HM Revenue and Customs Brief 20/11
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Issued on 16 May 2011
Accounting for acquisition VAT on intra-EU supplies - changes
to the 'fallback' provisions
This brief announces a change in VAT treatment where a
business uses a UK VAT registration number (other than for
triangulation purposes - see below) to secure zero-rating of goods sent
from one EU Member State to another, without arriving in the UK.
Under what is often referred to as the 'fallback' provision,
use of a UK VAT registration number in these circumstances makes the
customer liable to account for acquisition VAT in the UK. Significantly
this does not cancel any liability to account for acquisition VAT in
the Member State to which the goods are sent ('the Member State of
arrival'). However, the UK VAT can be adjusted if VAT is accounted for
correctly in the Member State of arrival.
The fallback rule is explained in paragraph 7.7 of Notice 725
(The Single Market). The change follows the judgement of the Court of
Justice of the European Union (CJEU) in the joined cases of X
(C-536/08) and Facet BV (C-539/08).
The CJEU decision
The issue before the CJEU arose from two similar cases. In
each, supplies of computer goods were sourced from Member States other
than the Netherlands and sent direct to customers located elsewhere in
the EU. Dutch VAT registration numbers were used to secure zero-rating
of the intra-EU supplies. The CJEU was asked to consider whether there
was a right to deduct the acquisition VAT each of the taxpayers was
required to account for under the Dutch equivalent of the fallback
provision, as input tax.
In its decision the CJEU held that there could be no right to
deduct acquisition VAT where it falls due under the fallback
arrangements as the goods did not actually enter the Member State. In
arriving at its decision the Court noted that if there were a right to
deduct in these circumstances, it could jeopardise the operation of the
normal rules as it would remove the incentive for the acquisition to be
taxed in the Member State of arrival.
Effect of the decision
The decision provides a welcome clarification of what was
previously an uncertain position. The liability to account for
acquisition VAT where a UK VAT registration number is used in the
course of an intra-EU supply of goods not involving removal to the UK
remains unchanged. However, it is now clear that there is no right to
recover the acquisition VAT as input tax. The only basis on which the
UK VAT may be adjusted is where it can be demonstrated that acquisition
VAT has been accounted for in the Member State of arrival.
Triangulation simplified procedure
Use of a UK VAT registration number as part of the
triangulation simplification arrangements (see section 13 of Notice
725) is unaffected.
Impact on acquisitions of yachts in the UK
In 1997 Customs & Excise agreed to arrangements under
which a UK VAT registered business could account for acquisition VAT in
the UK on a yacht purchased from a supplier in another Member State
without the yacht arriving in the UK. This was announced in Business
Brief 12/97 (see below) which also permitted input tax deduction
subject to the normal rules.
Following the CJEU decision the UK acquirer may now no longer
recover the UK acquisition VAT as input tax. For this reason the
agreement will cease to have effect and so is to be withdrawn from 1
June 2011. After that date UK acquisition VAT accounted for on a yacht
that does not arrive in the UK will no longer be recoverable as input
tax. However, as a transitional measure, any UK VAT registered business
who, before 1 June 2011, entered into a contract for the purchase of a
yacht and who intended to adopt the procedure as agreed in Business
Brief 12/97, may continue to rely on those arrangements (including
recovery of the acquisition VAT as input tax, subject to the normal
rules) when the yacht is eventually delivered. But this is subject
their holding satisfactory evidence of the contract and the date that
it was agreed.
Extract from Business brief 12/97
Taxable acquisition of yachts in the United Kingdom
Customs & Excise have agreed to introduce a temporary
arrangement concerning the liability to account for VAT on the taxable
acquisition of yachts in the United Kingdom, in certain limited
circumstances. This follows representations made on behalf of owners of
large yachts and is effective immediately.
Where a VAT-registered business in the United Kingdom buys a
yacht from a supplier in another Member State, and the yacht is being
removed from that Member State to the place where it will be hired on
charter, acquisition VAT may be accounted for in the United Kingdom
without the need for the yacht to actually come here. The normal rules
will apply for recovery of any input tax that is incurred and for
accounting for output tax on any supplies subsequently made.
This arrangement does not affect the VAT treatment of yachts
being imported into the EU from third countries, and will be kept under
About the Author
© Crown Copyright 2011.
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Article Published/Sorted/Amended on Scopulus 2011-05-19 12:40:50 in Tax Articles