VAT treatment of subsidies in connection with canteen operations at construction camps

Legal references:

the Value Added Tax Act § 1-3 first paragraph letter a, cf. § 3-1

 

The case

From the binding prior statement issued on 16 March 2021, the submitter’s presentation of the facts and law is reproduced as follows:

” The sender preparation of fact and law

From the request of 16 February 2021, the following is reproduced:

” 1. Introduction and fact

A (hereinafter: A or the company) plans to take over the operation of a construction camp at [location1]. In this connection, the company will offer customers a package that includes both accommodation and dining. This means that the customer will pay a unit price that covers both three meals a day and accommodation. The consideration will in principle be invoiced in full with VAT, the normal rate for the service and the low rate for the overnight stay. The distribution of the tax base between dining and accommodation is not a topic in this request.

As an alternative, A plans to offer a fixed monthly price that covers both accommodation and full board. This offer presupposes that the customer buys a minimum volume of 44 rooms or more over a project period of at least 12 months.

Offer: Price per month per 44-man rig: NOK […]

Price per room beyond 44 rooms: NOK […]

The prize is split in two and distributed according to the following principle:

Canteen / operating support: 35% of the total monthly price is invoiced VAT. free.

Room / hotel operation. The remainder of the monthly price is invoiced with VAT, low rate.

If the customer chooses to buy 66 rooms, the monthly fixed subsidy will amount to 66x […] x35% = NOK […]. This subsidy will remain fixed throughout the first year, and will only be renegotiated after one year. The subsidy is fixed regardless of how many rooms the customer uses at any given time. If the customer uses 60 rooms a month, the subsidy will still amount to NOK […]. If the customer uses 76 rooms next month, the actual subsidy will still amount to NOK […]. In the latter case, however, the customer will be additionally billed for 10 extra rooms. This means an additional bill related to serving of 10x […] x35% = NOK […]. This amount will be invoiced with a VAT surcharge of 25%.

We will already initially refer to BFU 54/03, where it appears that the subsidy can be determined in this way, ie that a fixed subsidy is agreed for a minimum staffing, and that serving beyond this will be fully taxable. The planned agreement will mean that A will run the canteen at his own expense and risk.

A wants to offer such an agreement to several customers, but not all. For projects with a short duration (less than 12 months) and a more limited number of people, A will operate without a grant.

A written draft agreement has not yet been prepared beyond the assumptions described above, which are further specified below. In the present case, X will be one of several companies that will use the relevant plant canteen / company canteen.

It is A who owns or rents in the relevant barracks rigs that are used. There is also A who owns or rents the kitchen that is installed.

There is no deductible for the employees in the canteen, as this is a construction canteen. Since this is a construction canteen, it can be assumed that the employer does not deduct payroll from its employees.

A will use a subcontractor in connection with the performance of the catering services. This subcontractor will invoice in full with VAT both in terms of the catering services and the food consumed. The subcontractor shall invoice an agreed consideration that includes both canteen services and the consumption of food.

A view is that the company «manages» the canteen operations, cf. the Ministry of Finance’s letter of 29 June 2001, and the Norwegian Directorate of Taxes’ statement of principles of 23 June 2020. The company is therefore of the opinion that it has the right to invoice the subsidy from the customer without an additional VAT. cf. BFU 83/02 and the subsequent practice.

A cannot be considered a subcontractor to X, as the company itself will operate the canteen at its own expense and risk, and must do so within the financial framework of the pre-determined subsidy. A therefore has the operational risk of delivering the agreed catering services, and risks default rights from customers if the company does not deliver as agreed.

It appears to be very artificial to assume that the individual customers are individually considered to be “in charge” of the operation of the canteen, which A owns / leases. If the current canteen e.g. then has 10 different users, one will in that case have 10 different companies that operate one and the same canteen. It falls on its own unreasonableness to base this on, which clearly substantiates that it must be assumed that it is A who runs the canteen.

With this inquiry, we ask the Tax Office to issue a binding prior statement with the following confirmation:

“A can invoice the subsidy from X for the operation of the company’s corporate canteen without an addition of VAT.” (emphasis of the secretariat)

In the following, under point 3, we will explain in more detail why A has the right to invoice the subsidy without VAT. Under point 2, we will first explain why the conditions for issuing a binding prior statement are met.

[…]

3. More about the tax treatment

3.1 BFU 54/03

We will first document that the Directorate of Taxes in a binding prior statement of 54/03 has accepted that the subsidy can be determined in the way that A proposes in our case. For the sake of clarity, we note that we are aware that the directorate has withdrawn parts of this statement afterwards, but it does not relate to the parts of the statement to which we refer. The question we are referring to concerns a canteen that the canteen company ran on its own, in contrast to the canteens to which the rest of the statement applied. Canteens run by the canteen company in-house are not affected by the restructuring that came last summer. From the request to the taxpayer we find the following reproduction:

«The company also runs some canteens under its own auspices. These are located at construction sites. Today, the company receives all its remuneration for the operation of the mentioned canteens from the company, which in turn makes deductions from the employees’ salaries. In the future, the parties are considering changing this. The employees must pay remuneration directly to the company for the serving. The consideration will be treated as taxable turnover for the company. In addition, the company must provide grants for operations in the form of a fixed monthly amount. The amount will be linked to the provision of catering services to a certain number of employees. The amount shall be fixed, regardless of whether the number of working hours and consumption of food deviates from what the parties assumed when determining the amount. If the number of employees who use the catering offer exceeds what the parties assumed when determining the subsidy, the company will invoice catering services to these employees in accordance with actual consumption. The extra amount will be invoiced with VAT.

