TC09676 - [2025] UKFTT 01278 (TC)

All of the authorities mentioned above relate to supplies of goods or services and not to VAT charged on the importation of goods. Very often, of course, the import of goods may be linked to a purchase (and therefore a supply) of goods. In those circumstances, there is unlikely to be any problem in deducting the import VAT as the necessary link between the import and an output supply will be clear.

However, in cases such as the present, where the importer is not the owner of the goods, the link is less clear, as, although the import VAT is generally calculated on the market value of the goods imported (see Article 74 of EU Regulation 952/2013 of 9 October 2013 (Union Customs Code or UCC) and Part 12 of the Customs (Import Duty) (EU Exit) Regulations 2018/1248 – in particular regulations 108, 120 and 121), the taxable person does not incur any cost equivalent to the market value of the goods imported and so there cannot be a direct economic link between the value of the goods imported and any output transaction. It is for this reason that Mr Sykes submits that the direct economic link is present where the taxable person bears the cost of importation.

There are relatively few cases where this issue has been considered but there are two decisions of the CJEU which are relevant as well as two decisions of this Tribunal.

In Skatteministeriet v DSV Road A/S (Case C-187/1) the taxpayer was a Danish transport company transporting goods from Denmark to Sweden. As a result of breaches of the relevant customs procedures, DSV became liable to import VAT in Denmark.

One of the questions referred to the CJEU was whether the Danish authorities could refuse “a deduction of the import VAT pursuant to Article 168(e) of the VAT Directive, where the import VAT is charged to a carrier of the goods in question who is not the importer and owner of the goods but has simply transported and been in charge of the customs dispatch of the consignment as part of its freight forwarding operations, which are subject to VAT?”

The CJEU stated at [49] the general principle as follows:

“…under the wording of Article 168(e) of the VAT Directive, a right to deduct exists only insofar as the goods imported are used for the purposes of the taxed transactions of a taxable person. In accordance with the settled case law of the Court concerning the right to deduct VAT on the acquisition of goods or services, that condition is satisfied only where the cost of the input services is incorporated either in the cost of particular output transactions or in the cost of goods or services supplied by the taxable person as part of his economic activities (see judgments in SKF, C-29/08, EU:C:2009:665, paragraph 60, and Eon Aset Menidjmunt, C-118/11, EU:C:2012:97, paragraph 48).”

Applying this principle to the facts, its conclusion at [50] was that:

“Since the value of the goods transported does not form part of the costs making up the prices invoiced by a transporter whose activity is limited to transporting those goods for consideration, the conditions for application of Article 168(e) of the VAT Directive are not satisfied in the present case.”

As can be seen, the reason the CJEU considered that the import VAT could not be deducted was that the value of the goods (on which the import VAT was calculated) did not form part of the costs invoiced by DSV for the transport of the goods.

The answer to the specific question referred to the CJEU is set out at [51] as follows:

“It follows from all the foregoing considerations that the answer to the fourth question is that Article 168(e) of the VAT Directive must be interpreted as not precluding national legislation which excludes the deduction of VAT on import which the carrier, who is neither the importer nor the owner of the goods in question and has merely carried out the transport and customs formalities as part of its activity as a transporter of freight subject to VAT, is required to pay.”

As Mr Sykes points out, this simply says that a taxpayer who is neither the importer nor the owner of the goods but who just carries out the transport and customs formalities cannot deduct any import VAT for which they become liable. Mr Sykes submits that this is entirely consistent with TSI’s position as, unlike DSV, it is the importer of the goods. He also notes that DSV’s activity was limited to transporting the goods and so did not, in any meaningful sense, “use” the goods.

The decision in DSV was considered by the CJEU in Finančné riaditeľstvo Slovenskej republiky v Weindel Logistik Service SR spol. s r.o., (Case C-621/19). The judgment in that case is only available in French and Slovak. I was provided with a number of different translations. I have relied on the translation from French provided by TSI although, in my view, nothing turns on the wording of the different translations.

Weindel provided repackaging services. It imported goods from Switzerland, Hong Kong and China into Slovakia, paying the import VAT. Weindel’s customer was a Swiss company which remained the owner of the goods throughout the period in question. The invoices issued by Weindel therefore related only to the repackaging services, not to the imported goods. Once the goods had been repackaged they were then delivered to other EU member states or exported to third countries on the instructions of the owner. As in this case, the issue was whether Weindel could obtain a deduction for the import VAT it had paid.

