VATNIEU3350 - Supply and acquisition: acquisition: place of acquisition
Goods are considered acquired in Northern Ireland, when goods fulfilling the other conditions necessary for there to be an acquisition, are physically received in Northern Ireland. Paragraph 5(1)(a) of Schedule 9ZA VATA 94.
5(1) For the purposes of this Act, the normal rule for determining whether goods are acquired in Northern Ireland is that they are treated as being acquired in Northern Ireland if:
(a) they are acquired in pursuance of a transaction which involves their removal from a member state to Northern Ireland, and which does not involve their removal from Northern Ireland, or
In certain circumstances an acquisition can also take place in Northern Ireland without the goods having been removed there. This can arise in cases where a UK(XI) VAT registration number has been used to secure a zero-rated supply in the member state of departure, but where the goods go directly to another EU member state VATSM5205
By making the place of acquisition Northern Ireland it ensures that acquisition tax is accounted for under what is known as the ‘fall-back’ arrangements set out in Article 41 of the EU Principal VAT Directive and paragraph 5(2) of Schedule 9ZA. This ensures that acquisition tax is accounted for in all cases where there is a disparity between the country in which the VAT registration was issued and the actual destination of the goods.
5(1) For the purposes of this Act, the normal rule for determining whether goods are acquired in Northern Ireland is that they are treated as being acquired in Northern Ireland if:
(b) they are acquired by a person who, for the purposes of their acquisition, makes use of a number assigned to the person for the purposes of VAT in the United Kingdom along with an NI VAT identifier.
For example, a UK business might order goods from a French supplier quoting its UK(XI) VAT number, but with instructions that the goods be delivered to Germany. Under the normal rules the place of acquisition is Germany, the member state to which the goods are sent. But if the acquisition is not accounted for in Germany, the goods are treated as acquired in Northern Ireland and acquisition tax is due there under the normal rules.
The Court of Justice of the European Union (CJEU) confirmed in Facet Holding BV (C-539/08) that acquisition VAT accounted for under these arrangements cannot be reclaimed as input tax. The Court considered two similar cases. In each, supplies of computer goods were sourced from member states other than the Netherlands and sent direct to customers located elsewhere in the EU. Dutch VAT registration numbers were used to secure zero-rating of the intra-EU supplies.
The CJEU held that there could be no right to deduct acquisition VAT in the Netherlands, where it fell due under the fallback arrangements, as the goods did not actually enter the member state. In arriving at its decision, the Court noted that, if there were a right to deduct in these circumstances, it could jeopardise the operation of the normal rules, as it would remove the incentive for the acquisition to be taxed in the member state of arrival. The decision provided a welcome clarification of what was previously an uncertain position (see VATF44700).
The only basis on which the UK VAT may now be adjusted is where it can be demonstrated that acquisition VAT has been accounted for in the member state of physical arrival. This can arise because accounting for acquisition tax under the fall-back arrangements does not extinguish a liability to account for the acquisition in the member state to which the goods are sent. So, Paragraph 5(2) of Schedule 9ZA provides for a refund if it can be shown that the tax has been, or is subsequently, accounted for in the member state of destination of the goods. In the earlier example (involving goods sourced from France) this means that if the UK business can show they have subsequently accounted for acquisition VAT in Germany, they will be entitled to a refund of the tax paid in the UK.
5(2) But:
(a) goods are not treated as being acquired in Northern Ireland by virtue of sub-paragraph (1)(b) where it is established in accordance with regulations made by the Commissioners that VAT
(i) has been paid in a member state on the acquisition of those goods, and
(ii) fell to be paid by virtue of provisions of the law of that member state corresponding, in relation to that member state, to the provision made by subparagraph (1)(a),