It is requested to confirm that the fixed monthly amount can be invoiced without VAT.

However, the company also wants to be assessed whether the extra amount that the company is obliged to pay if more employees than assumed use the canteen offer, can be provided in the form of a tax-free subsidy. “

The Directorate of Taxes replied as follows:

“According to the information, the parties will not link the subsidies in question directly to the write-down of prices or the number of meals served. Iht. The Ministry of Finance’s statement, the subsidies are thus of a general nature, and shall not be calculated for VAT.

If the company post-invoices for its actual consumption of food and working hours, the company’s payment will have to be considered directly related to the number of meals served. Iht. The Ministry of Finance’s statement, VAT will then be calculated. “

This must mean that the Directorate of Taxes accepted that a fixed subsidy was agreed for a certain minimum level in the construction camp, but that invoicing of the actual number beyond this minimum level would be taxable. The next question is whether the reorganization that took place last summer will have an impact on our case. This will be addressed in the next sections.

3.2 The statements of the Ministry of Finance and the Directorate of Taxes

On the basis of the VAT reform in 2001, which led to a number of services becoming taxable, the Ministry of Finance stated the following about corporate canteens in a letter of 29 June 2001:

«In the case of canteen operations run by an independent service company, there will usually be a turnover in that the users pay a fee for the food service. With regard to subsidies provided by the company to the contractor, the Ministry of Finance assumes that pure operating support, including the value of providing premises and equipment, will not be regarded as consideration for a taxable service in the relationship between the company and the contractor. The amount is then not subject to VAT. If the support is directly related to a reduction in the prices in the canteen or is linked, for example, to the number of meals served, this will in the Ministry’s opinion be regarded as remuneration for a taxable service. This means that the support must be taxed in such cases as long as the canteen business takes place in industry. “

For canteen operations that are “managed by an independent service company”, the legal situation since 2001 has been that subsidies that the customer provides to the canteen operator are not taxable unless “the support is directly related to reducing prices in the canteen or is related to the number of meals served”. This view from the Ministry of Finance was confirmed and elaborated in three binding prior statements from the Directorate of Taxes in the years that followed, and in a number of guiding statements.

We see no reason to go into this further, and A will use the new statement of principles from the Directorate of Taxes where it is concluded that tax-free grants can no longer be agreed in connection with the management fee agreements (ie where the directorate perceives A as a subcontractor to the employer’s own canteen business). However, the Directorate of Taxes emphasizes in the statement that this does not apply to the management risk agreements, as the present case between A and the customer must be classified as. For such cases, it is still the case that duty-free canteen subsidies can be agreed in accordance with the Ministry’s original statement and subsequent tax practice.

3.3 The Directorate of Taxes’ perception of when an independent service company is in charge of operations

The Ministry of Finance’s letter from 2001 concerns canteen operations “which are managed by an independent service company”. A himself is in no doubt that the new agreement with the customer means that the company will be responsible for the operation of the canteen in question and bear the operational risk for this. As a result of the general uncertainty that has spread in the industry following the changes in practice for corporate canteens, we still want a confirmation from the Tax Office that you share the company’s position.

In this connection, A will first refer to the Directorate of Taxes’ letter to the Civil Ombudsman of 1 November 2019, in which the Directorate of Taxes comments in more detail on how they understand the phrase “is in charge of operations” in the Ministry’s statement from 2001. For the record, we also note here section 2.3 in the statement of principles from the Norwegian Directorate of Taxes. This letter was sent after the Civil Ombudsman started investigations following a case before the Tax Appeals Board where a canteen operator in a specific case was refused to invoice a subsidy without the addition of VAT. The Directorate of Taxes then wrote to the Civil Ombudsman:

“In our opinion, the ministry here does not directly address a situation such as the complainant’s. It is true that the case where the serving is handled by the company itself is considered, but not where a canteen company is used as a subcontractor, see section 3.2. Such an “intermediate solution” is not mentioned, as the ministry only seems to deal with cases where either the company or an outside company is involved in the business. If we return to the Civil Ombudsman’s question about what it takes to “manage the operation”, this is not necessarily the one who produces the services through its own staff and own operating assets. This can also be the one who has the risk for the business. In our case, the canteen company must receive a fixed amount, regardless of the earnings in the canteen, while the business collects the revenue and bears the expenses of the food and drink in question. As we see it, it is then the company that is in charge of the operation, as this has the operational risk. The question of who operates is thus in our case related to risk, not to which services are produced. “

The Directorate of Taxes thus draws a distinction between the cases where the canteen operator himself must be considered to be «in charge of the operation» and the cases where the real operational risk is with the employer / customer. According to the directorate, the decisive factor is who has the “operational risk”. As mentioned, it appears very artificial to assume that all customers, individually, will be considered to have the operational risk for the same canteen. Furthermore, in the mentioned letter, the directorate repeats this distinction and refers to case law to highlight risk considerations as the central assessment criterion:

“As we mentioned above, a key question is whether it is the canteen operator or the customer company that legally carries out the activity to which the subsidy applies. If this is the customer company, the consequence must be that it buys the necessary services from the canteen company as a subcontractor. with the effect that there is a ‘delivery for consideration’ between the parties, cf. § 1‑3 first paragraph letter a. If, on the other hand, the canteen company carries out the business, the subsidy can only be regarded as consideration if it is linked to reduced prices for food and drink, or to serving volume, cf. the Ministry of Finance’s letter of June 2001. Such an approach , where decisive emphasis is placed on the risk aspect, has support in practice from the area of ​​passenger transport. The judgment of the Borgarting Court of Appeal in Utv.2014.839 (Vestviken Kollektivtrafikk) applied to VKT,

