Raj Ganguly
RKG Consulting, London
www.rkgconsulting.com
VAT issues
 What is “LVCR”, its availability & its benefits?
 Valuation of goods for LVCR
 What are the tax risks & how to reduce these?
 Recent developments
 Why Switzerland for VAT fulfilment to Europe?
copyright RKG Consulting 2010
www.rkgconsulting.com
2
What is LVCR?
 “Low Value Consignment Relief” is the relief from VAT
given to a private individual (non-taxable person) who
imports items valued at less than 22 euros from
outside the VAT territory of the EC.
 The relief is given to the “individual” (the buyer), not
to the retailer making the sale.
 The individual must “import” the goods from the nonEC territory rather than retailer “delivering” the goods.
 Remember its always the “customer’s” goods the
dispatch of which you are “arranging” to their order
and to their account.
copyright RKG Consulting 2010
www.rkgconsulting.com
3
Availability of the €22 relief
 Generally available throughout the EU with the
exception of Denmark where the relief is restricted.
 However, the member states reserve the right not to
give relief in respect of “mail order” sales in cases
where they suspect tax avoidance or “abuse”.
 “Mail order” sales can include “internet” sales
 UK gives relief of £18 (value of goods £17.99 or less)
 The rest of the EU, goods value must be €21.99 or less.
copyright RKG Consulting 2010
www.rkgconsulting.com
4
Benefits of LVCR
 Fairly self-explanatory
 Cheaper product prices for the retailer compared to
competitors who do not have a non-EU presence
 Faster delivery times as CN22 labels get “waved”
through
 Retailers do not have to comply with onerous crossborder “distance selling” VAT obligations
 “Pre-paid” VAT scheme available in certain cases for
items €22 & above, which enhances customer
satisfaction and therefore “ratings”.
copyright RKG Consulting 2010
www.rkgconsulting.com
5
Valuation of goods / pricing





Does VAT apply to postage & packing?
What is “intrinsic” value of the goods?
What is “customs” value of the goods?
What are the VAT procedures for labelling on packets?
What accompanying documents should be included
within the packets, what should be the values shown
therein and how should these values reconcile with the
website prices?
 Promotion schemes: discount vouchers, two-for-one,
special offers, “club” schemes, etc.
copyright RKG Consulting 2010
www.rkgconsulting.com
6
What are the tax risks – VAT ?
 “Free circulation of goods” issues
 EC transit procedures & documents
 Returns & refunds
 Customer terms and conditions not properly drafted –
contract “acceptance” happens onshore
 Title, ownership & risk passes to customer onshore
 Intra-group service agreements are not “watertight”
 Offshore retailer unknowingly develops “sales agency”
relationships onshore
copyright RKG Consulting 2010
www.rkgconsulting.com
7
Tax risks - VAT
 Contracts with suppliers not re-structured properly
 “Buying” & “selling” does not take place offshore
 Appropriate stock control procedures not in place
 IT systems do not properly segregate “onshore &
“offshore” sales
RESULT
 VAT authorities mount investigations & try to
implement the “abuse of rights” and tax “avoidance”
provisions of settled ECJ cases such as “Halifax”
copyright RKG Consulting 2010
www.rkgconsulting.com
8
Tax risks – direct tax
 Company residence: business must be “centrally managed




& controlled” from offshore / non-EC jurisdiction and able
to stand on its own as independent “unit”
Proper “substance” (corporate presence/directorships)
must be maintained offshore
Intra-group goods or services transfers must satisfy
“transfer pricing” provisions
Offshore retail unit should avoid creating “permanent
establishment” onshore.
“Wood v Holden” – yes, it does work.
copyright RKG Consulting 2010
www.rkgconsulting.com
9
Recent developments
There will be a discussion of recent events in the
industry, tax cases and other interesting
developments.
copyright RKG Consulting 2010
www.rkgconsulting.com
10
VAT “retail” court cases
 Dollond & Aitchison Jersey (contact lenses: single or multiple supplies)
 Bugeja (video DVD hire/sale: “buy-back” schemes)
 Debenhams Retail (artificial separation of goods/service “avoidance








scheme”)
Robertsons Electrical (“cooling off” – ownership, risk, title)
RAL Channel Islands (place of supply: Guernsey or UK? )
Bookit, FDR, SEC, CSC, SDC (credit card payment handling fees)
Halifax, BUPA, WHA (tax avoidance & abuse of rights)
Redcats (Brands) Ltd (mail order: when does ownership pass for VAT?)
Plantiflor (VAT on postage)
Compton & Woodhouse (goods on sale or approval issues)
Many other relevant VAT cases on various aspects of retail / mail order
copyright RKG Consulting 2010
www.rkgconsulting.com
11
Why Switzerland for Fulfilment to Europe ?
 Unique geographical position at the “heart of Europe”
 Quicker dispatch times to large markets like Germany
 Smoother “bulk” stock importation into CH, pick n
pack and despatch.
 Availability of skilled staff, professional service
providers and robust economic environment
 “Neutral” country
 Availability of LVCR VAT relief
 National postal operator lends “substance”
copyright RKG Consulting 2010
www.rkgconsulting.com
12