Q&A Recouping VAT & Duty on International Fashion Returns

A Q&A with Luigi Pezutto

MD of arXanum & Sell To Europe

Former Head of International Logistics, Swiss Post International

Q: Luigi, many Australian fashion brands sell successfully into Europe, UK & USA yet very few recover VAT and Duty on returned goods. Why is that?

Luigi:The simple answer is that most brands were never set up to recover it in the first place.

In the fashion industry, returns are a fact of life. Return rates of 20–35% are entirely normal. What’s not normal—but extremely common—is permanently losing the VAT and Duty paid on those returned goods.

The reason is structural.VAT and Duty recovery in Europe is not retrospective. If the correct framework isn’t in place before the goods are imported and sold, recovery is simply not possible later. No amount of accounting or compliance work can undo that.

Most Australian brands only discover this after they’ve scaled, when finance teams start asking why international margins don’t reconcile with expectations.

Q: So this isn’t really a tax or accounting problem?

Luigi:Exactly. That’s one of the biggest misconceptions.

This is not about tax rates or filings. It’s about how goods enter Europe, who is acting as Importer of Record, and how returns are operationally handled.

If those elements aren’t designed correctly from the start, VAT and Duty paid on returns becomes a permanent cost. That’s why we position this as a structural and strategic issue, not a back-office clean-up exercise.

For CEOs and CFOs, it directly impacts:

• True gross margin

• Cash flow

• The real profitability of European growth

Q: What does Sell to Europe actually enable for Australian fashion brands?

Luigi:Sell to Europe enables Australian fashion brands to recover up to 100% of the VAT and Duty paid on returned goods sold into the UK and EU—provided the correct structure is in place.

We do this by:

• Designing a compliant Importer of Record model

• Ensuring VAT alignment that supports recovery

• Embedding returns into a recoverable process

• Acting as a financial representative to manage recovery with European authorities

This isn’t advisory. We implement, operate, and recover on the brand’s behalf.

Q: You mentioned “financial representative”. Why is that so important?

Luigi:For non-EU businesses—such as Australian fashion brands—a financial representative is often essential to make recovery workable in practice.

The financial representative:

• Interfaces with European tax authorities

• Manages VAT and Duty recovery processes

• Ensures compliance without disrupting operations

• Acts as a single accountable party for recovery

At Arxanum and Sell to Europe, we fill this role while working alongside the brand’s existing logistics, finance, and operational teams. We don’t replace partners; we integrate with them.

This is critical. Fashion brands already have complex logistics networks. Our role is to enable recovery without operational upheaval.

Q: How does this work with a brand’s existing logistics providers and systems?

Luigi:This is where deep logistics experience matters.

Having led international logistics at Swiss Post, I’ve seen first hand how fragile cross-border operations can become when external providers impose rigid models.

Our approach is different:

• We work with your current logistics providers

• We adapt to your existing fulfilment and returns flows

• We ensure recovery structures sit around operations, not on top of them

In most cases, the brand’s customers and front-end experience don’t change at all. The difference is what happens behind the scenes, once a return is triggered.

Q: What are the setup requirements for an Australian fashion brand?

Luigi:The key requirements are structural, not operational:

1. Correct Importer of Record strategy

   This determines who has the legal right to recover VAT and Duty.

2. VAT registration and alignment

   Set up correctly before goods are imported.

3. Returns traceability

   Returned goods must be identifiable at shipment and SKU level.

4. Financial representation

   A trusted entity to manage recovery with EU authorities.

Importantly, this must be done before recovery can begin. Brands cannot go back and reclaim tax on historical shipments if the structure wasn’t in place at the time.

Q: Many executives worry this sounds complex or risky. How do you address that?

Luigi:The complexity exists whether brands address it or not. The difference is who manages it.

From a risk perspective, our model is deliberately aligned with our clients:

• Fees are success-based

• Paid only from funds recovered

• If there is no recovery, there is no fee

That removes the downside risk entirely. The only real risk is doing nothing and continuing to absorb unrecoverable costs every season.

Q: When should Australian fashion brands be thinking about this?

Luigi:Now—well before the next growth phase.

Recovery eligibility is determined at the moment goods enter Europe. Once shipments move under the wrong structure, the opportunity is permanently lost.

Brands planning for 2026 and beyond should already be putting these foundations in place. It’s far easier—and far cheaper—to do this before volumes scale further.

Q: Final question — how should a CEO decide if this is worth pursuing?

Luigi:There’s a very simple starting point:

Annual Recovery Opportunity= EU, UK & USA Sales × Return Rate × (VAT % + Duty %)

If that number is meaningful—and for most fashion brands it is—then this becomes a strategic margin protection decision, not an operational one.

Sell to Europe exists to ensure that international growth into Europe is structurally profitable, not just successful on the surface.

Q: Luigi, Sell to Europe originally focused on the EU. How has the service evolved to cover the UK and the USA?

Luigi:The underlying problem is the same across all three markets.