The Directorate of Taxes hereby assumes that subsidies to canteen operators cannot be granted without an addition of value added tax if the canteen operator, here A, does not “legally carry out the activity to which the subsidy applies”. The Directorate hereby interprets a restriction in the access to tax-free grants that the statement from the Ministry of Finance establishes. The key factor in assessing whether the canteen operator / A “carries out” the business is whether the company has the operational risk for the business:

«The current practice, which admittedly applies to the area of ​​passenger transport, is based on a general tax criterion, namely who has the operational risk for the business in question. In the net method, the grant recipient has the risk, and he is thus considered to run the business. In the gross method, the grantor has the risk, and he is thus considered to run the business, with the grant recipient as a subcontractor. The consequence is that he receives services from the grant recipient, and the reciprocity requirement is met. As mentioned, we believe that the approach used here expresses a general point of view, which must also apply to e.g. canteen operations. »

On the basis of the Directorate of Taxes’ understanding of the Ministry of Finance’s statement, it must therefore be assumed that A can invoice the subsidy from the customer without an addition of VAT as long as A can be considered to “manage” the canteen; in other words that A has the real operational risk for the business.

Furthermore, we refer again to the aforementioned BFU 54/03, where the Directorate of Taxes assumed that a canteen operator who wanted to “manage” the operation of a construction canteen on a management risk contract, was entitled to have the subsidy invoiced from the customer without an additional VAT. The decisive factor was that the subsidy was determined in advance and that the canteen operator “oversaw” the operation of the canteen as an “independent service company”, cf. the Ministry of Finance’s letter of 29 June 2001. The decisive factor was not any turnover directly to the employees. the company. After this, it must be assumed that X can provide a subsidy without VAT to A for the operation of the construction canteen, as long as A is considered to “manage” the canteen for its own account and risk as an “independent service company” (ie that A has the real operational risk for the canteen business), and that the relevant subsidy is predetermined and locked for the contract year. Consumption greater than that covered by the agreed subsidy must be invoiced to the customer with the addition of VAT.

In continuation of this statement, we will also refer to a new decision from the Tax Appeals Board under section 3.4 below, which confirms that canteen subsidies for construction canteens can be agreed without an addition of VAT, as long as the subsidy is pre-agreed and locked for the entire agreement year.

3.4 A is responsible for the operation of the canteen and bears all risk for this operation

In the agreement with X, A will undertake to operate the canteen. Furthermore, the company will act as liable to all relevant public authorities. At the same time, A will have the risk of delivering the agreed services to X within the limited financial framework set up by the agreement. A has all the risk on the cost side; if they fail to operate cost-effectively, operations will run a loss. Any loss must be borne in full by A. The canteen is thus operated at the company’s expense and risk; it is A who has the operational risk. It is difficult to see that the individual customer of A will have any operational risk.

If, for example. If food poisoning occurs in the canteen or there are new infection control councils that require various measures from the canteen operator, it is A who is responsible for implementing and paying for measures, and which consequently is therefore given the risk of such unforeseen events that may affect daily operations. Costs for such unforeseen measures will necessarily go beyond A’s financial margins in the canteen operation, and this shows that it is A who bears the risk if the daily operation is distorted by unforeseen events.

A, possibly the subcontractor that A uses, will assume the full and complete risk of food waste, depending on which fee structure is chosen for A’s subcontractor. The customer thus has no risk in this connection.

This arrangement between A and X related to foodstuffs thus clearly deviates from what is usual when a canteen operator in the Directorate of Taxes’ view (cf. section 3.3 above) does not operate “independently”, but acts as a “subcontractor” to X / employer.

The usual thing in such an agreement is then that A invoices all of the food that is bought into the canteen, and that the employer then in reality buys the food at the moment these are bought in by the canteen operator. The risk of food waste and storage of food is then entirely placed on the employer. In the case between A and X, the risk for the food is entirely placed on the A / subcontractor.

If A is unable to deliver the agreed catering services within the agreed financial framework, it is A who must bear the loss.

A also appears as the one who runs the canteen externally, both to customers and public authorities. We emphasize in this connection that according to Section 3 of the Serving Act states that it is the «person who wants to make a living from running a restaurant that must have a serving permit given by the municipality» , and that according to Section 1-4b of the Alcohol Act, a permit shall be granted to “the person on whose account the business is conducted” . This is practiced so that it is A or a subcontractor who has a serving license (and possibly a liquor license). This is also emphasized by the fact that it is the A / subcontractor who will register with the Norwegian Food Safety Authority, and who therefore risks reactions if the authority finds deviations in cleaning or hygiene routines, or if there is food poisoning or disease infection associated with the canteen.

On the other hand, we would like to emphasize that X’s risk associated with canteen operations is minimal. We would even argue that it would be artificial to make such an assessment. X only pays for the catering services according to an agreed price, in addition to the fixed operating support. In the event that X makes a canteen deduction in the salaries of the employees, it cannot mean that X can be considered to run a canteen at his own expense and risk to his employees. We do not see that X has any financial risk, any responsibility to the authorities or that they have any content responsibility to their employees. The turnover takes place here from A to X, there is no turnover ratio between X and their employees.

3.5 The Tax Appeals Board has accepted that no user fee is required for a canteen operator in management risk agreements

In conclusion, we will refer to a decision from the Grand Department of the Tax Appeals Board of 14.05.2019 (ref. […]) [NS 53/2019].