Three questions were referred to the CJEU by the Court in Slovakia. In summary, these were as follows:

The CJEU dealt with the first and second questions, but did not expressly deal with the third question, although it appears that the Court did, to some extent, take into account the third question as it framed the first and second questions at [39] as follows:

“…the referring Court is essentially asking whether Article 168(e) of Directive 2006/112 must be interpreted as excluding the right to deduct VAT for an importer who neither has the goods at their disposal as an owner would, nor uses them for the purposes of their taxable transactions, particularly where the cost of those goods has no direct and immediate link to the importer’s economic activity.” (my emphasis)

The CJEU in Weindel explained at [45] the principles to be applied by reference to the decision of the Court in DSV (at [49]) confirming that “the right to deduct VAT exists only to the extent that the imported goods are used for the taxable person’s taxable transactions” and that “this condition is met only when the cost of the input services is reflected in the price of the specific output transactions”.

It went on to note at [46] that the result in DSV was that the import VAT could not be deducted as “the value of the goods transported does not form part of the costs included in the prices charged by the carrier”, observing that the Court in DSV “clarified that persons who import goods without owning them are not entitled to deduct VAT unless they can demonstrate that the cost of importing them is incorporated into the price of specific output transactions”.

At [47], the CJEU in Weindel then referred to the guidance provided by the EU VAT committee on 19 October 2011 that a taxable person may not deduct import VAT if both of the following conditions are met:

Taking into account the decision in DSV and the guidance of the VAT committee, the CJEU concluded at [49]:

“…that Article 168(e) of Directive 2006/112 must be interpreted as precluding the right to deduct VAT for an importer who neither has possession of the goods as an owner nor incurs input import costs that are incorporated into the price of specific output transactions or into the price of goods and services supplied in the course of their economic activities.”

As Mr Sykes notes, the conclusion of the CJEU in Weindel is that, where the taxable person is not the owner of the goods, the right to deduct the import VAT depends upon whether the “input import costs” are incorporated into the price of a specific output transaction. It does not refer in the conclusion (as the Court had in DSV) to “the value of the goods” or, (as the VAT Committee did in its guidance) to “the cost of the goods”.

Earlier in its decision in Weindel, the CJEU had observed at [44] that:

“In its decision, the referring Court highlights that Weindel acts solely as a service provider, without having acquired the imported goods or incurred the import costs, which suggests that, in the main proceedings, there is no connection between the VAT paid on the import and the price of the services provided by Weindel. It will therefore be for the national Court to verify whether that is the case in the present instance.”

Again, this refers to “import costs” rather than the cost of value of the goods imported. Mr Sykes submits that the CJEU must be taken to be aware of the difference between the costs of import and the cost (or value) of the goods and that it must therefore be taken as drawing a deliberate distinction between the two and should be assumed to be developing the CJEU’s case law (which the CJEU is entitled to do - see the opinion of the Advocate General in Da Costa en Schaake N.V., Jacob Meijer N.V. and Hoechst-Holland N.V. v Nederlandse Belastingadministratie (Joined Cases 28, 29 and 30/62)) by finding that the necessary link exists where the importer incurs the import costs.

Mr Sykes goes on to submit that the reference in Weindel to the import costs being reflected in the price of the relevant output transactions is not a literal test but instead requires a consideration of whether the import was for the benefit of Weindel so that a direct and immediate link to those outputs can be established. He notes that, where expenditure is not made in the taxable person’s own interest and there is a benefit to a third party, the input VAT will not be deductible (see Vos Aannemingen BVBA v Belgium (Case C-405/19) [2020] STC 2288 at [30] and [33]).

Based on this, Mr Sykes suggests that the reason the CJEU in Weindel referred the matter back to the national Court was to determine whether the import of the goods was for the benefit of Weindel or whether it was for the benefit of Weindel’s Swiss customer as it provided a method for the Swiss customer to import the goods into the EU for onward distribution.

I do not accept these submissions. Taking the second point first, there is no suggestion in the judgment of the CJEU in Weindel that the Court had in mind the question as to whether the import of the goods was for the benefit of Weindel or, instead, for its customer.

This point is not mentioned in the questions referred to the CJEU and there is therefore no reason to suppose that, in referring the matter back to the national Court, there was any expectation that this issue would be addressed.

The question for the national Court (explained at [44]) was whether there was any connection between the VAT paid on the import and the price of the services provided by Weindel. Whilst this could involve a consideration of who really benefitted from the input transaction, it is clear from the references earlier in that paragraph to Weindel not having acquired the goods and not having incurred import costs that this was not the focus of the CJEU.

As far as the reference by the CJEU to “import costs” is concerned, whilst I accept that the judges of the CJEU must be assumed to understand the difference between the cost of physically importing goods and the cost or value of the goods themselves, the reference to “import costs” must in my view be considered in context.

