TC09676 - [2025] UKFTT 01278 (TC)

The relevant EU provisions are contained in EU Council Directive 2006/112/EC of 28 November 2006 known as the Principal VAT Directive or PVD.

Article 1(2) provides that:

“On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.”

Article 2(1) PVD describes the transactions which are subject to VAT. As well as supplies of goods and services, this includes “the importation of goods” (Article 2(1)(d)). This confirms that, for VAT purposes, the importation of goods is a “transaction”.

The key provision relating to the deduction of VAT incurred by a taxpayer is Article 168 PVD which, to the extent relevant, reads as follows:

“Insofar as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the member state in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

…

(e)

the VAT due or paid in respect of the importation of goods into that member state.”

Article 168 is supplemented by Article 178 PVD which provides that:

“In order to exercise the right of deduction, a taxable person must meet the following conditions:

…

(e)

for the purposes of deductions pursuant to Article 168(e), in respect of the importation of goods, he must hold an import document specifying him as consignee or importer, and stating the amount of VAT due or enabling that amount to be calculated;”

Mr Sykes notes that none of these provisions contain a requirement that, in order to deduct VAT paid on the importation of goods, the taxable person must be the owner of those goods.

As can be seen, the key points in determining whether a deduction is available for import VAT paid by a taxable person is whether the goods are used for the purposes of that person’s taxed transactions and whether the import VAT relates to a cost component of those transactions. I will return to the case law which considers the circumstances in which these requirements can be said to have been satisfied.