Brexit Effect on Call-Off Stock and Return of Goods

This article looks at the value-added tax (VAT) and customs consequences of Brexit (the withdrawal of the U.K. from the EU) on call-off stock arrangements and returns of goods. It aims to analyze the effect on businesses which have transferred their goods on call-off basis to the EU or the U.K. before the end of the Brexit transition period on December 31, 2020.

An overview is provided of changes and transitional measures applicable to call-off stock arrangements which fell under the EU simplification before the end of the Brexit transition period. The article also looks at the rules applicable to returns of goods after Brexit.

Background

Due to Brexit, a very useful EU simplification measure applicable to call-off stocks (“EU call-off stock simplification”), which allows a seller to avoid VAT registration in the EU member state of storage, has ceased to apply for movements of goods between the EU and the U.K. Therefore, major changes to call-off stock arrangements have taken place after Brexit. In addition, businesses may have shipped goods to the U.K. or to the EU under other arrangements before Brexit and need to return their goods after Brexit either back to the EU or to the U.K.

EU Call-Off Stock Simplification

Uniform treatment applies for cross-border call-off stock arrangements in the EU. If goods are sent to another EU member state, a VAT registration is not required if certain conditions are met—most importantly an intended acquirer is known—and the goods are called off or returned within 12 months.

The EU call-off stock simplification can thus entail significant savings in VAT compliance costs for businesses which hold stock on a call-off basis in another EU member state. Those businesses can avoid VAT registration and filings in other EU member states on the condition that they keep registers of their stock movements (a “register”).

Consequences of Brexit

As of January 1, 2021, the U.K. will not be bound by the EU VAT and customs rules (except in respect of Northern Ireland (NI) as regards transactions in goods). Where “the U.K.” is referred to below, this only includes Great Britain since the EU VAT and customs rules continue to apply for transfers of goods from NI to the EU, or vice versa, as NI remains part of the EU Single Market.

The EU simplification no longer applies to U.K. sellers holding stock in the EU, or vice versa. General VAT and customs rules are thus applicable for supplies of stock that are transported to the U.K. from an EU member state, or vice versa, after December 31, 2020. However, transitional rules apply if the goods already in the EU or the U.K. before the end of the Brexit transition period are called off or returned within 12 months.

Goods Held in Call-Off Stock in U.K. after Brexit

If goods are sent after the end of the Brexit transition period (December 31, 2020) from an EU member state to a warehouse or client’s storage facility in the U.K., and title of the goods still remains with the seller, a VAT registration is required in the U.K.

Any business that imports goods into the U.K. must now be registered for U.K. VAT to make a domestic supply in the U.K., and to be able to recover any (import) VAT.

From January 1, 2021, U.K. VAT registered businesses are able to account for import VAT on their VAT return (postponed VAT accounting). This means that in most cases these businesses will be able to simultaneously declare and recover import VAT on their U.K. VAT returns, rather than paying import VAT at the time that the goods are released for free circulation in the U.K.

U.K. Businesses with Stock in EU

The EU call-off stock simplification no longer applies to stock in the EU that is shipped from the U.K. after the end of the Brexit transition period. U.K. businesses holding call-off stock in the EU must register for VAT in the EU. General VAT and customs rules are thus applicable for supplies of stock that are transported to the EU member state from the U.K.

Transitional Situations

Special rules apply to transitional situations: supplies of goods that were transported to the U.K. from an EU member state or from the U.K. to an EU member state before the end of the Brexit transition period and are supplied or returned after Brexit.

Under those rules, a VAT registration is not required if goods were sent under EU call-off stock simplification to the U.K. from the EU or vice versa before December 31, 2020, and the goods are called off or returned within 12 months. The EU simplification will thus continue to apply to these stocks in the EU member states or in the U.K. until December 31, 2021.

EU Businesses with Stock in U.K.

Goods already in U.K. at the end of the transition period will continue to be subject to the EU call-off stock simplification until the stock is called off or returned to the EU within 12 months.

