In 2018, agreement was reached on a number of measures – called ‘quick fixes’ – to simplify VAT on intra-Community transactions. These ‘quick fixes’will take effect from 1 January 2020. As this date is rapidly approaching, we would like to inform you exactly what these changes mean for your company.
In concrete terms, there are 4 simplification measures:
- the introduction of a valid VAT identification number as a requirement for the application of the exemption for intra-Community supplies;
- a rebuttable presumption regarding proof of transport for intra-Community supplies;
- the introduction of a uniform system for call-off stock;
- the simplification of the allocation rules for transport in chain transactions.
1. Exemption for intra-Community supplies: new material requirement
If a VAT taxable supplier supplies goods to a VAT taxable customer and these goods are
dispatched to another Member State for that purpose, that supply is, in
principle, exempt from VAT.
In this case, having an EU VAT number is often proof that the goods were
supplied to a VAT taxable buyer in an intra-Community context.
Under the current legislation though, this is at most a formal condition. That means that if no valid VAT number has been communicated, only fines or administrative sanctions can be imposed, but the exemption cannot be refused.
However, this will change after 1 January, as the communication of a valid VAT number will become a material condition.
From now on, a taxable entity will therefore have to ensure that its customer communicates a valid VAT number so that it can apply the exemption.
Practical note: If your customer has applied for VAT registration but has not yet obtained a number, you will initially have to draw up an invoice with VAT. Then, as soon as your customer has received a VAT number, your customer can communicate this number and request a new invoice without VAT.
2. Exemption for intra-Community supply: simplified proof of transport
A second ‘quick fix’ relates to the other essential condition of the exemption for intra-Community supplies, namely proof that the goods have been transported to another EU Member State.
Practise has shown that it is not always easy for companies to provide sufficient documentation to prove the transport of the goods. Several Member States have therefore provided for simplification on their own initiative. The Belgian destination document is one such example.
However, the proliferation of individual initiatives means that entrepreneurs can no longer see the wood for the trees.
In order to eliminate the uncertainty associated with this, the European legislature has provided for a rebuttable presumption of transport to another EU Member State if the supplier (vendor) can provide at least two non-contradictory evidential documents prepared by two parties that are independent from both the supplier and the customer. If the buyer transports the goods, a declaration by the buyer plus the two pieces of non-contradictory evidence are required.
Practical note: If the supplier transports the goods with its own means and without involving external parties, it is unlikely to be able to provide the required evidential documents and therefore cannot use the rebuttable presumption.
3. Call-off stock
Call-off stock refers to goods which suppliers transfer to a storage place in another EU Member State with a view to supplying them to an end-customer at a later date. This is usually done to shorten delivery times, as the customer can then purchase goods from the supplier’s stock as he needs them.
Under the current regime, when the supplier transfers the goods to the storage place, it is deemed to have carried out an intra-Community supply in its own EU Member State and then an intra-Community acquisition in the EU Member State of arrival. Once the customer takes the goods from the call-off stock (storage place), the supplier performs a (taxable) domestic supply in the Member State. Consequently, the supplier has to register for VAT purposes in the Member State of arrival.
In order to avoid these registration obligations, several Member States, including Belgium, have introduced VAT simplification measures.
Given the existing (fragmented) practice, a single uniform system is now being introduced under which the final supply of the goods is treated as a tax-exempt intra-Community supply, followed by a taxable intra-Community acquisition by the customer. The transfer of goods to the call-off stock will no longer be treated as an intra-Community acquisition.
Practical note: In order to benefit from the simplification regime, the final supply must take place within 12 months of the arrival of the goods at the storage place. In order to monitor this period with regard to goods that cannot be individually traced, it is advisable to use the FIFO (First In, First Out) method.
4. Chain transactions
Chain transactions are successive supplies of goods (involving three or more entities) in which the goods are transported only once, i.e. from the first seller in the chain to the final purchaser. Such chain transactions often give rise to discussions in an intra-Community context.
The European Court of Justice has ruled that intra-Community transport can only be attributed to a single link in the chain. Consequently, the exemption can only be applied to a single supply. The other supplies are then treated as (taxable) local supplies. In practice, therefore, there is often discussion about which link in the chain the transport should be attributed to.
The new scheme therefore requires that the transport by, or on behalf of, the intermediary is attributed exclusively to the delivery to the intermediary, which is usually the first supply in the chain.
However, if the intermediary provides a VAT number from the Member State of dispatch, the intra-Community transport of goods will be attributed to the link between the intermediary who arranges the transport, or has it arranged, and his customer.
Please do not hesitate to contact us if you have questions.