Is local VAT payable to EU manufacturer on scrap?

We have goods manufactured in Italy that are exported out of Italy but need to scrap some components

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Ordinarily we have our contract Italian manufacturer ship goods back to the UK or to other countries.  Consequently no Italian VAT is payable.  We now need to scrap some components that are obsolete.  Because we have to pay the manufacturer for those components they plan on charging VAT as it will be a local supply.  It seems crazy to ship out of country to avoid adding an extra 22% to what we are already having to write off.  Does anyone have any ideas please?!

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By paul.benny
04th Dec 2020 07:14

You could have them shipped to the UK and scrap them here. It does have the possible benefits that you gain any scrap value and it prevents them leaking into the market.

Alternatively you could argue that you're not buying the product but paying them damages for not taking delivery of product you ordered. Under UK VAT law, that could put the transaction out of scope.

The third option is to suffer the VAT and make an 8th directive claim - see here:
https://www.gov.uk/guidance/claim-vat-refunds-from-eu-countries-from-1-j...
Do be prepared for a long wait before receiving the funds.

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Replying to paul.benny:
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By nksimmons
04th Dec 2020 08:49

Thanks Paul - we did consider shipping back to the UK, but the cost of doing that would be more than the VAT (there is no value in the scrap sadly). I had assumed that the 8th directive claim was for things like travel expenses (I'm aware of the complexity) and is it not limited in value?

I like the being charged for something other than the goods, but suspect that won't work for our Italian partners - I will check though!

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Replying to nksimmons:
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By paul.benny
04th Dec 2020 11:32

You're welcome. I'm not aware of any value limits on 8th directive.
Note the timelines on the linked page so that you don't get caught out (in short, applies to invoices to 31 December 2020 and claims by 31 March 2021).

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