Introduction Background Note
5.Businesses which are registered for VAT can normally recover VAT they incur on business expenses by claiming it on their VAT return. They cannot, however, recover VAT incurred in other EC Member States (MS) in this way. The Cross Border Refund Scheme enables them to recover this VAT.
6.Under the current scheme, covered by Directive 79/1072/EEC, businesses submit paper claims direct to the MS in which they incurred VAT (the Member State of Refund - MSREF). The system is lengthy and burdensome, and claims are often paid late or not at all.
7.A new EC Refund Directive comes into force on 1 January 2010, which requires MS to set up a new electronic refund system. From that date, businesses will submit claims to other MS electronically in their own MS (the Member State of Establishment - MSEST). They will receive electronic notifications that their claim has been received and forwarded by the MSEST, and received by the MSREF.
8.The current paper-based system for obtaining refunds of VAT will be replaced from 1 January 2010 by a common electronic system covering every Member State. Businesses seeking repayment of VAT from a Member State in which they are not established must submit their claim to that country via the electronic portal of their own country.
9.Where a repayment claim is made via a country’s electronic portal, it is required to make the administrative arrangements to ensure that the claim is forwarded to the country from which repayment is requested. Upon receipt of a claim for repayment addressed to it, a Member State must determine whether the claimant is entitled to the repayment within strict time limits (with a requirement to pay interest in cases of late repayment), and afford a right of appeal against a refusal to make repayment.
10.The revised scheme will apply to all repayment claims made on or after 1 January 2010 including claims made in relation to certain VAT incurred before that day. Legislative amendments made by this section enable the Commissioners for HM Revenue & Customs to fulfil their obligations to facilitate UK businesses in obtaining refunds from other Member States and, by means of Regulations, to enable businesses established in other Member States to obtain refunds of VAT incurred in the UK.
11.Businesses will benefit from longer timescales in which to submit their claims compared with the current system, while there will be shorter and more certain timescales in which MSREF must notify their decisions and make payments. Where MSREF fail to meet these deadlines, they must pay interest to the business. Businesses will also have a right of appeal against decisions made by MSREF.
12.MSREF will have powers to impose penalties against businesses who submit fraudulent claims, or claims which are inaccurate due to deliberate or careless conduct by the business.
13.A Transposition Note setting out how the Government will transpose into UK law the main elements of this Directive is below.