Complexities inherent in cross-border VAT transactions

Two recent Tribunal cases:

  • Finger Foods Limited v Revenue and Customs Commissioners [2013] UKFTT 054, published on 25 January 2013, and
  • Limited v Revenue and Customs Commissioners [2013] UKFTT 054 (TC), published on 29 January 2013

have made it clear that import/export agents are not entitled to reclaim input VAT where they are neither the party purchasing the goods, nor acting as “undisclosed agent” in purchasing the goods.

HMRC has already issued updated guidance in VAT Notice 702/7 to reflect this development.

The Importer

In Finger Foods Limited, the taxpayer was UK VAT registered and had imported goods into the UK on behalf of a French company in the same group.  The goods were immediately transported from the UK to France.

The UK company tried to take advantage of “Onward Supply Relief” (OSR).  This relief allows an importer to avoid paying import VAT if the goods are removed promptly from the country of importation and supplied to a party registered for VAT in another EC country.

OSR is a valuable relief available to importers as it confers upon them a favourable cashflow position.  However, there are a number of conditions, such as the requirement to hold an EORI number derived from a VAT registration number, the requirement for goods to be transported promptly to another EC country and the requirement that ownership of the goods must be transferred.

In the case cited, the UK company named as importer of the goods did so on behalf of its sister company in France.  The import agent was not party to any contract of purchase or sale of the goods and did not have title to the goods at any time.  It was therefore held that at no point could the import agent make an onward supply of the goods.

The Tribunal concluded that the import into the UK was made by the French sister company and therefore refused the import VAT claim by the import agent.

The Exporter

In Limited, a UK VAT registered intermediary attempted to reclaim input VAT charged to it by a UK supplier on goods which were exported to Malawi.  The Tribunal concluded that the supply was made by the UK supplier direct to the customer in Malawi and refused the input VAT claim by the intermediary.

It was held that the intermediary simply acted as an agent for the end customer and, since the intermediary at no point held ownership of the goods, the intermediary was not in the position to make a supply.

The Tribunal also asserted that where the place of supply is outside the UK, the supplier should apply a zero rate in any case, as the transaction is outside the scope of UK VAT.

In summary

These cases highlight the fact that the agent must transact the goods in its own name before it is entitled to recover the VAT on importation or purchase, or to claim a VAT relief such as the OSR.  Whilst this issue might have been avoided if the agent in each case had acted as an “undisclosed agent”, most independent import/export agents do not act on such terms and it would therefore be sensible to review the structure of existing supply chains.

Drawing a more general conclusion, it is clear that cross-border transactions throw up complex VAT issues.  The above cases touched on EORI registration and Onward Supply Relief requirements, with record-keeping also being a consideration.  Illustrating the point even more broadly, on 14 January 2013 the European Commission helpfully issued a document summarising the complex variety of VAT rates in all member states.

For further information on any cross-border VAT issues, including imports and exports, please contact the TaxDesk on 0845 4900 509 and ask for Kevin Hall.