Consequently, if call-off stock was in place before the end of the transition period, an EU business does not have to register for VAT in the U.K. However, this only applies if the goods are either called off or returned within 12 months. After this deadline, the EU business needs to return the goods or register for VAT in the U.K. if it wishes to keep the inventory stored and sell it in the U.K.

U.K. Businesses with Stock in EU

If call-off stock was in an EU member state before the end of the transition period, the U.K. business does not have to register for VAT in this EU member state. However, this only applies for the stock called off or returned within 12 months. After December 31, 2021, the EU simplification does not apply any longer on this call-off stock. If a U.K. business wishes to keep the inventory stored in the EU member state, it will have to register for VAT in that EU member state or return the goods.

Compliance Guidelines by VAT Committee

The VAT Committee discussed the application of the VAT call-off stock simplification rules in relation to Brexit on its 117th meeting on November 16, 2020. The discussions resulted in almost unanimous guidelines (conclusions are included in the VAT Committee Working Paper 998.

Working Paper 998 only covers the situation of goods sold in an EU member state or returned to an EU member state after January 1, 2021. Therefore, other situations that could happen in this scenario, such as goods returned to the EU but to a member state different from that of departure, or goods returned after 12 months under the call-off stock, are not covered by this document. General rules based on the Brexit Withdrawal Agreement, the Trade and Cooperation Agreement and other legislation are applicable to those scenarios.

Although guidelines issued by the VAT Committee do not bind the member states, who are free not to follow them, they offer useful guidance in the interpretation of EU law. Since those guidelines were almost unanimously accepted, it is expected that most EU member states will implement them in their national VAT regulations.

Goods Transported from U.K. to EU

Calling off Goods Within 12 Months

Where goods were originally transported from the U.K. to an EU member state and placed under the call-off stock simplification before December 31, 2020, and the intended acquirer purchases the goods after January 1, 2021, the EU acquirer should report an intra-Community acquisition of the goods. However, the supplier in the U.K. will not report an intra-Community supply as this is no longer applicable/possible. The acquirer needs to adjust its register and this will be the base for tax authorities to verify the situation.

Returning Goods Within 12 Months

If goods return from the intended acquirer to the initial supplier, this return is a movement outside the scope of VAT under the EU simplification. However, the movement of goods between an EU member state and the U.K., after January 1, 2021, implies that the goods will be subject to customs control when crossing the border, as this movement will be an exportation or importation of goods. Consequently, where the goods are returned from the EU to the U.K., this return now qualifies as an export in the EU and (re)importation in the U.K. None of the parties involved should have to submit any information regarding this transaction in any recapitulative statement.

Furthermore, the intended acquirer in the EU also has to reflect the return of the goods in its register and must keep proof that the goods have left the customs territory of the EU.

Importation in the U.K. may qualify for relief applicable to the return of goods: please see more detail about returns of goods and possible relief in “Exemption Applicable to Returns of Goods after Brexit,” below.

Goods Transported from EU to U.K.

Calling off Goods Within 12 Months

• EU: Where an intended acquirer purchases the goods after January 1, 2021, the supplier should in principle report an intra-Community supply at the time when the call off takes place. However, this is no longer possible, given that the goods are already outside the EU and a U.K. VAT identification number is no longer valid in the VIES (VAT Information Exchange System). Nevertheless, the supplier should modify the register held by it in order to reflect the supply having taken place.
• U.K: Goods already in the U.K. at the end of the transition period will continue to be subject to the EU VAT rules in the U.K. The EU simplification will continue to apply until the stock is called off or returned to the EU within 12 months. An EU business holding stock on call-off basis in the U.K. at the end of the transitional period consequently does not need to register for VAT in the U.K. However, this only applies if the goods are called up or returned within 12 months. After this period, the EU business must either return the goods or register for VAT in the U.K. if it wishes to keep the stock and sell it in the U.K. If the business wishes to return the goods after the expiry of 12-month deadline, it may be able to benefit from the EU exemption for returned goods. See more details about returns of goods and possible relief in “Exemption Applicable to Returns of Goods after Brexit,” below.

