Export sales - no VAT on prepayments

29 maj 2015

In a recent decision, the National Tax Board ruled that no VAT is payable on prepayments for goods bound for export - even though it cannot be substantiated that the goods are bound for export at the time of prepayment.

According to the VAT rules, invoices related to export sales to customers both inside and outside the European Union can be issued excluding VAT. However, it must be substantiated that the goods are to leave Denmark and the European Union respectively.

When selling to customers in other countries that are members of the European Union, it is also a condition that the customer is registered for VAT in his home country.

The subject of the case before the National Tax Board was whether VAT is payable on prepayments related to future export sales when – for obvious reasons – it cannot be substantiated at the time of the prepayment that the goods are on their way to leave Denmark.

The case concerned a Danish tools factory that produced goods made to order for a Danish company with subsidiaries both within and outside the European Union.

The products sold to the customer's subsidiaries within the European Union were billed directly to the subsidiaries.

The products that were sold to the customer's subsidiaries outside the European Union were billed to the Danish parent company which in turn handled the export of the goods. However, the goods were exported in the name of the manufacturer and at the expense of the manufacturer.

Regardless of which company was to receive the goods, the Danish tool factory required a prepayment of 30 pct. upon acceptance of the order.

In its decision, the National Tax Board determined that no VAT was due on the prepayments. The National Tax Board declined to answer whether it could be considered as substantiated that the goods would be shipped out of the country. However, the Danish tax authorities indicated that it could be considered as substantiated that the goods were transported to customers within the European Union when their Danish parent company arranged the transport to the country within the European Union and continually acknowledged that the goods were delivered to and arrived at the destination.

Concerning the end-customers outside the European Union, the Danish tax authorities indicated that the goods could be considered exported to the third country at the expense of the tool factory even though the goods were to be shipped in a container shared with others.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge.