© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
M10. Non-established person refunds
Non-established persons entitled to refund on goods/services used for certain purposes
"All taxable persons who, within the meaning of Article 1 of Directive 86/560/EEC, Article 2(1) and Article 3 of Directive 2008/9/EC and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT insofar as the goods and services are used for the purposes of the following:
(a) transactions referred to in Article 169;
(b) transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199." (PVD Article 170)
"(1) The Commissioners may, by means of a scheme embodied in regulations, provide for the repayment, to persons carrying on business wholly outside the United Kingdom, of VAT which would be input tax of theirs if they were taxable persons in the United Kingdom." (VATA s.39)
RIGHT TO REFUND
- Counterpart of right to deduct in member state of establishment
"[36] Consequently, the right of a taxable person established in a Member State to obtain the refund of VAT paid in another Member State, in the manner governed by Directive 2008/9, is the counterpart of such a person’s right established by Directive 2006/112 to deduct input VAT in his own Member State (see, to that effect, judgment of 25 October 2012, Daimler and Widex, C‑318/11 and C‑319/11, EU:C:2012:666, paragraph 41 and the case-law cited)." (Volkswagen AG C-533/16)
- Refund mechanism is for input VAT incurred on supplies intended to be used for transactions outside the Member State where it is incurred
"This Part applies to any supply of goods or services made in the United Kingdom or to any importation of goods into the United Kingdom on or after 1st July 1994 but does not apply to any supply or importation which—
(a)the trader has used or intends to use for the purpose of any supply by him in the United Kingdom..." (SI 1995/2518, r.189)
Contrast Article 168 (inputs used for purpose of taxed transaction carried out in the Member State where input incurred)
"In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State." (PVD Article 168)
And Article 169 (inter alia, inputs used for transactions outside the Member State but which would have been taxable if carried on inside)
"In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:
(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;
(b) transactions which are exempt pursuant to Articles 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;
(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community." (PVD Article 169)
- Refund Directives do not apply to incorrectly invoiced VAT/VAT invoiced on exported supplies
"This Directive shall not apply to:
(a) amounts of VAT which, according to the legislation of the Member State of refund, have been incorrectly invoiced;
(b) amounts of VAT which have been invoiced in respect of supplies of goods the supply of which is, or may be, exempt under Article 138 or Article 146(1)(b) of Directive 2006/112/EC." (Directive 2008/09, Article 1)
"Directive 86/560/EEC shall not apply to:
(a) amounts of VAT which according to the legislation of the Member State of refund have been incorrectly invoiced;
(b) invoiced amounts of VAT in respect of supplies of goods the supply of which is, or may be, exempt pursuant to Article 138 or Article 146(1)(b)." (PVD, Article 171(3))
UK law
"This Part applies to any supply of goods or services made in the United Kingdom or to any importation of goods into the United Kingdom on or after 1st July 1994 but does not apply to any supply or importation which—
[...]
(b) has been exported or is intended for exportation from the United Kingdom by or on behalf of the trader." (SI 1995/2518, r.189)
Query whether right to deduct still available, if of any use.
Mechanism
- Established in another Member State (use Directive 2008/9)
"(1) VAT shall be refunded to taxable persons who are not established in the Member State in which they purchase goods and services or import goods subject to VAT but who are established in another Member State, in accordance with the detailed rules laid down in Directive 2008/9/EC." (PVD, Article 171)
"This Directive lays down the detailed rules for the refund of value added tax (VAT), provided for in Article 170 of Directive 2006/112/EC, to taxable persons not established in the Member State of refund, who meet the conditions laid down in Article 3." (Directive 2008/09, Article 1)
- Not established in the EU (use Directive 86/850)
"(2) VAT shall be refunded to taxable persons who are not established within the territory of the Community in accordance with the detailed implementing rules laid down in Directive 86/560/EEC.
The taxable persons referred to in Article 1 of Directive 86/560/EEC shall also, for the purposes of applying that Directive, be regarded as taxable persons who are not established in the Community where, in the Member State in which they purchase goods and services or import goods subject to VAT, they have only carried out the supply of goods or services to a person designated in accordance with Articles 194 to 197 or Article 199 as liable for payment of VAT." (PVD, Article 171)
Permission to exclude refund for reverse charge supplies (credit only)
- Member State may instead allow deduction pursuant to Article 168
"Member States may, instead of granting a refund of VAT pursuant to Directives 86/560/EEC or 2008/9/EC on those supplies of goods or services to a taxable person in respect of which the taxable person is liable to pay the tax in accordance with Articles 194 to 197 or Article 199, allow deduction of this tax pursuant to the procedure laid down in Article 168. The existing restrictions pursuant to Article 2(2) and Article 4(2) of Directive 86/560/EEC may be retained.