This decision concerned a canteen company that wanted to agree on a canteen subsidy for construction camps. In this connection, the canteen company used a subsidy model that was based on a standard management risk contract, but with different price ranges based on how many meals were actually served in the canteen in each month. The subsidy for the various intervals was predetermined for the whole year, but the actual payment of subsidies from the client to the canteen operator would necessarily vary, depending on the price range in each month, which would depend on how many meals were actually served. . The entire remuneration of the canteen operator was settled in the form of a tax-free subsidy, and as a result there was no user fee in the canteen. The canteen operator in this case did not know whether the client possibly carried out a canteen move from the employees. In that case, this was entirely a relationship between the employees and the employer, and not something that the canteen company knew about. We take into account that it can probably always be assumed that the employees do not pay a deductible in the construction canteens. The content of the various price ranges in the decision is included below:

« […]

This means that here too a fixed operating subsidy is determined in advance for each interval that is locked in the entire contract period, regardless of the actual number of meals served. The operating support is invoiced in arrears every month. If the average number of people in the relevant month has been up to 30 people, the operating grant is used in step 1, if the average number of people is 31 or more, the operating grant is used in step 2, if the average number is 61 or more, the operating grant is used in step 3 and if the number exceeds 91 or more, operating aid is used in step 4. »

We would like to emphasize that neither the Secretariat nor the Tax Appeals Board had any objections to the subsidy in question covering the entire operation of the company canteen (ie both personnel and food), and thus not supplemented by a user payment in the canteen to the canteen operator. For its assessment, the secretariat was based on the current practice:

“Pure subsidies to a canteen, without a specific benefit, are not considered turnover, cf. above. The distinction between what is considered turnover and is not dealt with in the Ministry of Finance’s letter dated 29 June 2001. In two binding preliminary statements (BFU 83/02 and BFU 54/03), the Directorate of Taxes has also assessed the tax treatment of canteen operations in two specific cases. “

After this, the Secretariat only chose to problematize the intervals (which can often be categorized as the «stair step model») as these in their view meant that in reality no pre-determined grant had been agreed, and also that the grant in question was too strongly linked to the actual the number of meals served in the canteen:

«After a concrete assessment in this case, the secretariat believes that the pre-agreed step-by-step model that automatically provides changes in the grant cannot be equated with the renegotiation clause that has been accepted in previous practice. The Secretariat therefore believes that the grant in this case cannot be regarded as a tax-free grant. The Secretariat will justify this in the following.

In its assessment, the secretariat has emphasized that in this case no fixed operating subsidy has been agreed, but instead a subsidy that is both adjusted and invoiced in arrears based on the number of users in the canteen. In the secretariat’s assessment, the subsidy will then be strongly linked to the number of meals served in the canteen. A step-by-step model as a starting point for the grant in itself supports such an assessment.

The fact that the subsidy is automatically adjusted and regulated according to the number of users also means, as the secretariat sees it, that the subsidy directly depends on and is linked to the number of meals served in the canteen.

In the Secretariat’s opinion, an automatic adjustment of the grant will also not be in line with, or equated with, the renegotiation clause for extraordinary cases that has previously been accepted, cf. BFU 54/03. The fact that the subsidy is adjusted by a pre-agreed amount also makes it difficult to compare with an extraordinary case. “

Following this, the Secretariat came to the following conclusion, which the Tax Appeals Board unanimously agreed with:

“After a specific overall assessment, the secretariat believes that the grant in this case cannot be regarded as a tax-free grant. The pre-agreed step-by-step model that automatically provides changes in the subsidy as described here, the secretariat believes, cannot be equated with the renegotiation clause that has been accepted in previous practice. The secretariat therefore believes that the subsidy must be regarded as remuneration for a taxable service and thus be taxed. “

Consequently, the Tax Appeals Board had no objections to the subsidy model itself being based on a total subsidy that included both the serving and the food, even though no user payment was made to the canteen company. The Tax Appeals Board only problematized the use of intervals that regulated the size of the subsidy.

In our view, this must mean that, according to the Tax Appeals Board’s decision, it is not problematic with a total subsidy that covers the entire canteen operator’s activities, and which is therefore not supplemented by a user payment in the canteen. We note that this decision also directly applied to the tax treatment of a construction canteen, which is also the type of canteen to which this request applies. On this basis, X must be able to provide a tax-free subsidy to A for the operation of the construction canteen, as long as this subsidy is agreed in advance and locked for the entire contract year, in line with the principle from BFU 83/02. “”.

The Secretariat’s draft recommendation was sent to the submitter on 27 April 2021. Comments on the recommendation were received on 7 May 2021. The comments are taken into account below.

Submitter’s citations

In its statement, the Tax Office briefly noted the following:

“There have been no new allegations in the complaint, beyond a clarification of these. The tax office has no further comments on this.”

The Secretariat will reproduce the following from the complaint and which concerns the tax office’s assessment:

“We initially reproduce the key preconditions for the planned contractual relationship the request applies to:

• A shall operate a construction canteen at [location1]. A plans to offer a product to customers / employers that consists of a fixed monthly price, which covers both accommodation and full board. This product will be offered to customers who buy at least 44 rooms over a period of 12 months.
• There is no deductible for the employees in the canteen, and the employer also does not make any canteen deductions from the salary.
• The price for the product is split in two, where 35% of the total monthly price is invoiced as canteen / operating subsidies without VAT, and 65% is invoiced for room / hotel operations with VAT (low rate).
• The subsidy is set for one full year at a time, and will only be renegotiated when one year has elapsed. The subsidy will be fixed regardless of how many rooms are actually used. If the number of rooms / meals is lower than expected, this will not reduce the subsidy. Serving in excess of the stipulated volume will be invoiced in addition to the fixed subsidy, with an additional VAT of 25%.

