Mutual Assistance Recovery Directive

9 October 2017

KSA has experienced a situation where the German Tax Authority was pursuing a UK registered company for taxes allegedly accrued via remote trade into Germany. Allegedly, because under the EU Directive which governs issues of this nature, the €100,000 threshold set by the German state had not actually been reached. The EU directive concerned is the Mutual Assistance Recovery Directive 2010 – 24 – EU, usually abbreviated to ‘MARD’. The threshold is usually either €35,000 or €100,000 depending on the member state. Details of threshold for an individual member state should be sort when trading is commenced in that sate.

This directive concerns trade into any EU member state where the company providing the goods is not registered to that country. The directive applies to distance selling and mail-order; for the avoidance of doubt this applies to items purchased via catalogue, telephone and internet. If the company concerned has yet to reach the VAT threshold for a particular member state the ‘Origin’ principle is applied I.e. the vendor company applies the VAT rate of the country from where it trades. If that company has exceeded the threshold it must apply the ‘Destination’ principle i.e. it registers for VAT (or the equivalent) within the destination state and applies the relevant level of tax for that state.

The first step that a member state must make in recovering any revenue it believes is owed and overdue, is to take all steps available to it to recover those monies. In the case referred to above this included threats of pursuing the director of the company personally: under UK law a director of a limited company is protected from such action unless he/she has provided the creditor with a personal guarantee or wrongful trading has been proved, in which case the veil of incorporation may be lifted. These threats were nearly enough to cause the director to pay from personal funds however he consulted KSA first.

Next the member state must apply to the tax authority of the ‘home’ country of the company/business concerned; obviously in the UK this is HMRC, who will continue pursuit of the debt including all recovery action available to them under UK law. In the UK this action may include, levying distraint over assets and the issuing of a Winding Up Petition the company will then be contacted by HMRC any reference number from HMRC will be prefixed by ‘MARD’ which will indicate this is an EU debt.

If the debt is disputed or refuted the company director or business owner may lodge a dispute directly with the issuing tax authority, which should be copied to the relevant HMRC office. During this time action should be suspended whilst the dispute is considered.

Under UK Insolvency criteria a debt of this nature ranks the same as any HMRC debt and may be bound into a CVA as an unsecured creditor.

There are limitations to action of this nature, in that HMRC are not obliged to grant recovery assistance to the EU member state if: 1. It would cause serious economic or social difficulties in the UK 2. The debt is more than 5 years old 3. the debt is less than €15,000

Sources: 
https://www.gov.uk/government/publications/vat-notice-725-the-single-market?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000152&propertyType=document