One of the most frequently used EC simplifications, Onward Supply Relief (OSR) allows an importer to ‘land’ goods in one member state without the requirement to pay import VAT where the supplier intends to ship the goods on to a taxable person in another EC member state.
There are some rather particular rules when it comes to the application of OSR and because HMRC does not regularly scrutinise OSR entries anybody using the procedure incorrectly is often oblivious to the risks.
BMW Shipping Agents Ltd (BMW) was one such unfortunate party. BMW a UK freight forwarder had a contract with an individual consignee who was the director of 2 German companies. BMW had agreed to manage its client’s EU imports. Goods arrived in the UK for onward shipment to businesses in other member states. BMW cleared the goods against its own VAT/EORI number signifying that, as importer, it was liable for any Customs debt. It then used OSR to claim import VAT relief.
HMRC later decided that BMW was not able to use OSR because it was not the party which was making the onward supply. HMRC then issued a post clearance demand for the import VAT. The double whammy, was the fact suggested within the judgment that BMW would not even be permitted to reclaim the import VAT on its VAT return because the goods did not really belong to them.
The Tribunal Judge admitted that he did not enjoy reaching such a conclusion but it serves as a cautionary tale for UK suppliers shipping on DDP incoterms at the behest of their EC customers. DDP incoterms generally means the shipper handles all import and VAT compliance formalities.
Anybody continuing to rely on OSR to streamline import entries would be advised to check the finer details to ensure they are not carrying any unforeseen risks.
NB: This article refers to rules in force whilst the UK was still a member of the EU. The rules continue to apply to imports into Northern Ireland and may also affect UK businesses shipping on DDP terms within the EU.
