As outlined in our ITM Article, September 2019, “Recovery of Import VAT”, with effect from July 15th 2019, HMRC will only allow the “owner” of the goods at the time of import to recover the UK import VAT paid.

This position has recently been reinforced by a ruling provided by the Court of Justice in case C-621/19 Weindel Logistik Service.

Firstly, it is very interesting that the ruling in question was provided by way of a reasoned order. The Court of Justice can rule by way of a reasoned order where a question referred to the Court is identical to a question on which the Court has already ruled, where the reply to such a question may be clearly deduced from existing case-law or where the answer to the question referred poses no reasonable doubt.

In brief, the case at hand related to a Slovakian company, Weindel Logistik Service (WSL) who imported goods belonging to a Swiss company from Switzerland, Hong Kong, and China, into Slovakia. WSL reconditioned and repackaged the goods before exporting them again or dispatching them around the EU. WSL paid the VAT on importation. WSL charged the Swiss company for its repackaging/reconditioning services. Ownership remained with the Swiss company for the entire time. WSL had claimed a right to deduct the VAT it had paid on importing the goods. However, the Court said the right to deduct VAT is denied when the taxpayer:

1. Does not have the right to dispose of the goods as owner; and
2. Where the costs of upstream importation are non-existent, or, are not incorporated in the price of specific downstream operations, or, in the price of the goods and services supplied by the taxable person in the course of his economic activities.
   

Unfortunately the ruling doesn’t give us the same level of analysis that you would normally get in a traditional judgement. It is unclear if this will become the default position for all Member States.

Historically Irish Revenue has allowed the importer to claim a deduction for VAT incurred on import even where that importer did not own the goods, e.g. toll manufacturers etc. To date, Irish Revenue have not issued any commentary in relation to this recent ruling from the CJEU.

With Brexit around the corner and the UK being treated as a third country from 1 January 2021, this is another factor that every importer should consider as part of their Brexit readiness plan. In particular for goods moving into the UK supply chains and incoterms should be reviewed to determine determine who owns the goods on importation to determine if there is any risk of losing the import VAT deduction. Although the safe harbour to recover UK import VAT is for the importer to hold title to the goods there is a suggestion from HMRC that holding beneficial or economic ownership may suffice. However given the large amounts of potentially irrecoverable VAT it is a key issue for businesses moving goods into the UK.

If you have any queries on this issue or any customs/VAT concerns, particularly as Brexit approaches, please reach out to your Deloitte Ireland VAT contact or any of the team below.