As Mr Holt points out on behalf of HMRC, the CJEU in Weindel decided to deal with the referral by way of a “reasoned order”. As the CJEU explains at [37], this is provided for by Article 99 of the rules of procedure of the Court and is possible where “a question referred to the Court for preliminary ruling is identical to a question on which the Court has already ruled, where the reply to such a question may be clearly deduced from existing case law, or where the answer to the question referred for a preliminary ruling admits of no reasonable doubt”.

It is clear from the reasoning of the CJEU that it considered that these conditions were satisfied based on the previous decision in DSV and the guidance given by the VAT Council which, as I have said, refer respectively to the “value of the goods” and the “cost of the goods” and not to the costs of import. In these circumstances, the references made by the CJEU to “import costs” must be taken to be a reference to the cost or value of the goods which are being imported and not (for example) to the costs of physically transporting the goods to their destination or in dealing with the relevant customs formalities.

Had the CJEU in Weindel wanted to develop the law in the way suggested by Mr Sykes by deciding that the relevant link could be established if the taxable person had incurred importation costs which were reflected in the price of specific output transactions rather than the cost or value of the goods themselves being reflected in those transactions, it is surprising that the CJEU did not explain that it was taking a somewhat different view to the Court in DSV and the guidance provided by the VAT Council and it is very hard to understand how the CJEU in Weindel could have concluded that it was entitled to deal with the referral by way of a reasoned order.

Mr Sykes also suggested that the reference in Weindel to import costs rather than the value of the goods can be explained on the basis that, in Weindel, the CJEU was applying the general principle explained in DSV at [49] (which requires that the cost of the “input services” is incorporated into the cost of a particular output transaction). In applying this principle in DSV, the CJEU had, based on the facts of that case, treated the cost of the input services as being the value of the goods transported (see DSV at [50]).

However, as the facts in Weindel were different, Mr Sykes submits that the CJEU in that case considered that the cost of the input services should be taken to be the costs of importation rather than the value of the goods themselves. Mr Sykes suggests that this could well be the case as there were no costs of import in DSV given that DSV was just the transporter of the goods and not the importer of the goods whereas, in the case of Weindel, there would presumably have been import costs (even if they had not been borne by Weindel).

However, again, I cannot accept that, having just referred to the fact that DSV was decided on the basis that the value of the goods did not form part of the costs included in the prices charged by DSV, the CJEU in Weindel would not have explained why they were basing their decision in Weindel on the costs of import as opposed to the value of the goods if the Court intended that the costs of import should, in this context, have a different meaning.

This is particularly the case given that, in its explanation of DSV at [46], the CJEU in Weindel refers both to the value of the goods and the costs of importing them. As the CJEU in DSV did not refer to the costs of importing the goods but only to their value, this suggests that the CJEU in Weindel, when referring to the cost of importing the goods, intended this to be a reference to the value or the cost of the goods as opposed to the costs involved in importing the goods. This conclusion is reinforced by the way in which the CJEU framed the questions it was answering in paragraph [39] of its decision (see paragraph [59] above).

I was referred by Mr Sykes to a translation of a judgment of the Supreme Court of Slovakia prior to the referral to the CJEU in Weindel. This was mentioned by Mr Sykes purely to clarify the factual background. I do however note that this suggests that Weindel did in fact incur import costs. The second page of the translation notes for example that:

“The plaintiff’s claim that he did not claim the costs of the goods at the time of entry, but claimed the costs associated with the import of the goods, which were part of the repackaging service and have a direct and immediate connection with his taxable transactions, is unfounded, according to the regional Court.”

On page six of the translation, the Court records Weindel’s position that:

“The plaintiff did not incur costs for the purchase of goods because he was not a buyer and such costs could not have been incurred by him, but it is undisputed that he incurred costs for the acquisition of goods, which were included in the prices of taxable supplies at the output and were directly related to his economic activity.”

Taken together, these extracts suggest that Weindel did in fact incur costs relating to the import, although did not incur the cost of purchasing the goods. If that is right, that would provide further support for the inference that the CJEU in Weindel intended its reference to “import costs” to refer to the cost of the goods themselves as otherwise the reference in paragraph [44] to Weindel not having incurred “the import costs” would make no sense. However, given the points I have already made, it is clear to me that this must be what the CJEU was referring to and I do not rely on the Slovakian Court judgment as the translation is of very poor quality.

Mr Sykes stresses that it is important to identify the input transaction which must have a direct and immediate link with the relevant output transactions (see Weindel at [45]). I accept that the import itself is a “transaction” for VAT purposes (see Article 2(1) PVD) and so, when considering what is the “input service”, which must have a direct and immediate link with the relevant output transactions, that can be seen to be the transaction constituted by the import of the goods.

However, this does not, in my view, lead to a different result. Both Article 168 PVD and s 24 VATA refer to “goods or services” being used for the purposes of the relevant output transactions. A straightforward reading of these words means that, when considering whether any VAT paid on the services involved in importing the goods can be deducted (for example paying a third party to deal with customs formalities) it must be determined whether the import services are used for the purposes of the relevant output transactions.

