London is claiming VAT from the airline group on the redemption of points for flights in the loyalty program. The holding company has already paid £103 million, although it disagrees and does not rule out going to court.
IAG, the parent company of Iberia, British Airways, and Vueling, is clashing with the British tax authority (HMRC) over the VAT of IAG Loyalty, its loyalty subsidiary that allows the redemption of points (Avios) for flights and other services and products.
According to the newspaper Expansión, the conflict has been ongoing, but on October 29, HMRC issued a resolution stating that a VAT of 20% (the general rate in the UK) should be applied “on payments received by IAG Loyalty from partners based in the UK and on all Avios purchases made by individuals,” as stated by the holding company in its quarterly report. The VAT on flights is 0%.
The British tax authority began to reconsider VAT accounting in these cases in 2022 and has issued assessments totaling £263 million for 32 months up to October 2020.
IAG expects HMRC to send new assessments and, applying the same methodology, estimates that the amount owed would rise to £697 million, of which £261 million would be recoverable. The group has started to pay the British tax authority on this matter, specifically £103 million, “in order to avoid incurring possible interest and penalties,” although “without admission of liability.” Furthermore, “it does not consider it appropriate to record any provision for this matter.”
IAG relies on a historic resolution from HMRC, which recognizes that the applicable VAT rate depends on the product redeemed, which in most cases would be exempt, given that more than 90% of Avios are redeemed for flights.
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.
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