Returning Goods Within 12 Months

Where the goods are returned from the U.K. to the EU, this return now qualifies as an export in the U.K. and (re-)importation in the EU. The return of the goods could be considered as an exempt import into that member state. Where goods have been transported or dispatched from a member state to the U.K. before the end of the transition period and are then returned in an unaltered state from the U.K. to the EU after the end of the transition period, this movement can in fact be considered as a VAT-exempt re-importation provided that all conditions are fulfilled. Furthermore, the supplier will also have to reflect the return of the goods in its register.

If the goods are not returned within 12 months then the general rules applicable on returns of goods apply on those movements.

Exemption Applicable to Returns of Goods after Brexit

Where the goods are returned from an EU member state to the U.K., or vice versa, this return now qualifies as an export in the EU and importation in the U.K. or vice versa. The import is subject to VAT and possibly customs duties and other taxes unless special treatment applies.

Re-importation of Goods Originally Transported from EU to U.K.

It may be possible to claim a relief from the customs duty and VAT when importing goods from the U.K. back to the EU if the goods were previously exported to the U.K. This is known as Returned Goods Relief (RGR) (see “Returned Good Relief” below). RGR can be used for items returned within three years. The goods must not be changed or have undergone any processes, with the exception of maintenance. The goods cannot have been upgraded to increase their value. The importer should have evidence of the export of the goods; this will normally be the export declaration.

Brexit Transitional Rules

Goods in the U.K. at the end of the Brexit transitional period may be eligible for RGR if they are returned from the U.K. back to the EU. The importer should have evidence of the transport of the goods. This will normally be the export declaration; however, since the goods have been delivered to the U.K. before the end of the transition period, the transport documents should serve as proof that the Union goods were taken to the U.K. prior to the end of the transition period, if necessary, accompanied by other relevant documents. A business should provide evidence that the Union goods (i.e., goods which have been in free circulation in the EU) were transported to the U.K. prior to the end of the Brexit transition period on December 31, 2020, and return in an unaltered state.

Comments from a VAT Perspective

The VAT exemption upon re-importation as returned goods is applicable only if the exporter and the importer of the goods are the same person.

Goods Originally Transported from U.K. to EU

Businesses may be eligible to claim a relief from the customs duty and VAT if they re-import goods to the U.K.

Returned Goods Relief

This relief may be obtained if a business is re-importing goods into the U.K. that have previously been exported. The goods must be re-imported in an unaltered state.

The goods must also:

• have been in free circulation in the U.K. when they were exported, unless they were under customs supervision;
• not have been exported to be repaired or processed—if they were, but the repair or process was not carried out, relief may still be available;
• be re-imported within three years of their export. The requirement that the goods must be returned within three years can be waived in exceptional circumstances.

Relief from VAT can only be claimed if the exporter and the re-importer of the goods are the same person.

Brexit Transitional Rules

Goods in the EU at the end of the Brexit transitional period are eligible for RGR even if the normal three-year time limit for re-importation has expired, if re-imported to the U.K. by June 30, 2022. This can be overridden by the normal three-year rule if proof is available that the goods have left the U.K. no more than three years before their re-importation.

Proof of export from the U.K. is not required, it is only necessary to show that the goods were in the U.K. at some point before December 31, 2020. This extended time limit does not apply to goods re-imported into Northern Ireland.

Planning Points

• The EU call-off simplification allows a seller to avoid VAT registration in the country of storage if certain conditions are met.
• Due to Brexit, the EU call-off stock simplification ceases to apply for movements of goods between the EU and the U.K.
• Brexit transitional rules apply on goods transferred from the U.K. to the EU or vice versa on the condition that a stock already in the EU or the U.K. before the end of the Brexit transition period is called off or returned within 12 months.
• The EU simplification will thus continue to apply to these stocks in the EU member states or in the U.K. until December 31, 2021.
• Exemption from VAT and customs duties may apply to the return of goods which are shipped from the EU to the U.K. or vice versa, but conditions apply.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Aiki Kuldkepp is Senior Manager, Tax, with Grant Thornton Netherlands.

The author may be contacted at: aiki.kuldkepp@nl.gt.com