Graham Elliott (City & Cambridge Consultancy) comments on the recent furore surrounding the zero-rate relief given to duty-free shops.
August is the news ‘silly season’, so you can expect VAT to make an appearance. That is what I thought when I read about the ‘scandal’ of airport duty-free shops failing to pass on the VAT saving to tourists who happen to be flying out of the EU. The Independent had revealed that the sole reason retailers ask travellers to show their boarding passes is to provide evidence that the sale is to a traveller leaving the EU, in order to prove a zero rated export sale, but that the customer does not see any price reduction as a result.
I thought this was a storm in a teacup, designed to fill column inches. A far cry from serious concerns such as VAT recovery on holding company expenses, the VAT treatment of delivered mail packs and so on. Mr Gauke may have thought so as well, as it took a few days for him to make comment. But then my phone rang from BBC 5 Live, who wanted my views on it, followed by BBC WM, for a live interview, followed immediately by Bob FM. As teacups go, this one ranneth over.
Once Mr Gauke had awakened to the level of public outrage which appeared to be fomenting, he stated that the zero rate relief given to duty-free shops was not ‘intended’ to benefit the retailer, but to be handed on as a price reduction to the buyer. But, is that really right?
Insofar as it is possible to discern ‘intentions’ behind the export zero rate, they would appear to be as follows: to ensure the competitiveness of EU manufactured goods on non-EU markets; and to avoid double taxation where goods might otherwise be subject to consumption taxes both in the EU and in the state of arrival. The first of these is plainly not fulfilled by a tourist making a purchase at an airport shop. I have not heard of the second being relevant, either, since the tourist is unlikely to be taxed on his holiday importation of a bottle of sun cream and some CDs. Unlike our inland zero rates (books, food, children’s clothing etc.) the export zero rate is not intended as a social relief.
So what can justify the view that there is an intention behind the policy for people who happen to be travelling to Tunisia, say, to pay less for their goods than the person who happens to be travelling to Italy? I cannot see one.
Indeed, although the zero rate in this case follows the general scheme that VAT should not apply to goods exported outside the EU, it is nonetheless provided by an extra-statutory concession (Notice 48, 9.1) which allows the legal fiction that the retailer carries out the export, even though, in fact, the tourist does instead. There is nothing in this, that I can discern, that suggests any intention that the tourist must then benefit from a proportional reduction in the price he pays. It is the retailer who owes any tax due on supplies made, and there is nothing in law that suggests the customer should be treated as the taxable person as such.
Since the relief is provided by concession, no doubt the government could consider such requirements - but it should first ask itself ‘why?’, without assuming that the answer is ‘because the public demands it’.
That said, this latest furore is going to answer the question for them. It seems unlikely, now, that the airport retailers can resist dual pricing, and giving all of the benefit of the zero rate to the customers who happen to be leaving the EU.
Graham Elliott (City & Cambridge Consultancy) comments on the recent furore surrounding the zero-rate relief given to duty-free shops.
August is the news ‘silly season’, so you can expect VAT to make an appearance. That is what I thought when I read about the ‘scandal’ of airport duty-free shops failing to pass on the VAT saving to tourists who happen to be flying out of the EU. The Independent had revealed that the sole reason retailers ask travellers to show their boarding passes is to provide evidence that the sale is to a traveller leaving the EU, in order to prove a zero rated export sale, but that the customer does not see any price reduction as a result.
I thought this was a storm in a teacup, designed to fill column inches. A far cry from serious concerns such as VAT recovery on holding company expenses, the VAT treatment of delivered mail packs and so on. Mr Gauke may have thought so as well, as it took a few days for him to make comment. But then my phone rang from BBC 5 Live, who wanted my views on it, followed by BBC WM, for a live interview, followed immediately by Bob FM. As teacups go, this one ranneth over.
Once Mr Gauke had awakened to the level of public outrage which appeared to be fomenting, he stated that the zero rate relief given to duty-free shops was not ‘intended’ to benefit the retailer, but to be handed on as a price reduction to the buyer. But, is that really right?
Insofar as it is possible to discern ‘intentions’ behind the export zero rate, they would appear to be as follows: to ensure the competitiveness of EU manufactured goods on non-EU markets; and to avoid double taxation where goods might otherwise be subject to consumption taxes both in the EU and in the state of arrival. The first of these is plainly not fulfilled by a tourist making a purchase at an airport shop. I have not heard of the second being relevant, either, since the tourist is unlikely to be taxed on his holiday importation of a bottle of sun cream and some CDs. Unlike our inland zero rates (books, food, children’s clothing etc.) the export zero rate is not intended as a social relief.
So what can justify the view that there is an intention behind the policy for people who happen to be travelling to Tunisia, say, to pay less for their goods than the person who happens to be travelling to Italy? I cannot see one.
Indeed, although the zero rate in this case follows the general scheme that VAT should not apply to goods exported outside the EU, it is nonetheless provided by an extra-statutory concession (Notice 48, 9.1) which allows the legal fiction that the retailer carries out the export, even though, in fact, the tourist does instead. There is nothing in this, that I can discern, that suggests any intention that the tourist must then benefit from a proportional reduction in the price he pays. It is the retailer who owes any tax due on supplies made, and there is nothing in law that suggests the customer should be treated as the taxable person as such.
Since the relief is provided by concession, no doubt the government could consider such requirements - but it should first ask itself ‘why?’, without assuming that the answer is ‘because the public demands it’.
That said, this latest furore is going to answer the question for them. It seems unlikely, now, that the airport retailers can resist dual pricing, and giving all of the benefit of the zero rate to the customers who happen to be leaving the EU.
