EU VAT

EU VAT

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Hi,

I have a uk vat registered client who has purchased Goods from Italy last year. My Client is not registered in Italy for Vat and holds no office there.

My Client arranges the export of the goods straight from the supplier in Italy to his customer in Russia. 

My clients customer is in Russia and therefore no vat is charge to the customer on the sales invoice.  

My Client pays the supplier in euros for the goods and no VAT was charged by the supplier. However, the supplier has had a VAT inspection there end and have now advised my client that they should have charged VAT and that my client should now pay them the VAT and recover it in England.

Im not sure that this is right and I have advised the client not to pay the VAT element yet because its nearly €40,000 and if he cant reclaim it, then he will be out of pocket.

I know that you can claim vat back from the EU, but im not sure the client falls into the category of being charged it in the first place.

Can anyone throw any suggestions as to why the company might now being saying nearly 12 months later that they need to pay the VAT ?

Thanks in Advance

 

Replies (28)

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Portia profile image
By Portia Nina Levin
24th Jan 2017 15:00

The Italian supplier should have charged VAT (unless there for any reason a supply of the goods concerned would be exempt/zero-rated).

Your client should have registered in Italy in order to recover the VAT charged by the Italian supplier. There supply was made in Italy but was zero-rated, because their supply involved the removal of goods.

Your client would not be out of pocket if they had taken advice from a competent professional before the transaction.

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By rachypachy167
24th Jan 2017 15:11

Sorry why would they have had to register in Italy for VAT ?

Are you saying that if a UK business buys goods from another EU country, the UK business also has to be registered for VAT in that specific EU Country to be able to reclaim it ? Im pretty sure that's not right.

Secondly, The goods actually went straight from Italy to Russia.

Thanks you for your answer, but i'm not positive you have given me the right advice here.

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Replying to rachypachy167:
Portia profile image
By Portia Nina Levin
25th Jan 2017 12:28

Which is why the client would have done well to have paid for some advice from a competent professional in advance of the situation.

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By WhichTyler
24th Jan 2017 22:06

I'm just going to sit here with my popcorn...

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Replying to WhichTyler:
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By Cheshire
24th Jan 2017 22:15

Exactly my thoughts at 15.20, after almost passing out after the sharp intake of breathe

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Replying to Cheshire:
Portia profile image
By Portia Nina Levin
25th Jan 2017 12:28

I hope you both choke on popcorn husks!

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By rachypachy167
25th Jan 2017 09:36

Sorry have I said something wrong ?

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paddle steamer
By DJKL
25th Jan 2017 09:45

I believe (no expert re vat) you may be confusing the case where the UK business receives the goods into the UK and then sells to Russia as against what you have, you need to consider place of supply (To Russia) which is surely Italy hence need for Italian registration.

Having said this I hate vat, do no work really re international vat, so am probably wrong, however I doubt Portia is wrong.

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By shaun king
25th Jan 2017 11:32

Ohh what a hornets nest you have. Firstly, the Italian VAT authorities are very pedantic and secondly their VAT administration is both time consuming and costly so I advise clients avoid a VAT registration like the plague.

Portia is correct in stating your client should re VAT registered in Italy as they are incurring VAT and making supplies in Italy. The quandary is, that in paying the supplier your client will wait an age to get a IVA registration number let alone a VAT refund as in Italy monthly returns are provisional and the return is annual.

What to do - agree that your client will pay the supplier when he gets the refund and structure the sale so as no IVA is chargeable in the future.

If you want to discuss an IVA registration drop me a pm

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Replying to shaun king:
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By rachypachy167
25th Jan 2017 13:00

Hi,

My Client is not making supplies in Italy. He is buying from a supplier in Italy. The supplier then exports the goods straight to my clients customer in Russia.

My Client obviously doesn't put vat on the sales invoice to the Russian customer.

Italy didn't originally put vat onto my clients supply invoice, its only now 12 months later they are asking for the VAT amount.

