Taxation

Lawrence Grant Recovers GBP 50k from French VAT Authorities

Lawrence Grant, Chartered Accountants were recently successful in recovering GBP 50k in input VAT that was deducted by French VAT authorities, after the VAT was held by the French VAT authorities for almost one year.

Introduction

Our client had previously exported and cleared goods using our clients' customer VAT number in France and the goods were being routed via Belgium. However, our clients' customer requested our client to have a more sustainable way in delivering products to them.

Our client therefore decided to change the point of entry of goods from Belgium to France, where the goods were cleared at Fos Port in Marseille, France and delivered to the end customer using barges. However, this triggered an immediate charge to French VAT on our client, when the goods were cleared at Fos Port.

There were 2 options for our client to recover the VAT in France:

1. Apply for VAT registration in France, as our client satisfied the conditions of being registered in France
2. Claim for input VAT using VAT Directive 2008/09/EC

We were successful in claiming the input VAT using the VAT Directive 2008/09/EC.

The following is a summary of how we recovered the VAT in the France

Overview:

Businesses operating in countries in which they are not established or VAT-registered (i.e. non-resident businesses), can incur significant amounts of VAT on expenses, distance sales, imports, exports and triangulation. There is no getting away from the fact that cross-border VAT issues are complex. For many businesses with cross-border activities, recovering VAT incurred in jurisdictions in which they are not established or registered for VAT purposes, is often a difficult balancing act of weighing benefits and costs. In fact, administrative tasks and costs can erode a substantial part of the benefits.

The EU directive that came into force on 1 January 2010 (i.e. Directive 2008/09/EC) allows businesses established and registered for VAT purposes, within the EU, to request a refund of VAT incurred in other EU member states. However, where the business is registered or otherwise liable or eligible to register for VAT purposes in a particular member state, it should register in that country and recover VAT through its VAT registration. Applications to recover VAT under Directive 2008/09/EC can be rejected if the business has a residence or a fixed establishment and/or taxable supplies of goods or services in the EU member state in which the VAT was incurred.

The refund application must be submitted electronically through the portal of the tax authorities in the country in which the claimant is established before 30 September of the calendar year following the year in which the VAT was assessable (different due dates may apply for quarterly refunds).

Furthermore, the application must be submitted no later than six months from the end of the prescribed year in which the VAT was incurred. The minimum refund for annual applicants is EUR 400, there is no maximum amount. Supplies of goods must be received, with a tax point, during the period of the refund application. The application process could take up to four months.

Lawrence Grant provides clients with a fully automated and standardised approach for refund claims throughout the EU.

The following is a summary of our client's case in respect of recovery of input VAT incurred in France.

Background information

The following diagram is a summary of the parties involved and the transactions undertaken in cross border VAT recovery:

VAT refund from French authority FOTO

X Ltd is a UK registered limited company and is registered for VAT in the UK. X Ltd exports preserved products for their end customer Y S.A.S, who is based in France. Sales invoices are however raised by X Ltd to Z AG, who is based in Switzerland, who is ordering goods on behalf of Y S.A.S. These goods are exported from the Indian company (B Ltd) to France, after an order is placed by X Ltd.'s parent company, A Inc. who in turn makes a sale to X Ltd, after applying the appropriate transfer pricing policy. X Ltd bears the ultimate responsibility and is accountable for all goods that are shipped and delivered to Y S.A.S.

The shipment remains in storage for more than three months in France before the goods are delivered to the end customer Y S.A.S. in France. These goods are preserved temporarily in liquid solution as they are not ready for immediate human consumption. The goods that are delivered directly to France are stored in a temporary warehouse at the port. Based upon Y S.A.S.'s requirement, the goods are transported on barges to the final location and this is when an invoice is raised by X Ltd to Z AG for the delivery of goods. Y S.A.S. in France then processes and packs the products in jars, ready for the consumer market.

Although X Ltd has the use of a warehouse in France, there is no rental agreement in place between the warehouse and X Ltd as the warehouse is rented via X Ltd's freight agent.

The goods were cleared in France using X Ltd's UK VAT number. X Ltd had to pay French VAT on goods that were delivered and cleared by French Customs at Fos Port. The goods were delivered and cleared at the port and the local VAT was paid over to the French Customs. The goods are contracted to be delivered by X Ltd to Y S.A.S. on the DDP (Delivered Duty Paid) basis.

VAT implications:

  • X Ltd imported goods into France and delivered to the end customer (Y S.A.S.) directly.
  • X Ltd was unable to use Y S.A.S. VAT number to clear the goods in France.
  • As the goods never physically passed through the UK, X Ltd paid French VAT to French Customs, not UK Customs.
  • X Ltd used a UK VAT/EORI number to clear the goods imported into France.
  • X Ltd does not have any employees or staff in France. Therefore the registration of VAT in France will not create a permanent establishment in France.
  • X Ltd received the goods directly in France, from its supplier in India, and was therefore deemed to be the importer of these goods.
  • X Ltd became the importer, as X Ltd held the stock and took responsibility for the goods in France.
  • X Ltd was not registered for VAT in France, and therefore was eligible to claim the French input VAT via the cross-border refund system found in EU DIRECTIVE 2008/09/EC.
  • These supplies are not required to be filed under the UK VAT return, as they fall outside the UK VAT scope.

Procedures taken by Lawrence Grant to claim the input VAT in France:

Lawrence Grant completed the online VAT registration with HM Revenue & Customs (HMRC) in order to recover the input VAT as per "VAT refund according to the COUNCIL DIRECTIVE 2008/09/EC Thirteenth VAT Directive (86/560/EEC), UK Law VAT Act 19994, Section 39''. The refund period was for nine months. Lawrence Grant completed the necessary electronic claims, together with the importation details (SAD reference number, name of supplier, bank details, etc.); scanned importation documents and invoices, and submitted these together with the application, via the HM Revenue & Customs online portal.

HMRC then forwarded the application to the French VAT authority. The French VAT authority requested further additional information, including details of these transactions for X Ltd. Lawrence Grant duly submitted the requested information and documentation to the French VAT authority. X Ltd finally received their VAT refund and the whole refund process took three months.

Summary

This article is set out to give a practical overview of one of the common VAT issues in cross-border transactions. However, as we noted in the beginning, there is no getting away from the fact that cross border VAT issues are complex! This could be made easier if clients and advisers seek advice prior to undertaking complex cross border transactions.


Alan-Rajah 2013 121pxAlan Rajah
Lawrence Grant, Chartered Accountants, London, United Kingdom
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Prodipta-Patel 121pxProdipta Patel
Lawrence Grant, Chartered Accountants, London, United Kingdom
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Sonal-Shah 121x160px

Sonal Shah
Lawrence Grant, Chartered Accountants, London, United Kingdom
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If you would like to arrange a follow up article or comment piece with either Alan or Prodipta, please contact Paul Atkinson, Marketing Manager at Lawrence Grant on +44 20 8861 7575 or email: This email address is being protected from spambots. You need JavaScript enabled to view it.

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