To that end, Member States may exclude the taxable person who is liable to pay the tax from the refund procedure pursuant to Directives 86/560/EEC or 2008/9/EC." (PVD Article 171a)
CLAIMANT ESTABLISHED IN ANOTHER MEMBER STATE
Persons who may be entitled to refund
- (1) No establishment/residence + (2) not supplied/deemed to have supplied any goods in MS of refund
"This Directive shall apply to any taxable person not established in the Member State of refund who meets the following conditions:
(a) during the refund period, he has not had in the Member State of refund, the seat of his economic activity, or a fixed establishment from which business transactions were effected, or, if no such seat or fixed establishment existed, his domicile or normal place of residence;
(b) during the refund period, he has not supplied any goods or services deemed to have been supplied in the Member State of refund, with the exception of the following transactions:
(i) the supply of transport services and services ancillary thereto, exempted pursuant to Articles 144, 146, 148, 149, 151, 153, 159 or 160 of Directive 2006/112/EC;
(ii) the supply of goods and services to a person who is liable for payment of VAT in accordance with Articles 194 to 197 and Article 199 of Directive 2006/112/EC." (Directive 2008/9, Article 3)
- (3) Must carry out transactions giving rise to right to deduct in Member State of establishment
"To be eligible for a refund in the Member State of refund, a taxable person not established in the Member State of refund has to carry out transactions giving rise to a right of deduction in the Member State of establishment..." (Directive 2008/9, Article 3)
Scope of right to refund
- Conditions for + extent of right to refund determined under PVD
"[35] Nevertheless, it is not the purpose of Directive 2008/9 to define the conditions for exercising the right to a refund, nor the extent of that right. The second subparagraph of Article 5 of Directive 2008/9 provides that, without prejudice to Article 6, and for the purposes of that directive, entitlement to a refund of VAT which is paid as an input tax is to be determined pursuant to Directive 2006/112 as applied in the Member State of refund." (Volkswagen AG C-533/16)
- Obligation to refund VAT charged in that member state on inputs to be used for transactions within Art 169(a), (b) etc.
"Each Member State shall refund to any taxable person not established in the Member State of refund any VAT charged in respect of goods or services supplied to him by other taxable persons in that Member State or in respect of the importation of goods into that Member State, insofar as such goods and services are used for the purposes of the following transactions:
(a) transactions referred to in Article 169(a) and (b) of Directive 2006/112/EC;
(b) transactions to a person who is liable for payment of VAT in accordance with Articles 194 to 197 and Article 199 of Directive 2006/112/EC as applied in the Member State of refund.
Without prejudice to Article 6, for the purposes of this Directive, entitlement to an input tax refund shall be determined pursuant to Directive 2006/112/EC as applied in the Member State of refund." (Directive 2008/9, Article 5)
‘In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:
(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;
(b) transactions which are exempt pursuant to Articles 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;
(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community.’" (PVD Article 169)
- Obligation does not apply used for purpose of transactions within Article 169(1)(c) (certain exempt transactions giving rise input recovery)
"[45] Furthermore, Article 5 of Directive 2008/9, which replaced the Eighth Directive, refers, like Article 2 of the Eighth Directive, to Article 169 ‘(a) and (b)’ of the VAT Directive. Therefore, the Commission’s argument implies, first, that the legislature of the European Union committed an error when it adopted the Eighth Directive, which was reproduced in the Thirteenth Directive and, second, that the legislature committed the same error when it adopted Directive 2008/9.
