Challenge to Onward Supply Relief (OSR)

09 January 2014

Challenge to Onward Supply Relief (OSR)

VAT registered businesses that receive goods from outside the EU in the course of an onward supply by them to a VAT registered customer in another Member State can obtain relief from the payment of import VAT. Customs duty must still be paid on import. Most importers would have been able to recover the import VAT through their VAT return using the C79 as proof of payment and so OSR really provides a cash-flow benefit.

OSR is commonly used for standard imports and imports through customs warehousing.

Full details of this relief can be found in HM Notice 702/7.

It is important to note that a VAT registered importer acting as agent in an onward supply must be acting in his own name in relation to that supply. This point was tested in the recent tribunal case of Franck & Tobiesen (UK) Limited TC03032.

In this case Franck arranged the transportation of construction and agricultural machinery, which it undertook on behalf of others on an international level. Franck claimed onward supply relief (OSR) in relation to the importation of machinery from America and its onward transportation to the Republic of Ireland. HMRC decided that OSR was not available to Franck as an agent and issued post clearance demands against which Franck appealed.

The tribunal concluded that Franck was not entitled to the exemption under SI 1995/2518, Regulation 123 as it was not a person making a supply. There was no transfer of the right to dispose of the goods as owner as, by its own admission, Franck never acquired (and consequently could not transfer) that right. The tribunal found that in implementing Directive 2006/112/EC, Articles 138, 143, the UK OSR regime imposed conditions which fell within the latitude given to Member States by Article 131. The UK conditions did not subvert the principle and objectives of the Directive and they were not disproportionate. Franck’s appeals were dismissed.

Public Warehouse keepers should take particular care where they are holding stock for non EU registered businesses for supply to their EU VAT registered customers. We are aware that OSR is often set up in duty management systems to capture all dispatches from warehouse to other member States. If you have any queries on this then please contact us.

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