Brexit: VAT impacts between Italy and the UK

The Brexit case: what implications for VAT refunds

Following the referendum of 23 June 2016, the United Kingdom decided to withdraw from the EU, of which it had been a Member State since 1973. Therefore, starting from 29 March 2017, the British Government formally notified its intention to leave the the EU, therefore activating the procedures defined in art. 50 TUE. For the first time in the history of the European integration process, a Member State has decided to withdraw from the Union, thus opening a complex negotiation phase to establish the terms of the "divorce".

After almost three years of complex negotiations, ratification by the United Kingdom and approval by the European Parliament, on 30 January 2020 the Council of the European Union adopted the decision on the conclusion of the Withdrawal Agreement on behalf of the 'EU and a political declaration on the framework for future relations. On 31 January 2020 the European Parliament approved the Agreement on the withdrawal of the United Kingdom from the European Union. This Agreement entered into force on 1 February 2020, the date from which the United Kingdom is no longer officially part of the Union.

The Withdrawal Agreement made it possible to regulate the methods of the United Kingdom's exit from the EU in an orderly manner, protecting citizens and businesses. It also provided for the establishment of a transitional period (until 31 December 2020), during which, on the basis of the Withdrawal Agreement, the provisions of Union law (including the rules on the free movement of persons, services , capital and goods) continued to apply to the United Kingdom. The only exception is the provisions of an institutional nature (right to appoint a Commissioner, to elect European parliamentarians, to participate in Council meetings with the right to vote, etc.)

At the end of the transitional period, the Trade and Cooperation Agreement (TCA) between the EU and the United Kingdom was signed, provisionally applied from 1 January 2021 and entered into force on May 1, 2021.

Therefore, also for the purposes of VAT refunds we found ourselves faced with two scenarios: i) transitional period 2) subsequent period.

Until 31 December 2020, i.e. the end date of the transitional period, the United Kingdom operated as a member country of the EU, for customs purposes but also for VAT and excise purposes. During the transitional phase, art. applies to entities established in the United Kingdom. 38-bis2 of Presidential Decree 633/1972, relating to the execution of refunds to non-resident subjects established in another EU State, which dictates the limits as well as the methods of VAT reimbursement in the case of subjects who are established in a State belonging to the EU and without a permanent establishment in Italy.

In the following period, the United Kingdom entered into an agreement with Italy, so-called. reciprocity agreement, with which both States declared that they formally believe the legal conditions exist for the recognition of the condition of reciprocity for the purposes of providing VAT reimbursement for purchases made by: Italian operators on British soil; British operators on Italian territory

Consequently, for operations carried out from 1 January 2021 with the United Kingdom, article 38-ter of Presidential Decree 633/1972 applies for the purposes of disbursing VAT refunds: subjects established in Italy can submit a request for VAT refund to the United Kingdom United in accordance with the legislation in force there; subjects established in the United Kingdom may submit a VAT refund request if the conditions set out in article 38-ter are met which, in turn, refers to the first paragraph of article 38-bis2, paragraph 1 of the Presidential Decree. n. 633/1972. The refund request must be presented according to the methods established by the Provision of the Director of the Revenue Agency of 1 April 2010.

With resolution no. 22/E of 2 May 2024, the Revenue Agency recalled the reciprocity agreement stipulated between Italy and the United Kingdom, including Northern Ireland, focusing on the VAT refund method to be applied, i.e. through the provision referred to in the art. 38-ter presidential decree 633/1972.

During the previous transition period, the Revenue Agency underlined that article 38-bis2 of the Presidential Decree applied to subjects established in the United Kingdom. 26 October 1972, n. 633, entitled "Execution of refunds to non-resident subjects established in another Member State of the Community", which dictates the limits and methods of VAT reimbursement in the case of subjects established in a State belonging to the European Union and without a permanent establishment in Italy.

As of 1 January 2021, the United Kingdom is no longer part of the customs and VAT territory of the European Union, with the consequence that the refund procedure pursuant to art. 38-ter presidential decree 633/1972.