On the other hand, where the VAT relates to the importation of goods (as opposed to the services related to the import) the question in Article 168 PVD is whether the goods have been used for the purposes of the output transactions not whether any services connected to the import (or the cost of such services) have such a link. As the import VAT is calculated by reference to the market value of the goods it makes sense for this link to be determined by reference to the cost or value of the goods as opposed to the costs of importation. As I have explained, this is, in my view consistent with the EU case law.

Taking a slightly different tack, Mr Sykes submits that there is a direct and immediate link between the import of the goods and the repair services on the basis that it was impossible to carry out the repair services without the import of the goods for repair. In support of this he refers to the decision of the Upper Tribunal in JDI International Leasing Limited v Revenue and Customs Commissioners [2018] UKUT 214 (TCC).

The question the Upper Tribunal was considering in that case was whether, in establishing a direct and immediate link, a “but for” test of causation was sufficient. In doing so it considered the decision of the CJEU in Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ – Sofia v ‘Iberdrola Inmobiliaria Real Estate Investments’EOOD (Case C-132/16) [2017] All ER (D) 114 (Sep), ECJ.

In that case, Iberdrola intended to construct holiday apartments. It incurred expenditure in reconstructing a waste water pump station owned by the local municipality which therefore benefitted from the work. The apartments which were being constructed would however also be connected to the pump station.

The Upper Tribunal in JDI rejected the suggestion that Iberdrola was authority for a “but for” test of causation explaining at [36] that the conclusion of the CJEU in Iberdrola was instead that the reconstruction of the pump station was “essential” to completing the construction project and that “in the absence of such reconstruction, Iberdrola would not have been able to carry out its economic activity”. As the Upper Tribunal notes at [39], the result of this was that Iberdrola would be “using the inputs in making its own taxable supplies”.

In my view, this does not however assist TSI in this particular case. Clearly it would have been impossible for TSI to carry out the repair work unless the goods to be repaired were delivered to it. However, it would have been perfectly possible for the customers to send the goods direct to TSI and to pay the import duty themselves. It was not, therefore, impossible for TSI to provide its repair services unless it imported the goods itself. In my judgment, TSI’s position is more analogous to that in Southern Primary Housing (see paragraphs [42-43] above), where the construction could not take place without the land, but it was not essential for the taxpayer to have purchased the land and then sold it to the housing association in order for the construction services to be provided.

Turning to the domestic case law, there are two decisions of this Tribunal which are relevant. The first is Associated British Ports v The Commissioners for Her Majesty's Revenue and Customs [2016] UKFTT 0491 (TC) which was decided after DSV but before Weindel. Associated British Ports (“ABP”) provided warehouse facilities. It became liable for import VAT as a result of the unlawful removal of timber products from its warehouse. In some ways, therefore, the case is more similar to DSV rather than Weindel as ABP was not an importer.

The Tribunal in ABP observed at [35] and [40] that it is not enough that the import VAT is connected with the taxable person’s economic activities. Instead, it is necessary to show that the goods in question are used for the purposes of taxable transactions which means establishing a direct and immediate link between the relevant transactions.

Mr Sykes submits that the decision in ABP is consistent with TSI’s case as, in ABP there was no “use” of the transaction of importation, unlike, he says, in the case of TSI. However, I do not accept this. It is clear from ABP that (consistent with my own conclusion set out above) what was seen to be important is whether the goods (and not the transaction of importation) were used for the purposes of ABP’s business (see paragraphs [35], [39], [40], [43], [53] and [58]).

The second case is Piramal where, as I have already mentioned, I was a member of the Tribunal. That appeal was decided after Weindel. However, as Mr Sykes notes, the distinction between the costs of importation and the cost or value of the goods imported was not considered by the Tribunal in Piramal. It therefore provides limited assistance. The same could of course be said for the decision of the Tribunal in ABP given that Weindel had not been decided when that decision was made.

Whilst Mr Holt, on behalf of HMRC, placed reliance on Piramal in support of HMRC’s position that goods are not used in the relevant sense for the purposes of a taxable person’s business in circumstances where that person is not the owner of the goods and has not used them as a cost component in an onward taxable supply, I accept that given the additional points raised by Mr Sykes, the reasoning in Piramal cannot simply be adopted in this case.

However, for the reasons which I have explained, my conclusion is that, as far as EU law is concerned, import VAT can only be credited as input tax where the taxable person is the owner of the goods (or has the right to dispose of the goods as their owner) or where the cost or value of the goods is reflected in the price of specific output transactions or in the price of goods and services supplied in the course of their economic activities.