The Article 23 License – A very sharp Dutch tool

It is only the best example of a national policy trend. But how far can it get in a customs system which values group uniformity over national pragmatism?

Back in 2007, soon after the current EU VAT Directive on the common system of VAT became law, the Dutch Secretary of State for Finance sensed an opportunity. The opportunity was to use an exception available in the Dutch national VAT law to change how the import VAT due on certain imports could be repaid. Under this exception, contained in Article 23 of the Dutch VAT Act, the taxation on the delivery of the goods could be shifted from the foreign supplier to the Dutch importer. The Dutch customer receiving the goods suffered the import VAT due on them instead of the foreign supplier. But as the Dutch business would have a right to recover the VAT due, it would simplify procedure and cut the administration involved if the Dutch importer could defer the import VAT due and deduct it by book entry on its VAT return. More helpful than paying the import VAT at the time of taking delivery of the goods and then applying to reclaim it.

This so-called “import VAT reverse charge” showed Dutch pragmatism at its best. It was a smart use of the national discretion allowed in the EU VAT system. The cashflow and administrative attractions of postponing import VAT payment to the regular VAT return have proven to be compelling. Similar approaches have caught on in other EU Member States, like the Czech Republic and Denmark. France introduced compulsory import VAT ‘autoliquidation’ from 1 January 2022. And when the UK, now outside the EU, was looking for its own import VAT simplification post-Brexit, it reached for the “postponed VAT accounting” model now in place.

But none of these other country practices seem to match the Dutch model in its reach. With their “Article 23 License” granted under the 2007 Ministerial Order, Dutch operators can utilise import VAT reverse charge not only for goods that they import on their own account and use in their own business, but also for goods which they import as representatives of their foreign suppliers and customers. For instance, Dutch operators can import client aircraft and reverse charge the import VAT through their own account and VAT return. The Dutch license can thus serve as a veritable tool in their trade.

Some Dutch shipyards even utilise their Article 23 license to bring client yachts into the EU to undergo works, whereas their peers in other Member States must use the Union procedure known as Inward Processing Relief (IPR). Goods brought in under IPR remain non-EU goods throughout the temporary period in which they are worked on. They are not imported, as it is presupposed that they would be removed on completion. Import taxes are therefore suspended, with the underlying objective being to prevent instances of refunds arising.

In contrast to IPR, a Dutch shipyard holding the Article 23 license, and using the so-called “Dutch simplified IPR”, would instead arrange a definitive importation of its foreign customer’s yacht on its account. Import VAT would arise, but the shipyard would defer the tax to its VAT return and deduct it. The practice implies that the non-EU yacht acquires Union goods status and enters EU economic circulation while undergoing works, in circumstances where it would not under IPR. Moreover, IPR would require the shipyard to provide a financial guarantee to Customs as security for the suspended taxes “at risk” while the Dutch practice does not.

Hence the questions now emerging about this edge to the Dutch practice of import VAT reverse charge. Was it intended to serve as a liberal alternative to IPR and if so, does it overreach or circumvent EU law?

These questions arise amidst a counter trend in EU Customs law according to which import VAT on goods imported from outside the EU may only be deducted by owners of the goods who use them in their own taxable activities. Experts suggest that EU commercial counterparties to non-EU suppliers – whether they lease the goods in, or receive them for repair or processing, or act as representative of the non-EU owners – may not have any entitlement to deduct import VAT due or paid on the importation. This is because they do not have real ownership of the imported goods, nor do they bear the actual costs of the goods, nor could they prove that the costs of the goods have a direct and immediate link with their own economic activity. If “proxy” deduction of import VAT is permitted in such cases, they say, then it is the integrity and uniformity of the EU customs and VAT systems that are undermined. How can a Member State, they ask, control the potential revenue loss where aircraft or yachts imported to free circulation are then put to private or non-business uses?

This is the kind of reasoning that the European Commission used when pressuring the Danish government to close arrangements for importing aircraft into Denmark some years ago. Will the Commission use the same against the Dutch Article 23 scheme for aircraft and yachts? If it does, then that would blunt the sharp edge to the Dutch import VAT tool. But if it doesn’t then other Member States would do well to copy the Dutch method.

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