VAT on Export of Goods B2B

Overview

Brexit would change the position in relation to VAT unless some kind of special EU UK-VAT arrangement is entered. The present EU arrangements would apply in respect of all territories except the United Kingdom.

It is distinctly possible in the longer term in the context of a Brexit trade agreement between the UK and EU, that there would be some kind of arrangements which continue the present VAT rules.

In the context of the backstop in the (unratified) Withdrawal Agreement, Northern Ireland would remain in a single VAT union with the EU. Accordingly, this would mean that for sales to Northern Ireland, the same treatment as at present would continue to apply. Therefore, if the backstop or something like it came into force under some future agreement,  supplies directly to Northern Ireland would be intra-EU supplies and intra-EU acquisitions and the Northern Ireland side. If traders move goods to traders’ branch in Northern Ireland, then the same treatment as a present would apply.

VAT Position on Sales (Pre-Brexit)

The following assumes that   all of traders’ sales (perhaps only with very minor exceptions if any) are made to trade buyers and  all of traders’ goods are subject to VAT. Accordingly, on domestic sales in the Republic of Ireland, traders charge VAT to traders’ customers in the normal way collect this and remit it to Revenue which traders’ bimonthly returns taking credit for any inputs. Traders’ customers in turn, if they are businesses themselves undertaking a VAT trade, would be able to reclaim the VAT on purchases from traders as input credits in the normal way.

On a supply of goods by an  RoI trader  outside of Ireland to an EU state (called an Intra Community or Intra-EU supply) including to the UK pre-Brexit, the following treatment applies. Subject to the below conditions the supply is technically exempted in the State and is treated as if it was a zero-rate supply. A supply of goods includes both the sale or transfer of goods by agreement or the transfer of goods from an RoI business to its branch or group company in another EU State.

The general rule is that a supply of goods takes place where the goods are located at the time of the supply. The exceptions to the general rule include an Intra-Community Supply (ICS), where the customer is a VAT-registered business in another EU State. The supply is deemed to take place in the EU State that issued the customer’s VAT number. This means that VAT is chargeable in the EU state in which the business customer is established and is not charged where the supplier is established.

The exemption with an effective zero rate of VAT can apply to an intra-Community supply (ICS), if the following conditions are met:

• the customer must be registered for Value-Added Tax (VAT) in another Member State
• the supplier must obtain and retain the customer’s VAT registration number (including country prefix)
• quote its VAT number and the customer’s VAT number on the sales invoice and
• the goods must be dispatched or transported to another Member State.

If any of the above conditions are not satisfied, the supplier must charge Irish VAT at the appropriate rate.

Revenue may not be satisfied that the goods have been sold and delivered to a VAT registered person in another Member State. In such cases, the supplier will become liable and must charge Irish VAT. However, if the conditions for zero-rating are subsequently established then:

• the customer is entitled to recover the VAT he or she has paid
• the supplier can then make an adjustment in their VAT return for the period.

VAT Registered Buyer in Other EU State Self Accounts

The buyer of the goods in the other EU state self-accounts for VAT. Under the EU rules, the supply and hence the VAT charging point occurs in the other EU state i.e. that of the person purchasing the goods who is a commercial VAT registered entity.

That buyer self-accounts for the VAT where the goods are being purchased for vatable purpose by taking a simultaneous input credit in respect of the purchase which offsets the VAT liability that arises by reason of the import.

Unlike the position, which may change post-Brexit, in respect of purchases from outside the EU, VAT is not payable at the border at present and no VAT guarantee is required. The integrity of the system is upheld by the VIES returns and Intrastat returns.

Equally when the UK counterparty either sells goods outside of the UK or moves them including movements and sales to the Republic of Ireland the EU based recipient self-accounts for VAT

Present Buyer Position (UK Side)

The following HMRC guidance shows the VAT treatment of the buyer / recipient who is VAT registered, on the UK side.

An acquisition in the UK occurs where there’s an intra-EU movement of goods to the UK, the goods are received in the UK by a VAT-registered trader the supplier is registered for VAT in the member state of departure. In this case, the recipient is required to account for VAT on the goods acquired in the UK.

Traders must account for any tax due on UK VAT Return for the period in which the tax point occurs (see paragraph 7.3) and traders may treat this as input tax on the same VAT Return subject to the normal rules

The time of acquisition is the earlier of either the:

• 15th day of the month following the one in which the goods were sent to traders
• date the EU supplier issued its invoice to traders

Acquisitions are liable at the same rate as domestic supplies of identical goods in the UK. So, for example, no tax is due on acquisitions of goods which are currently zero-rated in the UK

The VAT on an acquisition is due in the member state where the goods are received. But there’s a ‘fallback’ provision that applies where the VAT registration number quoted to the supplier to secure zero-rating has been issued in a different member state. In that event, the acquisition tax must be accounted for in the member state of registration, but the customer also remains liable to account for acquisition VAT in the member state to which the goods have been sent.

Post-Brexit Possibilities

The position post-Brexit depends ultimately on how Brexit turns out. If the current Withdrawal Agreement or a version of it is passed, there would be no change at least until the end of 2020 or 2021.

Even if the Withdrawal Agreement does not come into force or there is no backstop, or the backstop is replaced with something else in the future, traders’ effective VAT accounting procedures and obligations may not change significantly. A guarantee may be required where this was not previously the case.

It is, of corse, impossible to predict the law in the future. An important point is that the UK outside the EU would be freer to set its own indirect tax and VAT rules. Prior to joining the EU Ireland and the UK had very different sales and turnover taxes. VAT is a common harmonised EU tax. It interlocks in a way to make it workable.

