, and also described Uber as a “transportation business.”

Jolyon Maugham, the tax barrister and campaigner behind the project, told Bloomberg BNA in a May 10 telephone interview that he plans to file the case in the High Court “next week.”

According to Maugham, last year’s tribunal ruling means that Uber, and not its drivers, provides the service to customers. The 2016 ruling determined that the drivers worked for the company and were not self-employed.

“A second judicial body has rejected what Uber asserts to be the reality of the situation,” Maugham told Bloomberg BNA in a May 11 email in response to Szpunar’s opinion. “It is becoming increasingly clear that Uber is supplying transport services.”

Uber Responses to Claims

In December 2016, Uber launched its appeal against the U.K. employment tribunal.

In a May 11 email, meanwhile, a spokesman for Uber declined to comment on The Good Law Project’s tweet.

Commenting on the Advocate General’s ruling, the same spokesman said Uber will now wait for the final decision from the EU Court of Justice, expected later this year.

“Being considered a transportation company would not change the way we are regulated in most EU countries as that is already the situation today,” the statement said.

“It will, however, undermine the much-needed reform of outdated laws which prevent millions of Europeans from accessing a reliable ride at the tap of a button.”

Commenting on the pending VAT case, Uber said in a statement that drivers who use its smartphone application will be registered for the indirect tax if they meet the U.K.’s threshold of 85,000 pounds.

“This has been the case across the taxi and private hire industry for decades,” the statement said. Black cab drivers and the apps they use, such as Gett or myTaxi, “operate in exactly the same way.”

“This claim is fundamentally flawed on a number of levels,” it added.

Risk of Future VAT Claims

The U.K. currently implements its VAT laws based on the 28-member bloc’s VAT Directive, which sets the standard rate of VAT at 15 percent and requires U.K. courts and tribunals to apply VAT in accordance with the directive and EU case law. If Uber loses its case in the U.K., it may face similar claims from other member EU states.

Outside the EU, Uber has already fought tax claims in court. In February, Australia’s Federal Court ruled that the company’s drivers must register to pay goods and services tax, the country’s VAT equivalent. Even if they earn less than the A$75,000 ($55,266) threshold, taxi drivers in Australia have to register to pay the 10 percent tax.

In Uber’s U.K. case, the amount at stake could “easily be seven figures—a billion pounds or more,” Maugham told Bloomberg BNA May 10. A campaigner against the U.K.'s vote to leave the European Union, the tax barrister set up the Good Law Project this year to implement change to the country’s legal system through strategic court challenges.

Global Regulatory Challenges

In addition to tax disputes, Uber has faced regulatory challenges in EU countries, including Germany and France, as it lets private drivers compete through its smartphone app with traditional taxi companies.

A claim from a Barcelona group of taxi drivers formed the basis of the Advocate General’s May 11 opinion on Uber’s Spanish subsidiary.

In 2014, the group asked a Barcelona court to impose penalties on Uber, as the company wasn’t licensed in the city. The following year, a judge referred the case to the EU’s Court of Justice to classify the company’s activity under EU law.

In his opinion, the Advocate General concluded that Uber “must be” a transport service.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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