[46] As regards the alleged error and the Commission’s argument that its reading of the relevant provision is also consistent with the logic of the common system of VAT, it must be observed that, even assuming the Commission’s submissions are correct, it is not for the Court, as the Advocate General observed in point 65 of his Opinion, to make such an interpretation with the aim of correcting Article 2(1) of the Thirteenth Directive." (Commission v. UK C-582/08)
- Claimant carries out both transactions with and without right to deduct in MS of establishment: proportional refund
"When a taxable person not established in the Member State of refund carries out in the Member State in which he is established both transactions giving rise to a right of deduction and transactions not giving rise to a right of deduction in that Member State, only such proportion of the VAT which is refundable in accordance with Article 5 may be refunded by the Member State of refund as is attributable to the former transactions in accordance with Article 173 of Directive 2006/112/EC as applied by the Member State of establishment." (Directive 2008/9, Article 3)
UK right to repayment
Subject to the other provisions of this Part a trader shall be entitled to be repaid VAT charged on goods imported by him into the United Kingdom in respect of which no other relief is available or on supplies made to him in the United Kingdom if that VAT would be [F4, or would be treated as,] input tax of his were he a taxable person in the United Kingdom." (SI 1995/2518, r.186)
- Trader: established outside UK + not registered/liable to be registered in the UK
"“trader” means a person carrying on a business who is established outside the United Kingdom and who is not a taxable person in the United Kingdom." (SI 1995/2518, r.185(2))
If registered/liable to be registered: normal right to deduct
"(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.
(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business—
(a) taxable supplies;
(b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;
(c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection." (VATA s.26)
Procedure
- Meaning of established
"(2) For the purposes of this Part, a person is treated as being established in a country if—
(a)he has there a business establishment, or
(b)he has no such establishment (there or elsewhere) but his permanent address or usual place of residence is there.
(3) For the purposes of this Part—
(a)a person carrying on business through a branch or agency in any country is treated as being established there, and
(b)where the person is a body corporate its usual place of residence shall be the place where it is legally constituted." (SI 1995/2518, r.185(2))
- Submit electronic refund application via Member State of establishment
"To obtain a refund of VAT in the Member State of refund, the taxable person not established in the Member State of refund shall address an electronic refund application to that Member State and submit it to the Member State in which he is established via the electronic portal set up by that Member State." (Directive 2008/9, Article 7)
Detail of the refund application: see Article 8, 9.
- Member State of establishment to vet the application before forwarding it
"(1) The Member State of establishment shall not forward the application to the Member State of refund where, during the refund period, any of the following circumstances apply to the applicant in the Member State of establishment:
(a) he is not a taxable person for VAT purposes;
(b) he carries out only supplies of goods or of services which are exempt without deductibility of the VAT paid at the preceding stage pursuant to Articles 132, 135, 136, 371, Articles 374 to 377, Article 378(2)(a), Article 379(2) or Articles 380 to 390 of Directive 2006/112/EC or provisions providing for identical exemptions contained in the 2005 Act of Accession;
(c) he is covered by the exemption for small enterprises provided for in Articles 284, 285, 286 and 287 of Directive 2006/112/EC;
(d) he is covered by the common flat-rate scheme for farmers provided for in Articles 296 to 305 of Directive 2006/112/EC.
(2) The Member State of establishment shall notify the applicant by electronic means of the decision it has taken pursuant to paragraph 1." (Directive 2008/9, Article 18)
- Must communicate grounds for decision and provide appeal
"(1) Where the refund application is refused in whole or in part, the grounds for refusal shall be notified by the Member State of refund to the applicant together with the decision.
(2) Appeals against decisions to refuse a refund application may be made by the applicant to the competent authorities of the Member State of refund in the forms and within the time limits laid down for appeals in the case of refund applications from persons who are established in that Member State.
If, under the law of the Member State of refund, failure to take a decision on a refund application within the time limits specified in this Directive is not regarded either as approval or as refusal, any administrative or judicial procedures which are available in that situation to taxable persons established in that Member State shall be equally available to the applicant. If no such procedures are available, failure to take a decision on a refund application within these time limits shall mean that the application is deemed to be rejected." (Directive 2008/9, Article 23)
"[61] It follows that, where an application for a VAT refund submitted by a taxable person established in a Member State other than the Member State of refund is the subject of such a discontinuation decision, on the one hand, the grounds for discontinuation must be notified to the taxable person together with that decision, in accordance with Article 23(1) of Directive 2008/9, and, on the other hand, appeals against that decision must be made to the competent authorities of the Member State of refund, in accordance with the first subparagraph of Article 23(2) of that directive.
[62] In any event, in such appeals, the taxable person must have the right to produce the additional information that he or she did not provide within the one-month period laid down in Article 20(2) of Directive 2008/9, as follows from paragraphs 48 and 49 of this judgment." (Slovenské Energetické Strojárne C-746/22)
ESTABLISHED OUTSIDE THE EU