            […]

2 Comments on the individual sections in the Tax Office’s binding prior statement

We first choose to reproduce and comment on the reasons for the tax office paragraph by paragraph.

Argument No. 1

«Pursuant to the Value Added Tax Act § 3-1 first paragraph, all sales of goods and services are taxable, unless there is an exemption or exemption from tax liability. In § 1‑3, first paragraph, letter a, turnover is defined as “delivery of goods and services for consideration”. VAT shall be calculated on the consideration for the goods or services, including subsidies that form part of the price of the goods or services, cf. section 4‑1, first paragraph. »

In our view, it is imprecise to take as a starting point the provisions of the Value Added Tax Act, as the Ministry of Finance in their letter of 29 June 2001 has concluded that duty-free canteen subsidies can be agreed. There is also a long-standing and undisputed management practice that canteen subsidies can be agreed. This practice was most recently confirmed in the Norwegian Directorate of Taxes’ statement of principles from 2020. Here it appears that the previous practice is continued with the exception of cases where the canteen operator must be considered a subcontractor to the employer, who runs the canteen at his own expense and risk to his employees. The question in our case is therefore whether it is A who runs the canteen, or whether it is the employers who run the canteen. In other words, the core issue in the case is whether A is a subcontractor to the employers.

Argument No. 2

«In support of his view, the submitter refers to practice regarding subsidies for company canteens. The tax office cannot see that this practice is directly relevant to our case. “

This is a direct error, and is based on the thesis that subsidies are ok when employees wear suits, but not overalls.

We will document this by reproducing the relevant point in the Directorate of Taxes’ binding prior statement 54/03 which concerned the operation of a construction canteen under our own auspices. Note that in the preliminary statement it is specified that these construction canteens were run on their own, the canteen operator was thus not assessed as a subcontractor in a completely identical case as in our case. This means that this part of the statement is intact even after the directorate’s statement of principle, which only affects the subcontractor cases. From the request to the taxpayer we find the following reproduction:

[The Secretariat refers here to point 3.1 in the request above where the equivalent from BFU 54/03 is reproduced]

We do not see that the fact that the employees in our case do not pay a deductible for the food has any bearing on the fundamental question of whether subsidies can be agreed or not. There are no restrictions on how much subsidy the employer can offer the service company, once the conditions for agreeing on subsidies are present. The decisive factor in this connection is whether A is in charge of operations, and does not act as a subcontractor to the employer.

Argument No. 3

«In a letter dated 29 June 2001, the Ministry of Finance stated its views regarding the tax treatment of operating grants for canteens:

[The Secretariat refers here to section 3.2 of the request above, where the equivalent from the Ministry of Finance’s statement of 29 June 2001 is reproduced]

The statement addresses cases where the operator of the canteen sells catering services directly to the users of the canteen and in addition receives subsidies / operating support from a third party (typically the customers’ employer). “

This is not correct. The Ministry of Finance deals with cases where the canteen operations are managed by an independent service company. In this connection, the ministry writes that there is usually a turnover in that the users pay a fee for the food service. The fact that the users themselves do not pay any remuneration in our case does not mean that the canteen operations are not managed by A. The Directorate of Taxes interprets the term so that in cases where players such as A are subcontractors, subsidies will be excluded. The tax office has no evidence that this is to be understood as meaning that subsidies are excluded when A does not receive any remuneration from the users of the canteen.

Argument No. 4

«In such tripartite constellations, it may be the case that the operating support for the canteen operator is given on such terms that the support can not be regarded as real remuneration for specific catering services, but as general support for writing down prices.

For example, it may be the case that the canteen operator receives a fixed subsidy regardless of whether the employer’s employees at all use the opportunity to purchase catering services in the canteen. We refer to the Directorate of Taxes’ statement of principles of 26 June 2020 for a more detailed account of practice. “

We have as much a tripartite constellation here as in all other cases where there is agreement that tax-free subsidies can be agreed. We have a canteen operator (A), we have an employer, and we have the employer’s employees (the users of the canteen). The Tax Office clearly finds it too favorable that a 100% subsidy can be agreed, but the Tax Office has no evidence that this is not the case in the statements to the Ministry and the Directorate. We take into account that it may seem that the tax office agrees that the subsidy would have been tax-free if, for example, the users of the canteen paid A NOK 1 in remuneration per. month.

Argument No. 5

“On the other hand, the present case does not concern subsidy issues in a tripartite constellation. This case concerns the sale of room rentals in hotels, etc. which also includes catering services. This turnover takes place in a two-party relationship between A and their customers (typically companies). Even though the services will actually be consumed by the companies’ employees, it is the company that is the buyer under tax law. According to the tax office, there will be a direct connection between sales of room rentals in hotel operations, etc. as well as serving and the total consideration that will be charged for these services. In the tax office’s view, it is clear that there will be no basis for considering 35% of the remuneration for these services as a tax-free subsidy for a “corporate canteen”.

This with a tripartite constellation is a derailment, this is not the case’s central assessment theme, cf. above. It is also a derailment that A also offers accommodation, they must still have the same access to agree on subsidies as other service companies. The fact that A does not sell catering services to the users of the canteen or to the employer also has no bearing on the right to agree on subsidies. Here it is also important to note that the employer does not sell services to the users of the canteen either.

