UK participating in cross-border VAT dispute resolution pilot

The pilot began in June and runs until the end of the year, and is open to businesses trading between two or more of the participating member states. It will allow tax authorities in the member state where the business making the request for a ruling is registered for VAT purposes to consult, and share information with, tax authorities in the member state where the trade is taking place where this is explicitly requested.

However, in a note on its website, HM Revenue and Customs (HMRC) said that there was "no guarantee" that tax authorities in different member states would be able to agree on the correct VAT treatment of the situation envisaged if a request for a ruling was made.

VAT expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said that the pilot would be of interest to businesses engaged in cross-border trade since it was generally fairly difficult for them to resolve VAT disputes.

"Even though VAT across the EU is governed by the Directive, interpretations between member states may be subject to significant variance," he said. "This has, on numerous occasions, led to instances of double or no taxation; especially as member states adjust to the changing legislative background at EU level via the VAT package measures."

"Opportunities to resolve such anomalies via tax authority action have, until now, been limited as VAT is not covered by tax treaty networks and the mutual agreement procedure in place for corporation tax, so it will be interesting to study the outcomes of this pilot exercise – although six months appears to be a relatively short assessment period," he said.

According to an information notice on the scheme (3-page / 114KB PDF) published by the European Commission, companies requesting a cross-border ruling should do so in the member state where they are registered for VAT purposes. If two or more companies are involved, the request should only be introduced by one of them and be accompanied by a translation into one of the languages accepted by the other member state or states concerned.

Requests should be introduced in line with the conditions governing national VAT rulings in the member state concerned, which in the UK consists of a 'non-statutory clearance' from HMRC. A clearance is written confirmation of HMRC's view of how tax law will be applied to a specific transaction or event, and is available to taxpayers who are uncertain about how legislation will affect transactions that they are involved with.

As well as the UK, the pilot involves Belgium, Estonia, France, Cyprus, Lithuania, Latvia, Malta, Hungary, the Netherlands, Portugal, Slovenia and Spain.