When is an Export not an Export: VAT is the question!

Tuesday, September 27, 2011

by Nick Ryan

For VAT purposes the Revenue consider an exporter to be a person that supplies goods to another person and where the goods are directly dispatched to a destination outside of the European Union. In this instance the zero rate of VAT applies to the supply of the product. Simple enough?
Surely it can’t be that hard for a business to know whether they are an exporter or not. Well from recent experiences it is and the scenario below should help you in seeing where the problems lie.

Five businessmen meet at a networking event:
Bus 1: What do you do?
Bus 2: I’m an exporter, I sell used car parts to wholesale businesses in Africa.
Bus 1: I’m also an exporter, I sell a range of beauty therapy products through my online store to customers in Europe.
Bus 3: (overhearing the conversation) You both exporters? Me too, I sell used electronic equipment and games both via online auctions to customers mainly in the EU and also by container to the African markets.
Bus 4: No kidding you all exporters. I export bespoke iron furniture to customers around the world. Some customers are great as they reduce my costs by taking delivery of my product at my factory.
Bus 5: I don’t believe this, you all exporters, I am too. I provide technical desk support services to a number of clients in the Middle East in managing their IT functions.
Trade stand representative: You sure you guys are all exporters?

Can you all see why the Trade stand representative is worried? For VAT purposes, only one of these businessmen is a 100% exporter and two have aspects of their business activities that would qualify them as exporters. The others are not exporters at all. For the e-trader they have significant issues were they to apply the VAT export status to their supplies.

In essence these five businessmen between them are:
 Exporting goods.
 Operating under distance selling arrangements.
 Falling within the VAT Package for supplies of services.
 Providing supplies of goods within the State.
If they are driven to believe they are all exporters then there is a significant range of VAT errors occurring both in liability to VAT and in the reporting of VAT. Now do the math.
In the current climate the use of the word “export” has widened in our search to find signals of recovery and economic hope. The problem is that, in the current climate, a number of businesses have been loosely labelled “exporters” and, as such, have applied the VAT definition to their activities when they clearly are not. The ramifications of this can be pretty damaging as many businesses in the belief that they are exporters have taken that classification and applied it in order to determine their VAT status.

So what happens when the maths do not add up?

We at the VAT Practice can provide businesses with the immediate assistance they need to redress matters. Where problems are identified then provide a solution that provides for the best result and minimises any cost to the business in correcting matters. Also we can assist the business in putting the VAT reporting and compliance systems in place that get the VAT liability right and provide for better security and minimise the potential for ongoing risk.
For those involved in distance sales there is a need to constantly monitor sales in order to determine whether other jurisdiction VAT registrations are required and, then manage these other jurisdiction VAT registrations for future sales. We can assist here from the provision of tailored support tools for monitoring sales per territory to the cost efficient management of that VAT registration.
For more information on this or to discuss a particular concern then please contact Nick at the VAT Practice on 0238838181 or advice@thevatpractice.ie.

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Comments:

  1. PaddyO'Hara says:

    Nick

    Excellent publication and article on Vat on exports.

    Best Regards

    Paddy O’Hara

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