VAT enforcement in the EU

[adrianww]

Oh, the delights of the EU VAT system (or perhaps I should say "systems" as each country operates its own specific rules and rates)...

In general, most imports into most countries (regardless of where they're coming from) will be assessed by the local Customs authority at the port of entry and made subject to any duty and VAT that apply at the time. So in most (if not all) cases, people should have been paying VAT all along - whether the goods are coming from countries outside the EU or not. In practice, however, the various Customs authorities around the EU have often turned a bit of a blind eye to "personal" shipments (by which I mean things where someone has ordered something from overseas and had it shipped to them). I'm pretty sure that for small value items, that may still be true a lot of the time. It's not worth the time and hassle of chasing everyone for a couple of pounds/euros here and there when there are potentially much bigger fish to fry in the commercial sector where companies are importing large quantities of goods.

However, for higher value items or even just generally speaking now that Governments are having to tighten their financial belts, I'd fully expect the relevant duties and taxes to be enforced more and more. The usual way that this will happen is either by the local Customs authorities impounding the item until the customer pays what they owe, or the Customs authorities passing responsibility to the shipping company, who will then want payment of the relevant duties, taxes and administrative charges before delivering the goods.

Of course, each country does have a system of personal allowances that comes into play. But these allowances are usually fairly minimal, often relating to specific products such as alcohol and tobacco and will also often be subject to the restriction that they only apply if the buyer is physically transporting the goods themselves. This caters for the situation of holidaymakers and other travellers returning home with small quantities of booze or personal items such as jewellery, etc. For example, the allowance system for the UK is documented here. The rules for personal imports shipped into the UK can be found here. Although that one is specifically talking about items posted to the UK from non-EU countries - if you're using some other shipping agency or company, the same general rules apply although some of the paperwork may vary slightly. A more general discussion of the taxes and duties that apply when buying from abroad and importing products into the UK is here.

The important point here is that, as you almost certainly already know, it's not YOUR problem. The relevant legal and financial responsibilities lie with the customer as the importer of the goods. If they're not aware of that, then it might be worth enlightening them when they come to make their purchase and make it clear that they will probably have to pay their dues when the goods arrive and that's nothing to do with you. If they don't like it, they should contact their local Customs authorities and see what short change they get.

Of course, you'll always get the joker who asks you to mark it as a "gift" or to declare a stupidly low value. I usually find that it tends to focus their minds a little when you then explain to them that that is not only usually illegal and can lead to fines if you get caught but it also usually means that they won't be able to make any kind of relevant insurance claim if the item goes missing or is damaged in transit. Particularly if your standard Incoterms shipping policy is "ex-works" (which is the best way from a seller's point of view unless the customer is prepared to pay for something better - I'll consider going all the way up to DAP or DDP for a customer, but they'll need to pay all the charges to me up front).

As for VAT on internal shipments within the EU, don't even ask. It's actually fairly straightforward really, it just looks weird at first glance!

[Yeah, right...]

Yeah. for private persons in the EU it can't be a lot of fun importing goods, particularly when they are also charged VAT at point of origin. Double-dipping, pure and simple.

As a VAT registered studio, label & publisher here in German we have a VAT # that allows us to import from any EU member state without paying their (point of origin) VAT. For example the invoice for a shipment of CDs pressed outside Germany but in the EU that's just arrived has on it "I declare for the record that the above mentioned goods were exported to other member state of EU." and there is no problem. I am though pretty sure that private guys can't do this?

Where it gets more than a little weird is when, for example, we send a mic that was purchased here in Germany to, say Oktavamod for modding. When it returns we are charged not only VAT on the mod & the freight, but ALSO on the value of the mic... Same goes for anything returned to the US, or for that matter anywhere outside the EU for warranty repairs. The fact that you might have the original receipt counts for nothing.

I've actually gone to the local customs office with a piece of gear and asked them to take the serial # of the item as reference for when it was returned. They refused to do this. I then took a photo of the item sitting on a desk in their office clearly showing the serial number. When it returned they still insisted I pay VAT on the original item. After much argument I had no choice other than pay.

I've had a number of such experiences, and originally thought it was purely a Germany-specific problem. Now it seems it is not?

And what's worse is there does not seem to be an answer?

[MikeInOttawa]

Nice replies!

I think that the value of the good is the most important thing. If it's a small-valued item, taxation authorities won't bother with VAT. Everything should be VAT-able, as it levels the playing field so that items purchased out of country don't have a competitive advantage over domestically purchased items that have VAT assessed on them. Everything is taxed the same way, which is fair.

