The Brexit effects on the VAT treatment of transactions with UK operators

published on 24 March 2021 | reading time approx. 3 minutes

On 1 January 2021, the United Kingdom became a fully-fledged non-EU state.

This event has brought unavoidable effects on the VAT treatment of transactions with UK operators.

Starting from FY 2021, UK has become for EU countries a 'third country' for VAT purposes.

First of all, sales and purchases of B2B goods between Italy and the United Kingdom are no longer intra-Community transactions. In fact, these transactions are now considered as export sales (for goods shipped from Italy to the United Kingdom) and import sales (when goods coming from the United Kingdom are brought into Italy). These transactions therefore require the fulfilment of customs formalities.

B2B sales and purchases of goods are not the only transactions affected by the Brexit for VAT treatment purposes. Indeed, it should also consider that from 1 January 2021:

the transfer of mobile goods from/to the UK to/from another EU Country for processing or expertise is no longer facilitated under the provisions of DL 331/93. Therefore, customs institutions (e.g. inward and outward processing, temporary importation) must be used;
remote sales to consumers are subject to VAT at the time of importation by the final consumer;
the territorial relevance of the provision of services is assessed according to Articles 7 et seq. of Presidential Decree 633/72, which provide that the counterparty must be established in a non-EU country.

The above-mentioned VAT treatment changes bring also some news regarding the identification, documentary and reporting obligations of transactions with UK traders. In particular:

VIES registration is no longer required for transactions with a UK-based entity;
EORI code acquisition is needed to carry out customs formalities;
for general supplies of services, evidence of the UK-based customer's VAT-taxable status must be provided through means other than verification in the VIES database;
evidence that the goods have been sent to the UK is provided by customs documentation;
B2B supplies of goods and services to traders established in the United Kingdom must be excluded from the INTRASTAT models.

As regards VAT rights and duties, on 24 December 2020, an agreement was entered into between the United Kingdom and the European Union.

Resolution No. 7/2021 of the Italian Revenue Agency, analysing the aforementioned agreement, considered that entities established in the United Kingdom may continue to benefit from the institution of direct identification in order to fulfil their VAT obligations and exercise their rights in Italy. Consequently, also after the 31 December 2020, UK VAT taxable entities may choose between identifying themselves directly according to Article 35-ter of Presidential Decree 633/72 and the appointment of a fiscal representative according to Article 17 paragraph 3 of Presidential Decree 633/72.

The Italian Tax Authority has also explained that UK entities, identified for VAT purposes in Italy prior to 1 January 2021, may continue to use their VAT position in Italy without interruption. As regards UK traders that, in the uncertainty, have appointed a fiscal representative, they can consider whether to keep the fiscal representative at least until the end of the year 2021 or to switch to direct identification.

Finally, the agreement signed between the United Kingdom and the European Union provides for special treatment for Northern Ireland. In fact, Northern Ireland remains subject to EU law for the supply of goods, while it is considered a non-EU country for the provision of services.