VAT Quick fixes: Guidance by EU Commission

VAT Quick fixes

VAT Quick fixes: Guidance by EU Commission

The EU VAT Quick fixes are around the corner. These new rules concern EU cross border supplies of goods and will come into force as of 01.01.2020. Many details are still unclear. The EU Commission has now published helpful guidance.

What are the “VAT Quick fixes”?

The “Quick fixes” are the first step of the EU Commission’s Action Plan on VAT. The Action Plan is the biggest reform of the EU VAT rules since 1993. The Quick Fixes have been adopted by the European Council on October 2, 2018. They will come into effect as of 01.01.2020 and concern the following areas:

    • Valid Customer VAT Identification number and a correct EC Sales list as mandatory legal requirement for the VAT exemption for intra-EU supplies
  • Harmonised rules for the evidence of intra-EU supplies
  • Simplification rule for call-off stocks; and
  • Chain transactions

EU Commission gives guidance on the “VAT Quick fixes”

Though not effective yet, the details of the new rules already raise questions. The EU Commission’s VAT expert group has therefore decided to give some guidance. On 26, September 2019 it published a 72 pages Draft for Explanatory Notes on the Quick Fixes. Some comments in this drafts are still under discussion. Therefore, the draft will be adjusted and a final version will be published in the next weeks.The VAT expert group’s comments are not legally binding for the EU Member States. But as they express the EU Commission’s VAT view, they regularly also provide guidance for the national tax authorities.

The below sections provide a brief summary of the VAT Quick Fixes and main aspects to be considered. Further information including example cases can be found in our E-Learnings VAT – Basic online course (E-Learning with certificate) and VAT & B2B transactions (E-Learning with certificate).

 

Valid Customer VAT Identification Number and EC Sales list

Situation until 31.12.2019

Currently, a valid VAT Identification number of the customer is only a formal requirement for the VAT exemption for EU supplies. According to the Court of Justice of the European Union (CJEU), the law requires mainly that businesses prove the EU cross-border transport of the goods. Mistakes or even an invalid VAT ID number can therefore not necessarily result in a rejection this exemption.

New Law as of 01.01.2020

The VAT Quick fixes expressly intend to overrule the judgments of the CJEU. To apply the VAT exemption, the amended Article 138 VAT Directive therefore stipulates that

  • the customer must indicate to the supplier a valid VAT Identification number; and
  • the supplier must correctly report the transaction in the EC Sales list of the VAT reporting period in which the taxable event of the supply occurs.

Remarks

  • The customer’s VAT Identification number does not necessarily have to be from the EU destination state. Instead, it can be a VAT Identification number of any other EU state than the EU state of origin.
  • If the customer does not communicate a valid number, the supplier must not apply the VAT exemption. Caution! This does not prevent that the customer has to declare an EU acquisition in the EU destination state and pay local VAT. Thus, there is a risk of a VAT double taxation.
  • The VAT exemption is basically excluded if the supplier fails to submit an EU Sales list or submits an incorrect EC Sales list. However, an incorrect EC Sales list only affects the incorrectly reported transactions. Furthermore, the taxpayer can correct the EC Sales list with retroactive effect.

What businesses have to do

  • Establish processes and controls to check the validity of customer VAT Identification numbers
  • Ensure the correct consideration of transactions in the EC Sales list

 

Proofs for the EU cross border transport

Situation until 31.12.2019

The VAT exemption for EU supplies requires that the supplier can prove the actual transport to another EU member state. Thereby, the required proofs differ per EU Member State and the respective documentation obligations are not harmonised.

New Law as of 01.01.2020

The newly introduced Article 45a of the Council Implementing Regulation  (EU) 2018/1912 provides for harmonised proofs. This rule implements a rebuttable presumption of transport to another EU Member State if the supplier can provide certain documents. These are at least two non-contradictory evidential documents prepared from persons independent from the supplier and the customer. This may for example include signed CMR documents, together with a copy of payment for transport issued by the bank.

Remarks

  • Suppliers performing the transport with own means and without involving external parties can hardly fulfill the new documentation requirements. However, according to the EU Commission’s VAT experts, this shall not automatically exclude the VAT exemption. Instead, the supplier shall be able to prove the transport by other means. It will depend on the local law and interpretations by tax authorities how this shall work. For taxpayers, this can mean uncertainty whether they can apply the VAT exemption or not.
  • The EU Member States are obliged to apply Article 45a IR. Additionally, however, they can also define other presumptions regarding the proof of transport in their national law. In Germany, as an example, the supplier may still prove the transport with the so-called Gelangensbestätigung. This particularly helps in the cases of self-performed transports.

What businesses have to do

  • Establish processes to collect and archive the proof of transports.
  • If your company uses own means of transport, inform yourself about the future alternative proofs of the transport according to your local law.
Simplification Rule for call-off stocks

Situation until 31.12.2019

An EU call-off stock supply describes the transport of goods to a warehouse in another EU country. Thereby, the supplier already knows the customer but the actual supply shall only happen once the goods are taken out of the stock. In these constellations, the supplier basically has to declare a deemed EU supply in the EU State of origin and a corresponding deemed intra-Community acquisition in the EU destination state. The later supply to the customer is a domestic supply in this EU Member State. As consequence, the supplier needs to be VAT registered in the EU destination state and comply with the local VAT rules. However, several EU Member States grant reliefs and still qualify these transactions as direct EU supplies. The national requirements differ. Thus, it is difficult for taxpayers to overview the legal situation and for tax administrations to control these kinds of supplies.