As for Yeah, right's issue shipping/returning stuff to a non-EU country, since you're a VAT registered business, do you get to deduct the VAT you paid on the purchases? If so that's ok, but for an individual I can see the inequity of it, unless there's some sort of drawback mechanism available.

Off-topic a bit, but my country's taxation authority (whom I work for) has been working on getting information from eBay about Powersellers in order to uncover undisclosed business income. This may be something experienced elsewhere too- governments are in need of money these days.

[adrianww]

Originally Posted by Yeah, right...

Yeah. for private persons in the EU it can't be a lot of fun importing goods, particularly when they are also charged VAT at point of origin. Double-dipping, pure and simple.

That seems odd. As I understand it, the whole point of charging VAT at point of origin is to save the hassle of the destination country having to impound and assess goods coming from another EU country. For example, if I ship something to a private individual in another EU country, I charge them VAT just like a UK customer. No customs paperwork is required and the shipment is delivered directly to the customer at the far end - they don't typically have to pay any duty or VAT to receive it. No double-dipping involved. Unless there are some EU countries playing silly buggers with the rules.

Originally Posted by Yeah, right...

As a VAT registered studio, label & publisher here in German we have a VAT # that allows us to import from any EU member state without paying their (point of origin) VAT. For example the invoice for a shipment of CDs pressed outside Germany but in the EU that's just arrived has on it "I declare for the record that the above mentioned goods were exported to other member state of EU." and there is no problem. I am though pretty sure that private guys can't do this?

Correct. I can ship goods ex-VAT if it is going to a commercial concern in the EU and they are VAT registered and I have a record of their valid VAT number. The total of all such sales (and purchases) has to be recorded in a separate section on our quarterly VAT return to HM Revenue and Customs. We also have to complete a quarterly EU sales list, documenting the sales that have been made in further detail (basically, listing the country, the VAT number and the amount for each customer who has not paid VAT).

A private individual could do this, but they would have to be registered for VAT in their own country and have a valid VAT number. And that will only usually be possible if they are carrying out some kind of business - you can't VAT register just for the fun of it.

Originally Posted by Yeah, right...

Where it gets more than a little weird is when, for example, we send a mic that was purchased here in Germany to, say Oktavamod for modding. When it returns we are charged not only VAT on the mod & the freight, but ALSO on the value of the mic... Same goes for anything returned to the US, or for that matter anywhere outside the EU for warranty repairs. The fact that you might have the original receipt counts for nothing.

I've actually gone to the local customs office with a piece of gear and asked them to take the serial # of the item as reference for when it was returned. They refused to do this. I then took a photo of the item sitting on a desk in their office clearly showing the serial number. When it returned they still insisted I pay VAT on the original item. After much argument I had no choice other than pay.

I've had a number of such experiences, and originally thought it was purely a Germany-specific problem. Now it seems it is not?

And what's worse is there does not seem to be an answer?

That does seem very weird and not at all right. I don't know much about that scenario though as I've never done it. Although I would hope that there would be some way to account for it properly such that you didn't end up paying duty and VAT again on something that is already your own. I know there's something called OPR (Outward Processing Relief?) that might relate to this kind of thing, but I don't know any more than that or whether that's only something that the UK Customs authorities have implemented themselves, rather than being EU-wide. I'd say it's certainly worth getting in touch with the Customs authorities again though, but not the local office. I've usually found the various central HMRC helplines here in the UK to be pretty good and I'd imagine there must be some similar central admin/help function in Germany?

[adrianww]

Originally Posted by MikeInOttawa

Nice replies!

Thanks - I'm no expert when it comes to audio (just a tired old muso of sorts) but I've spent a fair bit of the last decade looking after imports and exports in a couple of small businesses, so I know a bit more about that. In fact, sometimes I wish I knew less. There's only so much reading of Trade Tariffs and tax rules that you can do before your brain starts to shut down and ooze out of your ears...

Originally Posted by MikeInOttawa

I think that the value of the good is the most important thing. If it's a small-valued item, taxation authorities won't bother with VAT. Everything should be VAT-able, as it levels the playing field so that items purchased out of country don't have a competitive advantage over domestically purchased items that have VAT assessed on them. Everything is taxed the same way, which is fair.

