Pharmaceutical company’s bitter VAT pill to swallow

In Piramal Healthcare UK Limited v HMRC [2023] TC08966, the First Tier Tribunal (FTT) found that a company importing pharmaceutical goods to the UK could not recover the associated import VAT. The goods had not been used as a cost component in an onward supply.

• Piramal Healthcare UK Limited (Piramal) imported into the UK, pharmaceutical goods known as ‘active pharmaceutical ingredients’.
  • For customs purposes, Piramal was acting as an importer and therefore accounted for Import VAT.
• Piramal provided services in relation to the Goods, such as processing, research and testing.
  • Piramal then either returned the goods to the overseas customer, sent them to third parties for further processing or sent them to clinics for use in trials.
  • The overseas supplier remained the owner of the goods.
• Piramal’s only supply was to the owner of the goods in respect of the services it performed on them.
  • These supplies were largely zero-rated, being Services supplied to customers outside the UK.
• On 4 October 2018, HMRC issued a decision that Piramal was not eligible to recover the import VAT paid on the goods, as it did not make any onward supply of those goods.
• On 11 April 2019, HMRC issued Revenue and Customs Brief 2 (2019), confirming this view to the wider industry.
  • Due to the lack of clarity in HMRC's previous guidance, and the fact there was no overall loss of tax to HMRC, Brief 2 (2019) gave a three-month and three-day transitional period for procedures to be adjusted (i.e. VAT would not be pursued by HMRC where it had been claimed before 15 July 2019).
• HMRC subsequently issued a further decision to Piramal, withholding repayment of claimed import VAT, along with an assessment to recover overclaimed import VAT back to 4 October 2018, which had already been paid by HMRC.
• Piramal Appealed to the First Tier Tribunal (FTT).

The FTT found that:

• Piramal could not recover the VAT it had incurred on the imported goods as those goods had not been used as a cost component in an onward supply by Piramal. HMRC's position was correct. 
• The EU principle of equal treatment applied.
  • This principle requires that similar situations are not treated differently unless differentiation is objectively justified.
• HMRC had written to Piramal on 2 August 2018 setting out their position on VAT recovery in clear terms.
  • While this was not a formal decision, it was the point at which Piramal became aware of HMRC’s stance.
• Piramal should be allowed a transitional period of three months and three days from 2 August 2018.
  • Import VAT incurred on or before 5 November 2018 was recoverable by Piramal on the basis of the principle of equal treatment.

The appeal was allowed in part. 

Useful guides on this topic

Revenue & Customs Brief 2 (2019) Import VAT deducted as input tax by non-owners
HMRC has published Revenue and Customs Brief 2 (2019): VAT – import VAT deducted as input tax by non-owners. This explains the correct treatment for the deduction of import VAT paid by a taxable person who is not the owner of the relevant goods. Earlier guidance was unclear.

Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one? 

Place of supply: Services
The Place Of Supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

International goods
Special VAT rules apply to goods bought from and sold to non-UK businesses.

Importing goods into GB from 1 January 2021
The post-Brexit transition period ended on 31 December 2020. HMRC issued guidance for importing goods. 

Health and welfare: VAT
When do reduced rating, zero rating and VAT exemption apply to services relating to medical care, health and welfare? What are the rules?

External link

Piramal Healthcare UK Limited v HMRC [2023] TC08966