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HMRC internal manual

VAT Single Market

Supply and acquisition: acquisition: place of acquisition

Section 13 of the VAT Act 1994 (see VATSM3315) determines whether goods are acquired in the UK. Essentially this occurs under 13(2) when goods fulfilling the other conditions necessary for there to be an acquisition are physically received in the UK.

But an acquisition can also take place in the UK without the goods having been removed here. This can arise under 13(3) in cases where a UK 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 Member State. By making the place of acquisition the UK it ensures that acquisition tax is accounted for under what is known as the ‘fall-back’ arrangements set out in Article 41 of the Principal VAT Directive (see VATSM3310). This ensures that acquisition tax is accounted for in all cases where there is a disparity between the Member State in which the VAT registration was issued and the Member State of destination of the goods.

For example, a UK business might order goods from a French supplier quoting their UK 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 the UK and acquisition tax is due here 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.

In 1997 Customs & Excise agreed to arrangements under which a UK VAT-registered business could account for acquisition VAT in the UK on a yacht purchased from a supplier in another Member State without the yacht arriving in the UK. This was announced in Business Brief 12/97, which also permitted input tax deduction, subject to the normal rules. Following the CJEU decision, the agreement was withdrawn from 1 June 2011. However, as a transitional measure, where a UK VAT-registered business had entered into a contract for the purchase of a yacht before 1 June 2011, and had intended to adopt the procedure as agreed in Business Brief 12/97, that business could continue to rely on those arrangements (including recovery of the acquisition VAT as input tax, subject to the normal rules). But this was subject to their holding satisfactory evidence of the contract and the date that it was agreed.

Other than that, 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 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 section 13(4) 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.