On April 8, 2019, the German Federal Ministry of Finance issued a circular on the VAT consequences of a so-called hard Brexit (that is, the UK leaving the EU without a deal) which threatened to occur in March 2019. However, a hard Brexit so far has not materialized and the circular has been revoked for the time being. It appears possible though that the circular in its previous form would be re-issued upon the re-occurrence of the risk of a hard Brexit.

Upon a hard Brexit, the UK will be classified as a third country for VAT purposes. The German circular focuses mainly on the consequences of such a qualification.

In general, from the date of a hard Brexit, the supply of goods is subject to customs formalities. The goods would need therefore to be declared for import and export under the regular customs procedures and would be subject to ordinary customs duties and import VAT.

According to the circular, a supply of goods which starts in Germany or another EU country before the actual Brexit date shall be treated as a zero-rated, intra-Community supply even if the goods arrive in the UK after the date the UK has left the EU. The same applies to supplies delivered from the UK to an EU country if these supplies start before Brexit and arrive in the EU after the relevant Brexit date.

The rules regarding transportation of goods which are consignment stock remain applicable. In the case of goods transported as consignment stock to the UK before the Brexit date and removed from this consignment stock after the Brexit date, the shipment for storage of the goods is regarded as an intra-Community supply. The subsequent supply of the goods is carried out in the UK. Therefore, the VAT treatment of this supply shall be governed by the general provisions of the UK VAT Act or the provisions applicable in the UK at the time of supply.

In the case of services which span the Brexit date, the time of performance of the service is decisive for VAT treatment. If the provision of the supply starts before the Brexit date and ends after the Brexit date, the circumstances at the time of completion of the services shall determine the time of supply of the entire service.

With regard to MOSS, there will be a different handling for the relevant quarters depending on the Brexit date. For the electronic supplies of goods it should be noted that after a hard Brexit a supplier must immediately submit a certificate of registration as a taxable person to an operator of an electronic marketplace or the operator must request the certificate from the supplier. Otherwise, the operator of the electronic marketplace might be held liable for VAT that is normally the responsibility of the suppliers.

The VAT refund procedure pursuant to Council Directive 2008/9/EC (former 8th Directive) will only be applicable for the UK until the Brexit date, while the provisions of the Council Directive 86/560/EEC (13th directive) will be applicable post-Brexit. The six-month deadline until June 30, 2019 may need to be met for 2018 refund applications.

DLA Piper Comment: The risk of the UK leaving the EU without a deal is still a possibility, if the Withdrawal Agreement cannot be passed by the UK Parliament, though it is an outcome which neither the UK nor the EU wants. It will become more of a possibility if the EU loses patience with the UK and feels the current standstill is detrimental to EU business. The UK is preparing for a no-deal Brexit, as are other EU jurisdictions. Broadly, other EU jurisdictions are treating the UK as a third country, whilst the UK is softening its rules for non-UK businesses by offering VAT deferral and tariff suspensions on imports to the UK.