Fashion brands selling cross-border experience high return rates, yet most permanently lose the tax and duty paid on those returned goods. Whether that tax is EU VAT, UK VAT, or US Sales Tax and Duty, the root cause is identical:

Recovery is only possible if the business is correctly set up before the goods are imported and sold.

Sell to Europe has evolved into Sell to Europe, UK & USA because Australian fashion brands don’t operate in one market anymore. They scale across regions — and the structural solution must scale with them.

Q: Let’s start with Europe. Why is VAT and Duty recovery still such a challenge for Australian fashion brands?

Luigi:In Europe, the biggest issue is that recovery eligibility is determined at the border, not in accounting software.

If an Australian brand is not structured correctly as goods enter the EU:

• VAT paid on imports becomes non-recoverable

• Duty paid on returned goods is lost

• Returns become a permanent margin leak

Because VAT and Duty recovery is not retrospective, brands cannot “fix this later”. That’s why so many only discover the issue once European sales scale — when it’s already too late.

Q: How does the UK differ from the EU — and why does setup timing matter so much?

Luigi:The UK is a critical market for Australian fashion brands, but it requires separate consideration post-Brexit.

UK VAT recovery on returns is absolutely possible — but setup can take several months, depending on:

• Entity structure

• VAT registration complexity

• Importer of Record design

• HMRC review timelines

This is where many brands get caught out.

They continue selling into the UK while “planning” to fix structure later. Unfortunately, any VAT and Duty paid before the correct setup is in place cannot be recovered.

That’s why we strongly advise brands targeting the UK to move early. If you want to recover tax on 2026 returns, you need to be structurally ready well before those sales occur.

Q: So UK recovery isn’t difficult — it’s just slow if you wait?

Luigi:That’s a good way to put it.

The UK system works, but it is process-driven and unforgiving on timing. Delays in registration or structural alignment don’t pause your tax exposure — they simply lock in unrecoverable cost.

From a CEO perspective, this makes early action a strategic necessity, not an administrative task.

Q: What about the USA? Many brands assume sales tax recovery is impossible.

Luigi:That assumption is common — and often incorrect.

In the USA, recovery typically relates to:

• Import Duty on returned goods

• Sales Tax paid on transactions that are later reversed due to returns

As with Europe and the UK, the ability to recover depends on:

• Who is acting as Importer of Record

• How returns are processed and documented

• Whether the right tax structures are in place before sales occur

When designed correctly, Australian fashion brands can recover eligible Duty and Sales Tax on returns in the US market.

Again, this is not retrospective. The structure must exist first.

Q: Does Sell to Europe, UK & USA offer the same recovery model across all regions?

Luigi:Yes — the commercial model is deliberately consistent.

Across Europe, the UK, and the USA:

• We design and implement the correct import and tax registration structure

• We operate the recovery process end-to-end

• We remit recovered funds back to the brand

• Fees are success-based, paid only from recovered funds

If there is no recovery, there is no fee.This aligns incentives and removes downside risk for the brand.

Q: What role does Arxanum play as a financial representative across these markets?

Luigi:For Australian businesses operating internationally, having a financial representative is often the missing link.

Arxanum acts as:

• The interface with tax authorities

• The party accountable for recovery filings

• A bridge between logistics, finance, and compliance

Crucially, we work with the brand’s existing logistics and operational partners, not around them. Our role is to enable recovery without disrupting customer experience or fulfilment operations.

This is where deep logistics experience matters — and where many generic providers fall short.

Q: Many CEOs worry this will disrupt operations. Is that a fair concern?

Luigi:Only if it’s done badly.

Our entire approach is built around integration, not disruption. We adapt to existing:

• Fulfilment partners

• Returns processes

• Systems and reporting

In most cases, customers never see a difference. The change is structural and financial — not experiential.

Q: When should Australian fashion brands take action across these markets?

Luigi:Now.

• EU recovery depends on structure at import

• UK setup can take several months

• US recovery eligibility is determined before sales occur

If brands wait until volumes grow or margins tighten, they’ve already missed the opportunity.

For any business planning international growth into 2026 and beyond, this should be addressed before the next major selling cycle.

Q: What’s the simplest way for a CEO to decide if this is worth pursuing?

Luigi:Start with one number:

Annual Recovery Opportunity= Sales × Return Rate × (VAT / Sales Tax % + Duty %)

If that number is material — and for most fashion brands it is — then this becomes a strategic margin protection decision, not a compliance exercise.

Sell to Europe, UK & USA exists to ensure that international growth is structurally profitable, not just top-line successful.

Thank you Luigi for all your insights. I'm confident that this will be of great assistance to the Australian industry.

About Sell to Europe, UK & USA

Operated by Arxanum, Sell to Europe, UK & USA helps Australian fashion brands recover VAT, Duty, and Sales Tax on returns across Europe, the United Kingdom, and the United States. The service is built specifically for high-return industries and operates on a success-based fee model, aligned directly to client outcomes.