New Law as of 01.01.2020

The newly introduced Article 17a VAT Directive provides for a harmonized simplification rule for EU call-off stock constellations. If the respective requirements are fulfilled, the transport to the call-off stock in other EU Member State is VAT neutral. The later actual supply is qualified as direct EU supply of the supplier and a corresponding EU acquisition of the receiver.

Requirements

In brief, to apply for the simplification rule

  • Goods are transported from one EU Member State to another EU Member State;
  • Both the supplier and the intended acquirer are taxable persons and the intended acquirer is VAT registered in the EU destination state;
  • When the transport starts, the supplier already knows the customers’ identity and VAT Identification number;
  • The parties have already concluded an agreement about the later supply. The supply must happen within 12 months after the end of the transport;
  • The supplier
    • has no established business or a fixed establishment in the EU destination state;
    • needs to record the dispatch/transport of the goods to the stock in a register
    • reports the VAT Identification number of the intended acquirer in his EC Sales list submitted for the period of the transport of the goods.

Remarks

The details of the simplification rule can be quite complex. Also here, the comments of the EU Commission’s VAT experts give valuable help. According to the experts, for example,

  • An application of the rule is voluntary..
  • The intended acquirer does not need to be established in the EU destination state. A local VAT registration is sufficient.
  • Also commissionaire arrangements can fall under the simplification rule.
  • A replacement of the call-off stock customer may be VAT neutral. This however requires that the contract with the new intended customer has already been concluded before or at the same time as the contract with the previous intended acquirer is terminated.
  • The calculation of the “12-months” starts with the arrival in the call-off stock facility and not already with the arrival in the territory of the destination state.

What you have to do

  • Review the intended transaction and if it may fall under the simplification rule
  • Agree with your counterparty if you wish to apply the simplification rule
  • Ensure you fulfill the new documentation and reporting obligations. Check your local law for the details and particularly electronic filing requirements.
  • The simplification creates a new kind of transaction in the EC Sales list (in addition to already existing regular EU supplies). Check if your tax authorities already provide the respective technical features as of 01.01.2020 of for respective interim solutions.
EU Chain transactions

Situation until 31.12.2019

What is an EU Chain transaction

EU Chain transactions describe a situation where

  • several parties conclude a supply contract about the same object
  • the object is directly transported from the first seller in the supplier chain to the last buyer
  • the transport starts in one EU member state and ends in another EU Member State.

The chain consists of minimum three members. However, also chains with four or more parties are possible. Thereby, the EU transport of the goods and thus the respective VAT exemption can only be attributed to one of the supplies in the chain. All other supplies qualify as supplies with transport and thus as domestic supplies. The question is now how to attribute EU transport to a specific supply within the chain.

Middle person organizes the transport

A common understanding as regards the allocation exists if the transport is organised by the first supplier or the last receiver in the chain. But what if the transport is organized by (one of) the middle persons in the chain? Currently, the VAT Directive does not handle these cases. Instead, the VAT treatment of these situations is based on CJEU case law. This case law provides some guidance. But it is nonetheless required to make an overall assessment of the individual case. Result is an unharmonized and sometimes unclear tax situation with the risk of a double taxation in the EU states involved.

New Law as of 01.01.2020

The new Art. 36a VAT Directive provides for a clear allocation rule for supplies organized by the middle party, referred to as “intermediary operator”. It basically attributes the EU transport to the supply made to the intermediary operator. However, as an exemption the dispatch or transport can also be allocated to the supply made by intermediary operator. This requires that the intermediary operator has communicated to his supplier the VAT identification number issued to him by the EU Member State of origin.

Remarks

One of the most relevant aspects is that all parties involved are aware of the chain transaction. They also need to know who organizes the transport and have to VAT registered in the correct country. Thereby, the VAT registration is required before the transaction takes places. This is particularly relevant as a valid VAT Identification number is in future legal requirement for the VAT exemption for EU supplies.

Furthermore, according to the EU Commission’s VAT experts, the simplification

  • can also apply if the last person is a private consumer;
  • does not apply to constellations covered by Article 14a VAT Directive;
  • allows that the transport is made by different means of transport and different transport service providers. However, it is decisive that the transports are still organized by the same person. If instead one part of the transport is organised by the first supplier and one part by the intermediary operator, this is regarded as a relevant break in the supply chain.
  • requires that the intermediary operator keeps evidence that he organised the transport and, if relevant, has communicated his VAT identification number to his supplier.

 What you have to do

  • Check if your supply is part of a chain transaction and which party you are in the chain
  • If required, communicate this to the other parties
  • Decide which allocation rule as regards the transport of the goods apply
  • Ensure a correct VAT reporting and collect and archive all required documents
Update 20.12.2019: EU has released the final Explanatory Notes

 

On 20.12.2019, the EU Commission’s VAT expert group has released the final version of the Explanatory Notes on the VAT Quick fixes. To download the Explanatory Notes on the Quick fixes please click HERE (link to pdf-document).

 

Update 10.01.2020: Implementation in EU Member States

Not all EU Member States have implemented the VAT Quick fixes as per 01.01.2020 in national law. Now, the EU has published an overview of the implementation status in the single Member States. The overview also includes the references and the texts of the local law, if available.

The information are provided by the EU Member States. Thus, it may be possible that the list does not yet contain information about the local implementation of the VAT Quick fixes because a Member State has not yet provided that information. It shall thus be continuously updated. ‘You can find the EU’s overview HERE.

 

 

 

 

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