It is possible that the UK may enter an arrangement on indirect taxes very similar to the present VAT system. Therefore, in the circumstances, much the same treatment would continue. The UK passed legislation in 2018 to replicate the VAT system exactly as it is at present. This does not mean that it will not change in the future.

In a hard Brexit and in the below circumstances Ireland would be a third country so that from both Ireland and UK’s point of view, Ireland to UK trade would be treated as imports and exports and not in the way that acquisitions and supplies within the EU are treated.

If the “backstop” came into force, Northern Ireland would remain in a value-added tax union with European Union. Therefore, broadly the above treatment would be likely to continue. Subject to political considerations, it is widely assumed that the backstop will be replaced with something that looks like the backstop.

Default Export Treatment (Post-Brexit)

The following relates the hypothetical circumstances of either an immediate hard Brexit with no backstop type provisions or a future arrangement with the UK (assuming as seems likely that it has VAT legislation similar to its existing VAT legislation) by which the UK is outside the EU and is the third country.

On the Irish side, the sale or transfer of goods by traders to traders’ UK counterparty would be treated as an export, not an intra EU supply. The general rule on export outside the EU is that there is a supply of goods for VAT purposes which is zero-rated. This has the important consequence that acquisitions for the purpose of the supply i.e. traders’ purchases are deductible as inputs. It is a condition that the goods are dispatched outside the EU. In the same way, as at present, proof of export is required.

VAT export compliance is dealt with through the customs procedure on the export side in the Republic of Ireland as well as from the UK VAT perspective on the import side.

The following Revenue Statements sets out the requirements.

The following will be regarded as evidence that goods have left the EU:

• In the case of goods exported by traders, where traders use traders’ own vehicles to transport goods outside the EU and ownership is transferred to the purchaser there, the export notification message (IE599) that issued to the exporter will normally suffice.
• In the case of goods exported by sea, by a carrier acting on traders’ behalf, traders should obtain from the shipping company a copy bill of lading, or certificate of shipment, or shipping advice, as appropriate.
• In the case of goods exported by air, by a carrier acting on traders’ behalf, traders should obtain from the airline concerned a signed copy of the waybill with flight details added.
• In the case of goods exported by post, traders should obtain certificates of posting from the post office of dispatch. If it is traders’ practice to use a post book traders should have it properly stamped by the post office of dispatch.

In all cases, the full name and full address of the consignee must be clearly shown.

Equally, traders’ UK counterparty would be subject to the same treatment under UK VAT law. Assuming that it replicates EU law as is intended, then a sale of goods outside the United Kingdom including to the Republic of Ireland the EU or any third state whatsoever to a VAT registered or equivalent entity is treated as an export sale. It is zero-rated in the UK subject to proof of export.

Post-Brexit Treatment in the State of Import

In each case of a sale, regard must be had as to whether there is an obligation in the state to which the supply is made to register and charge VAT. This occurs in some instances in particular in relation to supplies to consumers. However, where the supplies are to businesses subject to VAT or an equivalent tax, then supplier does not usually have to register in the state to which the goods are sold but the buyer self-accounts.

In each of the above cases, the export/sale would be zero-rated. In both Ireland and the UK, it would be treated in the same way as a sale is treated at present to a country outside the EU. The same net economic effect would apply as an intra-EU supply and acquisition.

The actual VAT accounting obligations would differ as the sales would be no longer intra-EU supplies would be exports. They will be treated accordingly in VAT returns. A set out in the previous chapter, VAT deferral accounting and a guarantee may be required.

In the absence of special agreement between the EU and UK and the Intrastat and VIES obligations would no longer apply

Default Import Treatment for Buyer (Post-Brexit)

From the perspective of the buyer / transferee, the position would also appear very similar to that at present. The buyer self-account for VAT as an import.

In each of the Republic of Ireland and UK, there is to be special proposed deferred VAT treatment whereby VAT is not immediately payable on import but may be postponed, probably subject to having a deferred account and a guarantee.

Once again, the buyer would not treat the acquisitions as intra-EU acquisitions but as imports. They would not be subject to VIES or Intrastat reporting unless the systems are continued by an EU UK agreement.

It is critical for the seller to ascertain that there isn’t also an obligation to register for VAT or an equivalent sales tax in the state of import. In straightforward cases of sales to UK commercial VAT registered buyers, it is possible to see that the buyer self-accounts where it is a VAT registered entity and that there is no further obligation for the seller to register there. This may not always be the case in all other countries. The law may also change over time.

In effect although the UK would be outside the EU traders would still need prove that the UK buyer is a VAT registered entity and is subject to the obligation to self-account for VAY in order to verify that traders’ RoI company as seller has no obligation to independently register in the UK as for example would be the case with supplies to consumers in the UK.

Equally the position is likely to apply in reverse in the UK so that a UK supplier would be able to see that the EU registered entity was VAT registered and was obliged to self-account for VAT.

In some EU states, VAT is chargeable on import and there is no possibility of deferral. In these cases, there would be implications for purchasers from traders’ companies.

Subject to normal rules traders can reclaim import VAT on imports in Ireland and the UK provided the goods are used for the purpose of a fully Vatable business.

Valuation

The issues of valuation for VAT purposes are similar to those in respect of customs. The valuation for VAT purposes generally includes customs duties. There is, therefore, an element of double taxation.

Valuation for VAT purposes is the customs value in accordance with the customs rules together with

• incidental expenses such as commission, packing, transport and insurance costs incurred up to the goods’ first destination in the UK
• all such incidental expenses where they result from transport to a further place of destination in the EU if that place is known at the time of importation
• any Customs Duty or levy payable on importation into the UK
• any Excise Duty or other charges payable on importation into the UK (except the VAT itself)

The more complete rules are set out on Revenue and HMRC’s websites