- Issue: The FTT had to decide whether the goods supplied by Procurement International Ltd were correctly zero-rated as “direct exports” to customers outside the EU (pre-2021) and outside the UK (post-2020), disputing VAT assessments and a VAT credit denial totaling £485,258.33.
- Taxpayer’s Business Model: Procurement International Ltd fulfilled orders for reward programme operators (RPOs) who ran programmes to reward customers and employees. The goods were shipped directly to reward recipients using Royal Mail or UPS, with the risk and title passing to the RPO only upon payment.
- HMRC’s Position: HMRC argued that the goods were removed outside the UK/EU by the RPOs, not the taxpayer, making the supplies standard-rated rather than zero-rated. They claimed that possession transferred to the RPOs when goods were picked and located in the UK.
- FTT’s Ruling: The FTT ruled in favor of the taxpayer, stating that the goods were indeed direct exports as the taxpayer retained ownership and risk until delivery to the reward recipients. The transportation was proximate to the transfer of economic ownership, making the supplies zero-rated.
- Key Takeaways: The decision emphasized the importance of clear contractual terms in determining the nature of the supply and the distinction between direct and indirect exports. The Tribunal found HMRC’s argument “entirely fanciful” and noted that the taxpayer’s contractual and shipping arrangements supported zero-rating.
Source KPMG
