Country-specific updates

UK - Brexit

New rules for non-UK businesses selling goods in Great Britain market in the post-transition period including new rules affecting online market places

In July the UK tax authority published a policy paper detailing the introduction of a new VAT regime, from 1 January 2021, that will apply to overseas sellers selling goods in the Great Britain (GB) marketplace. Although the changes it outlines will be introduced at the end of the transition period, they are not EU-specific; the changes potentially affect all non-UK sellers and online marketplaces.

The paper does not cover Northern Ireland and separate guidance on how the Northern Ireland Protocol will apply is promised to be published soon.

Among the key features of the new regime are:

• Goods in the UK at the point of sale – sold by an overseas seller through an online marketplace. Where an online market place facilitates a sale by a non-UK seller to a non-VAT registered customer, and the goods are in the UK at the time of sale, the online market place will be deemed to be the supplier and must account for the VAT. The overseas seller will be deemed to make a zero-rated supply of the goods to the online market place so that the overseas seller will be eligible to register for VAT in the UK and reclaim any import VAT it has incurred in the course of importing the goods. For goods sent from overseas and sold directly to UK consumers without the involvement of an online market place, the overseas seller remains required to register and account for the VAT to the UK tax authority.
• Goods located outside the UK at the point of sale and imported in consignments not exceeding GBP135. Imports of goods in consignments not exceeding GBP135 (exclusive of VAT) will be subject to sales VAT (collected at the point of sale), rather than import VAT (collected on clearance from customs). Online marketplaces (wherever they are located) involved in facilitating the sale will be deemed to make the sale and be liable to account for the VAT (whether the seller is UK or non-UK established), subject to the usual reverse charge rules for supplies to businesses.

These reforms reflect the EU's e-commerce VAT changes scheduled to be implemented by July 2021. Draft legislation effecting the changes is awaited. Non-UK sellers and online market places will need to consider the impact of these measures on their systems. It will also mean that some businesses may need to register for VAT.

European Commission proposes a special VAT number for Northern Irish businesses supplying goods: From 1 January 2021, EU VAT legislation will no longer apply to the UK. However, under the Protocol on Ireland/Northern Ireland, which is part of the Withdrawal Agreement, Northern Ireland will remain under the EU VAT legislation regarding goods order to avoid a hard border between Ireland and Northern Ireland. For services, however, Northern Ireland will be, together with the rest of the UK, considered as outside the EU.

Given this dual VAT system in Northern Ireland, the European Commission has proposed that a special identification number (with the prefix XI) be introduced for businesses in Northern Ireland, so that EU VAT provisions can be properly applied to supplies of goods, in line with the Protocol at the end of the implementation period.

New guidance on using postponed VAT accounting: In preparation of the end of the Brexit transition period, the UK tax authority has published new guidance for UK VAT-registered businesses using postponed VAT accounting.

From 1 January 2021, UK VAT-registered businesses will, in some circumstances, be able to account for import VAT on their VAT return for goods imported from anywhere in the world, meaning that the business can declare and recover import VAT on the same VAT return.

HMRC's guidance covers when a business can and cannot account for import VAT on their VAT return and how to complete a VAT return for businesses using postponed VAT accounting after the end of the transition period.

Germany

ECJ referral on the concept of "supply chain" in the context of refusal of input tax in purported abuse cases involving a potential participation in tax evasion at the preceding stage of the transaction

The German tax court Berlin-Brandenburg has submitted to the ECJ in February 2020 the relevant question whether the deduction of input tax for input services must be refused, since he should have been aware of VAT evasion at a previous stage of the transaction.

Following the national supreme court case-law – with recourse to the case-law of the ECJ – the refusal is considered appropriate where it is established that the taxable person knew or ought reasonably to have known that the transaction concerned was part of an act of tax evasion committed by the supplier or that VAT has been evaded in the supply chain in respect of another transaction which precedes or succeeds the transaction carried out by the taxable person.

The main focus therefore is on the interpretation of the Articles 167 and 168(a) of the VAT Directive: Are those precluding the application of national legislation under which deduction of input tax is to be refused (although the substantive and formal conditions of the deduction are fulfilled) even where there has been evasion of VAT at a previous stage of the transaction and the taxable person knew, or ought to have known, that VAT had been evaded, but did not participate in or was not involved in that evasion and did not support or facilitate that evasion?

The German tax court tends to take a narrow view of the term "supply chain". However, the interpretation of the concept of the supply chain is of great importance, so that ECJ´s decision will be highly relevant for purported abuse cases. The proceeding is pending under C-108/20.

Austria

Deduction of input tax in the case of a subsequently issued VAT ID number

Recently, the Supreme Administrative Court (VwGH 29. 5. 2018, Ra 2016/15/0068; 21. 11. 2018, Ro 2016/13/0020) stated with reference to ECJ rulings that the tax administration may not refuse the right to deduct input tax solely because an invoice does not meet the conditions set out in Art. 226(6) of the VAT Directive if it has all the data necessary to check whether the substantive conditions applicable to this law are met (ECJ 15 September 2016, Barlis 06, C-516/14, para. 42 et seq).

The complainant is a recognised religious community which commissioned the domestic architectural office A-Ltd to provide general planning services for the construction of a new church and a residential home. The church has not yet been completed and is to be used exclusively for pastoral purposes, while the units of the dormitory that have already been completed will be rented out to the parish priest, to the complainant's parishioners and to other persons.

The A-Ltd issued invoices for services rendered in connection with the new dormitory. The complainant paid the respective invoice amounts including VAT. These invoices did not contain the complainant's VAT number. The complainant only received a VAT number later. In the meantime, the A-Ltd has been deleted from the commercial register.

Although the complainant did not have a VAT number when the A-Ltd issued the invoices, it was clear that she was already active in business. This was decisive for the existence of the material conditions and thus for the entitlement to deduct input tax. It should also be noted (which was obviously not the case here) that the failure to apply for a VAT number, the failure to report the business activity to the tax office etc. must not be done for reasons of VAT fraud.