,

Optimising Supply Chain Management: Key B2B Import Considerations

David Stokes
March 3, 2022

Many businesses will now be involved in “cross border” transactions meaning that a business in one territory will sell and, often, deliver goods to a customer located within another territory. The existence of two or more tax territories in the transaction, and the possibility that there may be a customer in the EU and a supplier in a third country such as the UK, will inevitably lead to VAT challenges with varying degrees of complexity.

Different challenges will be faced by suppliers involved in B2B transactions compared to B2C transactions – although there will also be some common issues. This article will focus on B2B transactions.

Let’s consider a UK supplier with a contract to supply goods manufactured in the UK to customers within the EU.

Importing goods into the EU

The first point to recognise is that to deliver the goods to the EU customer the goods must pass through an EU customs border.  And here is the first point for supply chain management.

Who will import the goods into the EU and what are the considerations?

The customer’s starting point is likely to be that they will want the supplier to import the goods and a salesperson, eager to please their customer, is likely to agree.  Is this a problem for the supplier?  OH YES!

Customs considerations

A salesperson returns triumphant with an order with Incoterms of DDP (Deliver Duty Paid) – but is this a cause for celebration?

Deliver Duty Paid means that the supplier must deliver the goods to the territory of the customer from which, for VAT purposes, a local sale will be made.  This will require the UK supplier to import the goods into the EU and this creates the first issue.

Under the Union Customs Code (UCC) the person presenting the goods to the customs authority (the declarant) must be established within the EU.  An EU established business importing goods can be both the importer and the declarant.  A business established outside the EU can be the importer but not the declarant.  In this case the non-EU importer must appoint an EU established business to act as its “indirect customs agent”.  This agent is jointly and severally liable for the import duties that are due and there are not too many businesses which provide such a service because of the risk.  So the seller could find itself unable to satisfy a contractual obligation because it cannot find someone to act as its indirect customs agent in time to make the required delivery – or at all.

Understanding local VAT issues

If a supplier successfully manages to overcome this hurdle then there is the issue of dealing with local VAT on the sale – must the supplier register for VAT and apply it to the sales invoice – or does the reverse charge apply?   And will the customer pay the non-refundable duty costs incurred by the supplier at the border?

The takeaway here is that a contract concluded under DDP terms may be much easier for the sales team to achieve but it can create serious issues down the line.  UK suppliers should seek to agree any Incoterm other than DDP wherever possible.

EU warehouse facilities

To reduce the possibility of delays some UK suppliers have set up warehouse facilities within the EU from which deliveries can be made.  One issue which can affect both VAT and direct taxes is whether the warehouse creates a permanent or fixed establishment.  For the purposes of this article we assume no – although creating a permanent establishment could avoid the need to appoint an indirect customs agent.

How to deal with import VAT

Once the UK supplier has successfully brought the goods into an EU warehouse it will make deliveries to customers. One big consideration here is how the import VAT is dealt with. Several Member States offer the possibility to postpone import VAT to the VAT return via a reverse charge.  In such circumstances import VAT deduction is guaranteed so long as the formalities are followed and the business is able to fully recover VAT.  Where goods are imported into a Member State where import VAT must be first paid and then deducted consideration as to how this will happen is important.  Where there is a VAT registration in place, the VAT can normally be recovered via the VAT return.  However, where the Member State of import has a reverse charge mechanism for domestic sales, a non-EU supplier will need to make 13th Directive claims to recover import VAT.  One Member State where this will arise is Spain which has reciprocity rules in place so not all businesses are able to make 13th Directive claims.

Therefore if a supplier is considering utilizing an EU warehouse or making sales on a DDP basis, they should first map out all of the likely flows and then determine the VAT treatment to understand if any negative VAT issues will arise.  The planning opportunities and potential pitfalls that arise from such a warehouse will be considered in a later article.

Take Action

Get in touch with our tax experts to discuss your supply chain VAT requirements or download our e-book Protecting Global Supply Chains.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

David Stokes

As an FCCA of many years, David brings a commercially focused accounting perspective to the treatment of European VAT issues. He specialises in the understanding of cross-border VAT transactions and has helped many clients map their flows to optimise their VAT position. He has successfully completed the VAT Forum’s ‘Expert in European VAT’ course and is a partner of the forum. As well as advising clients David also sits on several technology product development teams at Sovos.
Share This Post

EMEA IPT
November 23, 2022
Fire Brigade Tax in Slovenia

Problems encountered with Fire Brigade Tax rate increase in Slovenia Slovenia’s Fire Brigade Tax (FBT) has changed. The rate increased from 5% to 9%. This came into effect on 1 October 2022. The first submission deadline followed on 15 November 2022. Unfortunately, the transition has been plagued by problems. We discuss some issues and how […]

E-Invoicing Compliance EMEA
November 22, 2022
E-invoicing and Fiscal Digitization in Africa

African countries are following e-invoicing and continuous transaction control trends implemented rapidly by many countries around the globe. Each country in the continent is developing their variation of a tax digitization system. This means there is currently no standardisation with compliance requirements differing in each jurisdiction. A common transaction reporting feature among African countries is […]

EMEA VAT & Fiscal Reporting
November 22, 2022
Expert Series Part IV: New Roles for IT in the Wake of Expanding Global Mandates

Part IV of V – Ryan Ostilly, vice president of product and GTM strategy EMEA & APAC, Sovos Click here to read part III of the series.   Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your […]

E-Invoicing Compliance EMEA
November 16, 2022
Denmark E-Invoicing Requirements

New bookkeeping law – Lov om bogføring On 19 May 2022, the Danish Parliament passed a new bookkeeping law – Lov om bogføring – introducing requirements for companies to use a digital bookkeeping system. Section 16 of the Law requires many Danish companies to use a digital bookkeeping system and make their bookings electronically. The final […]

EMEA VAT & Fiscal Reporting
November 15, 2022
UK: Updates to Making Tax Digital for VAT

Update: 3 November 2022 by Russell Hughes Making Tax Digital – Filing VAT Returns through Online VAT Account to become redundant From Tuesday 1 November 2022, businesses filing VAT returns in the UK will no longer be able to submit via an existing online VAT account unless HMRC has agreed to an exemption from Making […]