From 1 April 2011, liability for paying VAT will pass to the recipient of VAT-able supplies of goods or services in certain circumstances.
Liability will arise automatically where the supplier has not paid the VAT and:
- the recipient is (or ought to be, in the tax administrator's opinion) aware that (a) VAT will deliberately not be paid, (b) the supplier has put himself in a position where he is unable to pay VAT, or (c) VAT will be cut or a tax advantage will be sought, or:
- in the tax administrator's opinion, an obviously unusual form of consideration has been agreed without any economic justification.
This means that buyers of property, assets, goods and services as well as tenants of shops, offices, land and buildings may face:
- having to pay VAT on top of their existing liability (on a temporary or permanent basis, depending on whether they are able to recover the VAT from the supplier)
- incurring the expense and administrative burden of having to settle their liability with the tax administrator, and then recover the VAT from the supplier.
The way for recipients to stop their liability increasing is to pay the VAT directly to the tax administrator. This logically has to be reflected in contractual documents (such as those dealing with the manner of fulfilment and maturity, or needed to obtain information from the supplier or prevent a potential VAT overpayment).
Law: Directive 2006/112/EC
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 04/04/2011.