The decisive factor for whether tax-free canteen subsidies can be agreed is, with the Ministry’s wording, whether A can be considered to be in charge of the operation as an independent service company. With the Norwegian Directorate of Taxes’ wording, it will be crucial that A cannot be considered a subcontractor to the employer. The decisive factor in this connection should be that A is responsible for absolutely the entire operation of the canteen. This must mean that it is A who is in charge of the operation, and not the individual companies that use the company canteen. The fact that there is no turnover relationship between the employer and the employee also supports that it will not be correct to designate A as a subcontractor to the employer, and that it is the employers who run the canteen at their own expense and risk.

As there are several companies that use the company canteen in question, such a conclusion will mean that all these companies individually run the canteen at their own expense and risk to their employees, and that all use A as their subcontractor. We find it difficult to assume that we have as many canteen operators here as the number of companies that use the canteen. It becomes far more natural to assume that this canteen is run by one player, namely A, and that the canteen operation is managed by A. In that case, A will be in a position to agree on tax-free subsidies. “

In addition to the above, the submitter again refers to the Ministry of Finance’s statement from 2001 (item 3), the Directorate of Taxes’ BFU 54/03 and the Tax Appeals Board’s decision of 14 May 2019 (item 4), the Directorate of Taxes’ statement of principles from 2020 (item 5) and the Directorate of Taxes’ clarification to the Civil Ombudsman (item 6).

The secretariat refers to the complaint which is attached.

Comments on the secretariat’s draft recommendation

The submitter agrees that the question of the case is whether the subsidy must be regarded as turnover within the meaning of the law or not. The most obvious sources are stated to be the Ministry of Finance’s statement on 29 June 2001, the Directorate of Taxes ‘BFU 54/03 and the Directorate of Taxes’ statement on 26 June 2020.

It is stated that the secretariat concludes that these statements are not relevant without explaining why these are not relevant in this case.

The submitter then briefly discusses the Ministry of Finance’s statement from 2001, the Directorate of Taxes ‘statement from 2003 and the Directorate of Taxes’ statement from 2020. These are largely repetitions from previous allegations and reference is made in this connection to the comments above.

The tax office’s assessments

In a binding preliminary statement dated 16 March 2021, the Tax Office has assessed the question as follows:

“For the sake of order, please note that no decision is taken on any other tax issues or issues that may arise in the transaction (s) outlined in addition to the issues discussed below. The tax office assumes that the premises and facts are described above are complete for the issues discussed.

The case concerns company A, which will offer accommodation and catering services at a construction camp at [location1].

Pursuant to section 3-1, first paragraph, of the Value Added Tax Act, all sales of goods and services are taxable, unless there is an exemption or exemption from tax liability. In § 1‑3, first paragraph, letter a, turnover is defined as “delivery of goods and services for consideration”. VAT shall be calculated on the consideration for the goods or services, including subsidies that form part of the price of the goods or services, cf. section 4‑1, first paragraph.

Det følger av merverdiavgiftsloven § 5-5 første ledd bokstav a at det skal beregnes merverdiavgift med redusert sats ved omsetning av tjenester som gjelder utleie av rom i hotellvirksomhet og lignende virksomhet. Det skal også beregnes merverdiavgift med redusert sats ved omsetning av næringsmidler, med mindre næringsmidlene omsettes som del av en serveringstjeneste – det skal da beregnes merverdiavgift med alminnelig sats, jf. § 5‑2 første ledd.

If a total consideration is charged that applies to both room rental in hotel operations etc. as well as catering – ie services with different tax rates – a distribution of the remuneration shall be made, cf. the Value Added Tax Regulations §§ 5‑5‑1 and 5‑5‑2. However, the detailed distribution of a total remuneration over two different services is not a topic in the binding prior statement. A plans to offer a package consisting of accommodation and catering services (full board / three meals) at a fixed monthly price to various companies and their employees. The question is whether A can treat 35% of the consideration for this package as a supplement to A’s “company canteen”. According to the information, the remaining 65% of the consideration will be regarded as consideration for room rental in the hotel business, so that VAT will only be calculated at a low rate of this amount.

It appears from the request that A will be in charge of the operation of the canteen and bear all risk for this operation. A will use a subcontractor in the execution of the catering services. This will invoice an agreed consideration in full with VAT both in terms of the catering services and the food consumed.

In support of his view, the submitter refers to practice regarding subsidies for company canteens. The tax office cannot see that this practice is directly relevant to our case. In a letter dated 29 June 2001, the Ministry of Finance set out its views regarding the tax treatment of operating grants for canteens:

“In the case of canteen operations run by an independent service company, there will usually be a turnover in which the users pay a fee for the food service. As for subsidies that the company makes available to the contractor, the Ministry of Finance assumes that pure operating support inventory available, will not be considered as consideration for a taxable service in the relationship between the company and the contractor. The amount is then not VAT liable. “This is considered to be remuneration for a taxable service. This means that the aid must be taxed in such cases as long as the canteen business takes place in business.”

The statement addresses cases where the operator of the canteen sells catering services directly to the users of the canteen and in addition receives subsidies / operating support from a third party (typically the customers’ employer). In such tripartite constellations, it may be that the operating support to the canteen operator is given on such terms that the support can not be regarded as real remuneration for specific catering services, but as general support for writing down prices. For example, it may be the case that the canteen operator receives a fixed subsidy regardless of whether the employer’s employees at all use the opportunity to purchase catering services in the canteen. We refer to the Norwegian Directorate of Taxes’ statement of principles of 26 June 2020 for a more detailed account of practice.

