UK First Tax Tribunal held that import VAT cannot be recovered unless the goods are a cost component in relation to that person’s supplies
United KingdomNo import VAT recovery for service provider not being the owner of goods.
Primal Healthcare UK Limited (Piramal) served as the importer of pharmaceutical goods in the UK, provided at no cost by the supplier for Piramal to perform various services, such as converting them into tablet form, research, and testing. Despite the supplier retaining ownership, Piramal paid and reclaimed import VAT in its VAT returns based on the onward supplies of services. However, following VAT inspections, HMRC communicated on 2 August 2018 that Piramal was ineligible for import VAT recovery, leading to subsequent assessments.
HMRC argued that since the goods belonged to the supplier and did not constitute a cost component of Piramal's supplies, import VAT couldn't be recovered. Piramal countered that the mere use of goods for providing services, coupled with the attributable import VAT to taxable supplies, should suffice for recovery.
The First-tier Tribunal (FTT) referred to CJEU jurisprudence, including Midland Bank and Abbey National, establishing that goods or services must form a cost component of a taxable supply for VAT recovery.
Piramal's second ground of appeal relied on the EU principle of equal treatment, asserting that disallowing import VAT recovery unfairly distinguished it from other taxpayers granted over three months (since 11 April 2019 when brief 2/19 was issued) to adjust practices. The FTT, considering the principle of equal treatment, permitted Piramal to deduct import VAT incurred until 5 November 2018, 3 months and 3 days from HMRC's initial communication on 2 August 2018. This decision aimed to align with the period granted to other taxpayers following HMRC's clarification (Brief 2/19) on import VAT recovery.
Key takeaway
The FTT reaffirms that import VAT incurred in relation to goods that do not form part of the cost component of the importer’s taxable supplies, where the importer is not the owner, is not available as input tax credit.
