Taxback International reports on important VAT changes to be aware of due to Brexit

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A VAT perspective on the aftermath of Brexit

The mutual assistance protocol within the Brexit deal resulted in some simplifications to the fiscal representation requirements in certain countries and some EU member states relaxed or removed requirements in relation to fiscal representation.

However the UK will, overall, still be treated as any other third country as far as VAT is concerned.
What ambiguities are businesses facing around Brexit VAT changes?

Fiscal Representation Requirements

Fiscal representation requirements were the main inconsistencies and uncertainties that businesses faced. Before the Brexit deal, some tax offices insisted on the implementation of fiscal representation by December 31st and then removed the requirement altogether after the Brexit deal.

Attaching VAT Numbers to EU EORI Numbers

More uncertainties arose in the linking of VAT numbers to the EU EORI numbers.

One example of such an issue occured in connection with with Germany. A business was automatically issued an XI EORI by HMRC. That business then tried to get a DE EORI number but the German tax office couldn't issue the number because the EU EORI system already considered the XI number to be an EU EORI number. To complicate matters further, the HMRC couldn’t link the client’s EU VAT numbers with XI EORI. It took many calls between the EU Commission and HMRC to find a solution.

Administrative Delays

Issues also came up for businesses awaiting new VAT registrations in EU member states due to tax office backlogs.
In one situation, a business had a German VAT registration application in process and goods stuck in German customs. Due to tax office backlogs and the uncertainty surrounding Brexit, the business couldn’t get VAT registered in time and also couldn’t import to Germany post Brexit. In addition, some businesses that had already agreed DDP terms with their customers couldn’t fulfill their orders.

Transit Arrangements and Customs Procedures

Another inconsistencies came in the form of both different transit arrangements and different customs procedures used by the courier and transport companies that move goods for UK established businesses into Europe.
Businesses often use multiple providers who use multiple transport arrangements and that can cause different issues, from a VAT perspective. Clearing up these issues created unexpected workload for businesses and added to uncertainties.
Having a clear understanding of what Incoterms and transit arrangements have been agreed to is key as is interaction between customs arrangements and VAT treatment.

What are additional issues facing businesses arising from Brexit VAT changes?

Indirect Customs Representatives

Indirect customs representation is another issue that has raised its head. Indirect customs representation is a customs requirement which is not directly related to VAT but still has created more uncertainty for businesses.
The need for businesses from third countries to appoint a German customs representative or agent for imports has begun to be enforced in Germany. While businesses may have obtained a German VAT number, and an EU EORI number they still may not be able to import unless they also appoint a German customs representative.

Taxback International is in the process of clarifying this with the EU Commission as it is another administrative barrier for non-EU businesses and should be clearly defined. It seems to contradict the EU Commission guidance on the issuing and use of an EORI number. A rumour that the Netherlands would enforce the same, has been confirmed with Dutch customs not to be the case at the moment.

Reciprocal Agreements
Finally, uncertainty remains in regard to reciprocal agreements between the member states and the UK in relation to foreign VAT reclaim.

In Italy, for example, a UK established business will have to VAT register and appoint a fiscal rep to recover their foreign VAT if there is no reciprocal agreement. Official clarification on this point has yet to be provided by the Italian tax office but Taxback International is continuing to monitor the situation.

Post Brexit, businesses and tax offices are still adjusting. Backlogs for new VAT registrations with HMRC and with EU tax offices are still being worked through. The administrative impact of Brexit and COVID on businesses have been enormous and straightening it all out will take time.

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Katie Kirwan
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