VAT refund to UK non-established companies for a no deal Brexit scenario

The European Union and local tax administrations have been active into informing companies about the implications of such a no deal scenario.

Uncertainty is the word two weeks before the contemplated deadline for the UK leaving the European Union. It must be remembered that since 1st November 2019, the date when the UK's exit will finally take effect, it will become a "third country”, with two possible scenarios:

- Acceptance of the conditions contemplated in the withdrawal agreement reached by both parties the 14th November 2017 would imply a transition period which will last until 31 December 2020 during which EU legislation will apply in the United Kingdom in terms of the internal market, customs union, and EU policies.

- If such were not the case (no deal), on the exit date the United Kingdom would move straight to the status of third country, without any special privileges.

The European Union (see its site about the withdrawal of the United Kingdom from the EU) and local tax administrations have been active into informing companies about the implications of such a no deal scenario. For the case of Spain the Spanish Tax Management State Agency (AEAT) has published a special site dedicated to the consequences of the Brexit and launched a Brexit mail address where specific questions on this matter can be filed. Also in Spain, Royal Law-Decree 5/2019, of 1 of March, published at the Official Gazette of 2 March, contains specific legal measures for an eventual no deal Brexit scenario.

From our side, we would like to point out the lack of any reference to a VAT issue of much practical significance for the case of a no deal Brexit, as it is the reimbursement of the VAT quotas that British companies not established in Spain may incur in our country since 1st November 2019 which are nor recovered through the special procedure for non-established EU companies regulated by Council Directive 2008/9/EC of 12 February 2008.

Given the status as “third country” of the UK under such an scenario, any Spanish input VAT incurred by a British company that operates in the Spanish VAT territory without been established, unless obliged to file periodical VAT returns because of its operative, would have to be recovered through the special procedure of the Thirteenth Council Directive of 17 November 1986 (86/560/EEC) instead of the mentioned Council Directive 2008/9/EC, by filing electronically the corresponding quarterly/yearly applications (Form 361) at the website of the Spanish Tax Agency:

This means that new special requirements would have to be complied with, namely:

- The appointment of a Spanish tax resident representative that files the application on behalf of the UK non- resident company is required (the same would be jointly responsible in the case of undue refunds), and

- Most important, the fact that UK reaches a reciprocity agreement with Spain¹ (now reciprocal agreements only exist with Canada, Hungary, Israel, Japan, Monaco, Norway, Slovenia and Switzerland, each of which with their own specialities).

Given the importance of this matter, affecting the recovery of input VAT incurred in the other country by non-resident companies from both sides, it is to be assumed that, if required, such an issue is to be taken care by the Spanish and British administrations before the 30th September 2020, dead-line for the filing of the fourth quarter/yearly return for 2019 of mentioned Form 361.

¹ Since 1 January 2015 reciprocity is not required for the reimbursement of:
• VAT incurred in the purchase or import of templates and moulds to be use in the fabrication of goods in Spain which will be subsequently exported; and
• VAT incurred as a result of accommodation, restaurants and transportation expenses on the occasion of the attendance to a fair, congress or exposition of a commercial or professional nature that is celebrated in the Spanish VAT territory.