This case, on the other hand, does not apply to subsidy issues in a tripartite constellation. This case concerns the sale of room rentals in hotels, etc. which also includes catering services. This turnover takes place in a two-party relationship between A and their customers (typically companies). Even though the services will actually be consumed by the companies’ employees, it is the company that is the buyer under tax law. According to the tax office, there will be a direct connection between sales of room rentals in hotel operations, etc. as well as serving and the total consideration that will be charged for these services. In the tax office’s view, it is clear that there will be no basis for considering 35% of the remuneration for these services as a tax-free subsidy for a “corporate canteen”.

Conclusion

A will not receive subsidies that can be invoiced without calculation of value added tax, cf. the Value Added Tax Act § 1‑3 first paragraph letter a. “

In its statement, the Tax Office briefly noted the following:

“There have been no new circumstances in the appeal round and the tax office considers that the decision is correct so that reversal is not relevant.”

The Secretariat’s assessments

Formal conditions and conclusion

A binding prior statement is not to be regarded as an individual decision pursuant to the Tax Administration Act § 1‑2 first paragraph letter d.

The Tax Appeals Board is the right appeal body according to the Tax Administration Act § 13‑3 second paragraph, cf. § 6‑2 first paragraph. When the appeal is considered, the Tax Appeals Board may try all aspects of the case, cf. the Tax Administration Act § 13‑7 second paragraph.

With regard to the formal and legal effects of a final binding prior statement, reference is made to the Tax Office’s BFU of 16 March 2021 under the section “General information on the system of binding prior statements”.

The secretariat, which prepares cases for the Tax Appeals Board, recommends that the submitter’s appeal not be upheld. The secretariat agrees with the tax office’s justification and conclusion in the advance statement issued, and has only a few remarks to add, cf. below.

The question in the case is whether company A, which is to offer accommodation and catering services at a construction camp at [location1], can invoice subsidies from companies without the addition of VAT.

Legal basis

The starting point of the Act is that all sales of goods and services are subject to value added tax, cf. the Value Added Tax Act § 3‑1 first paragraph, unless there is a special exception or exemption in the Value Added Tax Act.

The term “turnover” is further defined in the Value Added Tax Act § 1‑3 first paragraph letter a as “delivery of goods and services for consideration”.

In order for there to be turnover, it follows from the wording that three cumulative conditions must be met:

• There must be a performance (“delivery”),
• There must be a consideration (“consideration”), and
• There must be a requirement for a connection between the benefit and the consideration (“against”)

The preparatory work for the Value Added Tax Act provides little guidance on the content of the concept of turnover. I Ot. Prp. No. 76 (2008-2009), Chapter 6.7.4, it is stated that “[The] decision as to whether there is turnover within the meaning of the Act must in any case be based on a specific assessment. There may also be other factors than those mentioned in the text of the Act which in each case weight should be given. “

According to case law and administrative practice, the assessment of whether there is turnover will depend on an overall assessment of several factors. In the Supreme Court’s judgment in Rt ‑ 2004-738 (P4), the requirement for a connection between performance and consideration is formulated as follows: “the question is whether there is a sale of advertising services – whether mutually onerous agreements have been entered into”. In legal theory, this is i.a. formulated as follows: “[T] he is thus the mutual obligations – delivery of goods or performance of service for consideration – which involves turnover. Only one of the elements does not entail turnover.”, cf. Gjems-Onstad et al. in the “VAT commentary” 5th edition p. 54. The same is stated in the Supreme Court’s decision of 12 February 2019 (HR ‑ 2019-273 ‑ A).

In cases where support is provided in the form of a subsidy, given either by the public or private sector, the question arises as to whether the support represents consideration for delivery / service so that there is taxable turnover. Support or subsidies that are not conditional on any specific benefit are therefore not considered as consideration for turnover within the meaning of the VAT Act.

With the exception of serving services from pupil and student canteens (in the Value Added Tax Act § 3‑5 fourth paragraph), services relating to canteen operations and serving are covered by the Value Added Tax Act, cf. § 3‑1, cf. § 1‑3 first paragraph.

Concrete assessment

In this case, A shall offer companies accommodation and catering services (full board / three meals) at a construction camp at [location1] as described above.

After a specific assessment, the secretariat believes that A will provide ordinary taxable accommodation and catering services pursuant to section 3‑1 of the Value Added Tax Act, cf. section 5‑5 first paragraph letter c, with associated regulations, cf. the tax office’s assessment in a binding prior statement. The secretariat finds no legal evidence that A in this case, and as the fact is described, can invoice subsidies from companies without the addition of VAT.

The Secretariat will note that the submitter’s reference to practice regarding subsidies for “corporate canteens” is of little relevance. In this connection, the Secretariat will note that in the present case a different concept is offered (accommodation and catering services (full pension)) than the types of cases that the submitter refers to and which are described in the Ministry of Finance’s statement of 29 June 2001 and the Directorate of Taxes’ BFU 54/03. The Secretariat will for all purposes point out that it is the Value Added Tax Act and associated regulations, which is the clear starting point for the assessment of whether something (here subsidies) represents taxable turnover or not. Neither the Ministry of Finance’s statement of 29 June 2001 nor the Directorate of Taxes’ BFU 54/03 in any way authorizes a general exemption for subsidies for canteen operations as the submitter claims, cf. below.

In his complaint, the submitter has countered the tax office’s assessment by what has been mentioned above as argument 1‑5.

In the following, the secretariat will briefly comment on the submitter’s allegations.

It is stated by the submitter that it is imprecise of the tax office to take as a starting point the provisions of the VAT Act, as the Ministry of Finance in their statement of 29 June 2001 has concluded that tax-free canteen subsidies can be agreed. The submitter also points out that there is a long-standing and undisputed management practice that canteen subsidies can be agreed. This practice was most recently confirmed in the Norwegian Directorate of Taxes’ statement of principles from 2020.

