Section 77: Repayment to Those in Business in Other States
Summary
1.Section 77 amends the Value Added Tax Act 1994 (VATA) to enable the UK to fulfil its legal obligations under EC law (principally Directive 2008/9/EC) in respect of a revised EU-wide scheme enabling, subject to meeting certain legal requirements, a business established in a Member State to obtain refunds of VAT it incurs in another Member State from the tax authority of that state.
Details of the Section
2.Subsection (2) amends section 39(3) of VATA by amplifying and extending the current power afforded to the Commissioners for HM Revenue and Customs (‘the Commissioners’) by section 39(1), to embody in Regulations a scheme for making VAT repayments to non-UK businesses by providing:
that repayments should be made only to the extent specified in the regulations;
that the power to treat a repayment claim as if it were a VAT return may be in respect of such period as may be prescribed by the regulations;
the regulations may require the payment of interest to or by the Commissioners (including in relation to repayment of interest wrongly paid); and
the time by which and manner in which claims must be made.
3.Subsection (3) inserts a new section 39A, which provides that the Commissioners must put in place and maintain the necessary arrangements to allow businesses in the UK to submit claims to other Member States.
4.Subsection (4) inserts a new sub-paragraph (ha) into section 83(1), which provides refund claimants with a clear right of appeal against any decision by the Commissioners to refuse payment of a claim.
Background Note
5.Businesses which are registered for VAT can normally recover VAT they incur on business expenses by claiming it on their VAT return. They cannot, however, recover VAT incurred in other EC Member States (MS) in this way. The Cross Border Refund Scheme enables them to recover this VAT.
6.Under the current scheme, covered by Directive 79/1072/EEC, businesses submit paper claims direct to the MS in which they incurred VAT (the Member State of Refund - MSREF). The system is lengthy and burdensome, and claims are often paid late or not at all.
7.A new EC Refund Directive comes into force on 1 January 2010, which requires MS to set up a new electronic refund system. From that date, businesses will submit claims to other MS electronically in their own MS (the Member State of Establishment - MSEST). They will receive electronic notifications that their claim has been received and forwarded by the MSEST, and received by the MSREF.
8.The current paper-based system for obtaining refunds of VAT will be replaced from 1 January 2010 by a common electronic system covering every Member State. Businesses seeking repayment of VAT from a Member State in which they are not established must submit their claim to that country via the electronic portal of their own country.
9.Where a repayment claim is made via a country’s electronic portal, it is required to make the administrative arrangements to ensure that the claim is forwarded to the country from which repayment is requested. Upon receipt of a claim for repayment addressed to it, a Member State must determine whether the claimant is entitled to the repayment within strict time limits (with a requirement to pay interest in cases of late repayment), and afford a right of appeal against a refusal to make repayment.
10.The revised scheme will apply to all repayment claims made on or after 1 January 2010 including claims made in relation to certain VAT incurred before that day. Legislative amendments made by this section enable the Commissioners for HM Revenue & Customs to fulfil their obligations to facilitate UK businesses in obtaining refunds from other Member States and, by means of Regulations, to enable businesses established in other Member States to obtain refunds of VAT incurred in the UK.
11.Businesses will benefit from longer timescales in which to submit their claims compared with the current system, while there will be shorter and more certain timescales in which MSREF must notify their decisions and make payments. Where MSREF fail to meet these deadlines, they must pay interest to the business. Businesses will also have a right of appeal against decisions made by MSREF.
12.MSREF will have powers to impose penalties against businesses who submit fraudulent claims, or claims which are inaccurate due to deliberate or careless conduct by the business.
13.A Transposition Note setting out how the Government will transpose into UK law the main elements of this Directive is below.