Yeah, it's a fairly straightforward system in that respect. You buy something, you pay VAT on it in some shape or form regardless of where it came from. (Yes, there are some exceptions for specific types of goods, but the general principle is the same across the board.)

Originally Posted by MikeInOttawa

As for Yeah, right's issue shipping/returning stuff to a non-EU country, since you're a VAT registered business, do you get to deduct the VAT you paid on the purchases? If so that's ok, but for an individual I can see the inequity of it, unless there's some sort of drawback mechanism available.

Yep, as I already said above, that one does seem odd. I'd certainly be checking again if it was me - even allowing for being able to reclaim VAT on business purchases, it still just doesn't seem right. And it would indeed be a right sod for private individuals.

To be fair to the tax guys here in the UK, they want what they're owed and will chase you for it if they feel they need to, but they're pretty good about ONLY wanting what they're owed and not biting you twice if they can help it. Or maybe I've just had good experiences with them?

Originally Posted by MikeInOttawa

Off-topic a bit, but my country's taxation authority (whom I work for) has been working on getting information from eBay about Powersellers in order to uncover undisclosed business income. This may be something experienced elsewhere too- governments are in need of money these days.

I don't know how much the UK authorities do this kind of thing, but I'm prepared to bet that they can (and do) do it in some cases. As with the import VAT that you mentioned earlier, it's probably on the basis of how much return they can expect to see from the investigation. If it's something very minor and doesn't represent a significant avoidance of duty/VAT, they'll probably let it slide in favour of chasing bigger fish. But who's to say that they won't get around to it at some point - either because the Government wants them to recover more missing revenue or because they just happen to have an investigator free for a while who can turn his or her hand to the small fry for a couple of months.

[Yeah, right...]

Originally Posted by MikeInOttawa

Nice replies!

I think that the value of the good is the most important thing. If it's a small-valued item, taxation authorities won't bother with VAT. Everything should be VAT-able, as it levels the playing field so that items purchased out of country don't have a competitive advantage over domestically purchased items that have VAT assessed on them. Everything is taxed the same way, which is fair.

As for Yeah, right's issue shipping/returning stuff to a non-EU country, since you're a VAT registered business, do you get to deduct the VAT you paid on the purchases? If so that's ok, but for an individual I can see the inequity of it, unless there's some sort of drawback mechanism available.

Off-topic a bit, but my country's taxation authority (whom I work for) has been working on getting information from eBay about Powersellers in order to uncover undisclosed business income. This may be something experienced elsewhere too- governments are in need of money these days.

It would seem that the customs service in Germany operates a little differently to other countries in the EU? This is solely based on my own observation & experience. I lived in London for most of the 90's, and have also spent a couple of years in France. During these times things were much more relaxed there, in my experience.

And I toured a lot more internationally then than I do now, and was regularly air-freighting guitars in and out of the UK, never one time experiencing any problems when the gear returned. I used to collect them from customs myself to try and save a bit of dosh and it all went pretty smoothly. OK, I had all the paperwork - proof of purchase, Carnet, etc, and I guess that compared to the 100's of guys who were there trying to convince customs that the 5000 carpets they'd just imported were really a gift from their cousin and were intended for personal use in their 400 sq ft apartment I guess one K1w1 with a few guitars was pretty easy to deal with?

But bear in mind that was the 90's, 15-20 years ago. People did not use the then-fledgling internet for purchasing all manner of stuff as they do now (And eBay was not even thought of until the mid-late 90's!) so maybe other EU countries have also tightened up as well. Also, as someone else noted, the economic climate in the EU today is such that governments everywhere are scrambling for every last cent they can.

As for your question re. VAT returns, yes, in those cases where we pay VAT at source we can deduct that from the price. And clearly we get refunded any VAT paid on arrival here in Germany. This is a luxury though that private buyer do not have. We are of course required to pay VAT when the items, CD's for example, are sold. Does that answer it?

My main issue is that when I send an item I have purchased in Germany outside of the EU for repair, etc, when it returns the German customs calculates its total value (for VAT purposes) as the sum of the items value in German plus the cost of the repair, mod, whatever.

This to me is grossly unfair. OK, as a VAT registered company we can reclaim all VAT we are charged, but guys like me are only a very small percentage of the people thus charged. The rest are not able to do so...?

Interesting thread. Mike

[Thomas W. Bethe]

Thanks for all the GREAT replies. I found out more here than I could have ever found on the WWW. I appreciate the information. Thanks again...