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Replying to rachypachy167:
Portia profile image
By Portia Nina Levin
25th Jan 2017 13:07

Where are the goods when your client makes the supply of those goods to their Russian customer?

That is where the EU-wide VAT legislation says that the supply takes place.

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Replying to Portia Nina Levin:
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By rachypachy167
25th Jan 2017 13:53

Italy. They go straight from the factory in Italy and get exported to Russia via DHL.

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Replying to rachypachy167:
paddle steamer
By DJKL
25th Jan 2017 14:55

Your client is making supplies from Italy, it is acquiring the goods in Italy and then supplying to Russia.

The Italian company does not make the supply to Russia so who does?

You cannot be making the supply from the UK, the goods are not in the UK so where can you be making it from, has to be somewhere?

So you in effect purchase in Italy, and as business to business Italian company should charge you (italian) vat and you supply from Italy making a supply to Russia from where the goods are, Italy.

Your issue is therefore how to recover the vat incurred within Italy, it is not a non vat charged supply to be treated as an acquisition Italy to UK as it never travels Italy to UK.

If your client cross border traded without taking professional advice they need shouted at, if they took advice someone's head needs to roll.

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Replying to DJKL:
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By rachypachy167
25th Jan 2017 15:18

They did not take advice, I think they got the quote, the quote didn't have VAT on, then VAT was never charged and they thought no more about it.. till now.

I will get them to get some advice.

You have explained things perfectly and understood where I was coming from with my confusion, thank you DJKL :-)

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Portia profile image
By Portia Nina Levin
25th Jan 2017 13:17

Why do people, who quite clearly do not have a clue, come on here asking questions, and then argue with respondents when they do not like the answer?

The reason that they do not like the answer more often than not being that it is going to reveal them to their client to be a complete charlatan.

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Replying to Portia Nina Levin:
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By rachypachy167
25th Jan 2017 14:01

You are right, I do not have a clue, which is why I am on here asking. I am trawling through and reading the HM Revenue websites/notes/articles as I would like to know where it clearly states you have to be VAT registered in that country to be able to claim back the VAT.

My client does not think I am a charlatan, I have said I will find out more information and put them in touch with a specialist in this area if needs be. I do not claim to be anything that I am not, and I don't think that your comments help anyone who come on here to ask for advice. There is no need to be sarcastic or rude.

Its just odd that the supplier did not charge VAT in the first place and only now months and months later is expecting the client to pay the VAT. Doesn't seem right.

Thanks anyway Miss Piggy for your comments.

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Replying to rachypachy167:
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By Cheshire
25th Jan 2017 14:15

You are challenging one of, no two of THE most knowledgeable people when it comes to vaT.

Yes these people if you both to have a wander round this site are VAT EXPERTS.

They are trying to help and then you challenge them!!!!!

I know Portia and Shaun can stick up for themselves but I'm absolutely gobsmacked by your attitude.

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Replying to Cheshire:
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By rachypachy167
25th Jan 2017 14:40

Im not challenging them. Portia was arrogant in the first response and I have not experienced this on this site before !
My client has no need to get advice before they made the transaction as there wasn't an issue when the deal was done and the goods were paid for. It has arisen 12 months later. So there is no need for comments like "Your client would not be out of pocket if they had taken advice from a competent professional before the transaction." No need at all !

I then did look at the profile and the Bio read "Warning: May make stuff up" So how am I suppose to know if this person is for real !

I am more than grateful for the advice I get given on this site, but I don't expect such stupid responses like

I'm just going to sit here with my popcorn...

Exactly my thoughts at 15.20, after almost passing out after the sharp intake of breathe

If my attitude has been wrong, then I can only apologise!

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Replying to rachypachy167:
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By Cheshire
25th Jan 2017 15:14

''Im pretty sure that's not right'' - had this been backed by fact I think you may well have got away with it. Or even, not knowing anyone's pedigree just an 'oh I didnt realise, can you supply me with a supporting link' then you mightve fared you better. Anyone can see from looking at Portia's main VAT responses that she knows what she is talking about despite her comment on her profile and on some threads. Getting all huffy for someone making comments about popcorn and intake of breathe just makes you sound like a child. Ive added some places for where you can look - ok no Ive not added links but they are still valid reading material and frankly I havent got the time to do that spoon feeding when its easy enough to find.