In the Secretariat’s assessment, the allegation cannot be advanced.

The Secretariat will note that it mustis based on the provisions of the Value Added Tax Act in the assessment of whether a subsidy represents taxable turnover. The Secretariat does not agree that the Ministry of Finance’s statement of 29 June 2001 states that subsidies to canteens are, as a general rule, tax-free. Reference is made to the assessment above. The secretariat also does not agree that there are long-standing and undisputed administrative practices that support the submitter’s view. In the Directorate of Taxes’ statement of principles of 26 June 2020, it is stated on the contrary that the vast majority of advance statements and advisory statements that have previously given acceptance for the grant of duty-free canteen subsidies are not in line with applicable law. In this connection, the Secretariat refers to the Tax Appeals Board’s decision in a large department dated 9. May 2019 in NS 52/2019 and NS 53/2019, both of which dealt with questions about subsidies to canteens, could be invoiced free of charge. The Tax Appeals Board unanimously concluded that subsidies could not be invoiced tax-free.

In this connection, the Secretariat will briefly note that the submitter in section 3.5 of the request for prior opinion has stated that the Tax Appeals Board’s decision in NS 53/2019 provides support for the submitter’s assessment in this case.

In the Secretariat’s assessment, this does not imply accuracy. The secretariat cannot see that NS 53/2019 provides support for an assessment that the subsidy in the present case is to be regarded as tax-free.

In NS 53/2019, which was also a complaint to BFU, a decision was only made as to whether the specified subsidy could be regarded as a tax-free subsidy. The subsidy was based on a “step-by-step model” where the subsidy was automatically adjusted and invoiced based on the number of users in the canteen. The secretariat agreed with the tax office that the subsidy could not be considered a tax-free subsidy. The Secretariat’s reference to a “renegotiation clause” and “fixed subsidy” that had been accepted in previous BFUs, was included as a justification for the case in NS 53/2019 not being similar to these cases, as the submitter claimed. The reference to “renegotiation clause” and “fixed subsidy” can in any case not be taken as income because the secretariat or the Tax Appeals Board has “accepted” this practice.

See also the Tax Appeals Board’s decision in a large department on 14 November 2019 (NS 136/2019) where it was a question of whether foodstuffs were included in a serving service so that the foodstuffs were to be invoiced at a regular rate (25%), or whether the foodstuffs were to be invoiced at a reduced rate (15%) as an independent benefit. The Tax Appeals Board came to the conclusion that taxpayers had to be regarded as suppliers of the catering business in the client’s canteen and that it was a total delivery of canteen and serving services. The food was thus added 25% as part of a serving service. It was stated by the submitter that canteen operators stand out as a “type case” and that the food could therefore be invoiced separately. In this connection, reference was made to a number of statements from the tax offices, both BFUs and guiding statements that have accepted that the canteen operator can separate a share of its delivery to the corporate customer as food and treat this at a reduced rate. The tribunal ruled that there were no legal grounds for taxing canteen operators in a different way than other providers of catering services.

The Secretariat will add that in the statement of principles of 26 June 2020, the Directorate of Taxes has also here rejected previous BFUs and guiding statements from the tax office for not being in line with applicable law. Reference is made to the tribunal’s decision in NS 136/2019.

Furthermore, the secretariat cannot agree with the submitter, as stated in the complaint, that the core question in this case is whether A is a subcontractor to the employers, and if A is not a subcontractor, then it appears from the Directorate of Taxes’ statement of principle that tax-free subsidies can be agreed. The submitter also points out that the decisive factor for whether tax-free canteen subsidies can be agreed is, with the Ministry of Finance’s statement on whether A can be considered to be in charge of the operation as an independent service company. The Secretariat also does not agree with this.

The secretariat cannot see that the core question in the present case is whether A is a subcontractor or not, or whether A is in charge of the operation as an independent service company. The question in this case is whether A can invoice grants free of charge given the presented fact. As mentioned above, the secretariat believes that it is clear that ordinary taxable services are provided by A in this case in the form of offering hotel-like accommodation with full board. This turnover takes place between A and their customers / companies where the latter is a buyer under tax law. The secretariat believes that this is an ordinary contractual relationship between two parties where services are provided for consideration, cf. the tax office’s assessment. In the Secretariat’s assessment, the Act’s conditions for turnover are thus clearly fulfilled.

Regarding comments on the secretariat’s draft recommendation

The Secretariat cannot see that the submitter has made new allegations that have not already been taken into account in the discussion above, and / or have made allegations that will lead to a different assessment or conclusion than the one stated above.

To the allegation that the Secretariat has not justified why the Ministry of Finance’s statement of 29 June 2001, the Directorate of Taxes ‘BFU 54/03 and the Directorate of Taxes’ statement of 26 June 2020 are not relevant, the Secretariat will note that this isjustified above. It appears above, among other things, that in the present case a different concept is offered than the type cases described in the Ministry of Finance’s statement of 29 June 2001 and the Directorate of Taxes’ BFU 54/03. It is also specified that for all purposes it is the Value Added Tax Act and associated regulations, which is the clear starting point for assessing whether something represents taxable turnover or not, and that neither the Ministry of Finance’s statement of 29 June 2001 nor the Directorate of Taxes’ BFU 54/03 in any way authorizes a general exemption from subsidies for canteen operations.

The secretariat finds no legal evidence that A in this case, and as the fact is described, can invoice subsidies from companies without the addition of VAT.

The Secretariat’s proposal for conclusion

The complaint is not accepted.

Source: skatteetaten.no