Transposition Note: Council Directive 2008/9/EC
| Transposition Note setting out how the VAT Act 1994 and other legislation implement the changes to the Cross-Border VAT Refund Scheme. |
| The Directive |
|---|
| Council Directive 2008/9/EC of 12 February 2008 is concerned with the procedure whereby a business registered for VAT in one Member State can recover VAT incurred, for business purposes, in another Member State. The current paper based system will be replaced by an electronic one. Businesses will have a longer period in which to submit their claims, but there will be shorter and more certain time limits within which Member States will have to pay refunds. Where these are not met, the Member State concerned will have to pay interest to the refund applicant. The Directive takes effect on 1 January 2010. |
| Introduction |
| This Directive replaces Council Directive 79/1072/EEC where the Cross Border Refund provisions are currently contained. These are transposed in section 39 of the VAT Act 1994, and Part XX (Regulations 173-184) of the VAT Regulations 1995 (SI 1995/2518). The significant changes to existing provisions are made in Article 7 to provide for electronic submission of claims, Article 15 to allow extended time limits for submission of claims, Articles 19, 21 and 22 to specify more certain time limits for Member States of Refund to notify decisions and make payment, and Articles 26 and 27 to provide for interest to be paid to the applicant where these time limits are not met. The remaining Articles provide the supporting framework for the operation of the new electronic system. |
| Articles | Objective | Implementation |
|---|---|---|
| Article 7 | Provides that refund claims shall be submitted via an electronic portal in the Member State of Establishment. | VAT Act 1994, section 39(3); |
| Draft Regulation 11 | ||
| Article 9 | Provides that information on types of expenditure shall be provided using standard codes. | VAT Act 1994, section 39(3); |
| Draft Regulations 15(h) and 17. | ||
| Article 10 | Sets out the requirement for claims to be accompanied by scanned copy invoices for expenditure exceeding certain limits, if required by the Member State of Refund. | VAT Act 1994, section 39(3); |
| Draft Regulations 11 and 12. | ||
| Article 11 | Provides that the Member State of Refund may require the applicant to describe his business activity by means of standard codes. | VAT Act 1994, section 39(3); |
| Draft Regulation 14(c). | ||
| Article 12 | Provides that the Member State of Refund may specify the language(s) to be used in refund claims and additional information. | VAT Act 1994, section 39(3); |
| Draft Regulation 11(b). | ||
| Article 13 | Sets out the requirement for partially exempt businesses who use a single pro-rata rate to notify any change in that rate. | VAT Act 1994, section 39(3); |
| Draft Regulation 7(1)(b). | ||
| Article 15 | Sets the time limit for submission of claims at nine months from the end of the calendar year in which the VAT was incurred. | VAT Act 1994, section 39(3); |
| Draft Regulation 18(1). | ||
| Article 17 | Sets minimum monetary amounts for which claims may be submitted at EUR 400 where the claim covers less than a calendar year but more than three months, and EUR 50 where the claim covers a calendar year or the remainder thereof (or equivalent in national currency in both cases). | VAT Act 1994, section 39(3); |
| Draft Regulation 10. | ||
| Article 18 | Requires the Member State of Establishment to put in place the necessary electronic means through which businesses can submit claims which are then directed to the appropriate Member State of Refund. | VAT Act 1994, section 39A. |
| Article 19(1) | Requires the Member State of Refund to notify the applicant electronically that it has received the claim. | VAT Act 1994, section 39(3). |
| Draft Regulation 18(4). | ||
| Article 19(2) | Requires the Member State of Refund to notify the applicant electronically of its decision to approve or refuse the claim, within four months of receipt. | VAT Act 1994, section 39(3). |
| Draft Regulations 19(1) and 22 | ||
| Article 21 | Sets out further time limits, up to a maximum of eight months, in which the Member State of Refund can request further information and notify the applicant of its decision to approve or refuse the claim. | VAT Act 1994, section 39(3). |
| Draft Regulations 19(1), 20, 21 and 22. | ||
| Article 22 | Provides that the Member State of Refund must pay any approved amount within ten working days of the time limits set out in Article 19(2) and 21. | VAT Act 1994, section 39(3)(ba); |
| Draft Regulations 26 and 27. | ||
| Article 23 | Provides that applicants may appeal against any decision according to the procedures applying in the Member State of Refund | VAT Act 1994, section 83(1)(ha). |
| Article 24 | Provides that the Member State of Refund may recover VAT, penalties and interest where refunds have been obtained incorrectly or fraudulently. | VAT Act 1994, sections 39(3)(b)(ii) and 73(2); draft Regulation 9 (assessment of VAT incorrectly or fraudulently claimed). |
| VAT Act 1994, section 72 (criminal penalties). | ||
| Finance Act 2007, Schedule 24 (civil penalties). | ||
| VAT Act 1994, section 74 (interest on VAT incorrectly or fraudulently claimed). | ||
| VAT Act 1994, section 39(3)(ba); draft Regulation 28 (assessment of repayment interest incorrectly paid). | ||
| Article 25 | Provides that the Member State of Refund may adjust the amount to be repaid in respect of any adjustments made under Article 13. | VAT Act 1994, section 39(3)(c); |
| Draft Regulations 7(2) and 7(3). | ||
| Articles 26/27 | Requires that the Member State of Refund must pay interest to the applicant where payment is not made in accordance with the time limit in Article 22. | VAT Act 1994, section 39(3)(ba); |
| Draft Regulation 27. |