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Replying to rachypachy167:
paddle steamer
By DJKL
25th Jan 2017 14:34

"The Place of Supply rules contained within the Principal VAT Directive 2006/112/EC establish where the supply takes place and where any VAT will be due.

The basic rule is that the place of supply of goods is where the goods are located at the time the supply takes place. Therefore it is important to look at the terms of trade to establish where the goods are when the supply takes place."

https://www.taxjournal.com/articles/place-supply-goods-business-business

Edit- So Italian Company supplies to your company in Italy, your company supplies to Russia from Italy.

See this:

http://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/whe...

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Replying to DJKL:
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By rachypachy167
25th Jan 2017 14:48

Thank you DJKL,

I will read through these links.

When you say Italian Company Supplies to your company in Italy (you mean the one the client will have to make up and registered for IVA for) then that New Italian company then supplies to Russia. . That is how no VAT will be charged ?

Thanks in advance

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Replying to rachypachy167:
paddle steamer
By DJKL
25th Jan 2017 15:06

I do not mean a new company, I mean your existing company which has a "presence" in Italy by dint of exporting from Italy.

Y you need to take advice as what set up is possible, I cannot tell what arrangement works best, certainly not my area of expertise (If I can be said to have any area of expertise) You need to listen to Shaun and Portia.

IMHO you have three issues:

1. Dealing with recovery re what has already happened.

2. Structuring for future to avoid issues.

3. Buying a crystal ball as with Brexit none of us have a scooby how things will be in two years time.

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By Cheshire
25th Jan 2017 14:17

Try the VAT act itself. Also try the Italian equiv of HMRC and customs and excise guidance from HMRC. Plus vat manuals if you haven't already.

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By shaun king
25th Jan 2017 15:21

Whoa let's not get things out of proportion here it is only VAT!!

Simple question - who pays and arranges for DHL to export the goods from Italy. If it is the UK company then the Italian supplier is supplying goods in Italy because ownership has to change in Italy in order for DHL to work under the instructions of the UK company.

If the Italian company ordered and paid for DHL then you have an argument no VAT is payable as the supply should be Zero rated in Italy.

As to why are they trying to charge you IVA now - well the simple answer is they have been caught by the Italian Finance Dept and they like your client didn't take advice.

As I have heard and said many times - ignorance is no excuse.

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Replying to shaun king:
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By rachypachy167
25th Jan 2017 15:42

The UK company pays and arranges DHL.

Ignorance is no excuse, I agree. However going forward Its clear that they need to register with Italy and try if they are not to late to recover some of this IVA.

Thanks Shaun

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Replying to shaun king:
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By rachypachy167
25th Jan 2017 15:45

This might be a stupid question but can they not use the electronic cross-border refund system ?

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Replying to rachypachy167:
paddle steamer
By DJKL
25th Jan 2017 15:52

rachypachy167 wrote:

This might be a stupid question but can they not use the electronic cross-border refund system ?

see excerpt:

"
The electronic cross-border refund system enables a business that incurs VAT on expenditure in a Member State where it is not established and makes no supplies, to recover that VAT directly from that Member State (the Member State of Refund). The previous system, known as the 8th VAT Directive refund system, was a lengthy, burdensome, paper-based system."

"The application may not include:

(a) amounts of VAT that have been incorrectly invoiced

(b) amounts of VAT that have been invoiced in respect of goods despatched to other member states or exported outside the EU."

It makes supplies and exports outwith the EU.

https://www.gov.uk/government/publications/vat-notice-723a-refunds-of-va...

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Replying to DJKL:
Portia profile image
By Portia Nina Levin
25th Jan 2017 16:08

You also cannot use the scheme to recover VAT incurred in a country in which you have an obligation to register.

Obviously the possibility that I just made that up does exist.

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