VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation

06 September 2021

On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC [2021] UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).

Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.

The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).

The Facts

Scanwell acted as an ‘import agent’ in relation to the import of goods from China into the UK (which at the time was still an EU member state) and their onward transport to end customers in other EU countries.

On importing the goods into the UK, Scanwell claimed exemption from import VAT under the OSR provisions. HMRC, however, considered that the relief was not available to Scanwell and subsequently assessed Scanwell to import VAT. Scanwell appealed the assessment to the FTT.

The Law

Where goods are imported into the UK, import VAT is typically charged under section 1 of VATA.

At the relevant time, OSR provided a relief from import VAT where the goods imported into the UK were subsequently re-despatched to a VAT-registered entity in another EU country, generally within one month of importation.

Scanwell accepted that it had never acquired title to the goods from the Chinese suppliers. Instead, it argued that, since it acted as agent for the end customers in the EU, it fell to be treated as part of the supply chain under section 47 VATA, so as to meet the requirements for OSR.

The FTT’s decision

After careful consideration of the legislative provisions, the FTT (Judge Hellier) concluded:

  1. In order to qualify for OSR Scanwell had to make, or be deemed to make, supplies of goods;
  2. A supply of goods required the transfer of title in goods. Scanwell did not make any actual supply of goods;
  3. Scanwell could potentially be deemed to make a supply by section 47;
  4. Scanwell’s activities did not fall within section 47(1), therefore they could potentially fall within section 47(2A);
  5. Scanwell’s activities did not fall within section 47(2A) because it did not bring about the supply of goods and did not act in its own name in relation to any supply;
  6. As a result Scanwell was not entitled to OSR.

Section 47(2A) VATA

Whilst the FTT considered various provisions within section 47 VATA, its main focus was on section 47(2A), notably rejecting HMRC’s contention that it was limited to purely domestic transactions.

Section 47(2A) provides that “where… goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent”.

The FTT decided that this did not apply on the facts, as Scanwell was neither (i) an agent through which goods were supplied nor (ii) did it act in its own name for the purposes of the provision. Specifically, it held:

  1. A person is an agent through which goods are supplied “only if he has authority to give rise to a transfer of title to goods to his principal or to cause title to his principal’s goods to be transferred to another”. It was not sufficient that Scanwell be an agent in the sense of having authority to receive and take custody of the goods as they arrived in the UK.

    Whilst the agreements with the end customers appointing Scanwell as an ‘import agent’ clearly envisaged and intended that Scanwell would be able to claim OSR (and might therefore be construed as granting it the necessary authority), there was nothing in the tasks assumed by Scanwell under those agreements which involved it actually making, or using its authority to give rise to, a transfer of title;
     
  2. For an agent to be acting in its own name, its actions “must create a legal relationship between [it] and the third party” (i.e. give rise to rights and obligations), specifically in relation to the transfer of ownership in the goods. The condition is not met where the agent’s actions in its own name are limited to collateral matters, such as haulage, customs clearance and inspection.

    Scanwell had no contact with the third-party Chinese suppliers and there was no evidence of any agreement with them under which Scanwell had acted. Whilst Scanwell did receive invoices from the Chinese suppliers (albeit addressed to it as agent), the terms of the agency agreements with the end customers made it clear that Scanwell was not required to pay these, making any obligation under them nugatory.

The FTT dismissed Scanwell’s concern that the denial of OSR would lead to double taxation on the supply to the end customers: import tax in the UK and tax again in the destination member state. This was because there existed an alternative procedure by which the goods could have been transported which would have avoided double taxation, but which had not been used. There was therefore no need to construe the legislation in the appeal any differently. 

The full text of the FTT’s decision is available here.

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