The EU VAT regime is due to undergo huge reforms over the next few years.
Member states are debating an overhaul of the current ‘temporary’ systems for a definitive ‘destination’ based regime – provisionally from July 2022.
Ahead of this reform, EU member states have agreed four changes to the business-to-business (B2B) VAT rules on EU cross-border transactions, which will come into place on 1st January 2020. These reforms aim to help eliminate an estimated €50 billion in annual VAT fraud.
The reforms, known as the ‘four quick fixes’, cover the following areas:
From 1 January 2020, all Member States will be required to introduce a call-off stock simplification regime into their VAT law. Call-off stock occurs where a supplier in Member State A transfers stock to another in Member State B, so that stock can be called-off by a specific identifiable customer established in Member State B when required. In principle, the supplier must register for VAT in Member State B and charge local VAT to its customer. The call-off stock simplification regime relieves, under some conditions, the supplier from having to register for VAT in Member State B and shifts the payment of the VAT to the customer. Currently, the VAT law of Member States do not provide for such a simplification regime. The new rules should therefore represent a significant improvement for impacted businesses.
EU established-taxable persons engaged in such schemes in the EU should examine whether they meet the conditions of this new regime and can take advantage of it.
Intra-EU supplies of goods (goods transported from one Member State to another Member State) between VAT taxable persons are VAT exempt in the Member State of departure of the goods. This implies that the supplier is able to prove the transport of the goods. Providing such proof has been a source of difficulty for many Member States. The “quick fixes” aim to clarify how to prove such transportation.
As from 2020, a seller will need two non-contradictory pieces of evidence out of a list defined by the new legislation (i.e. a transport or insurance document, a CMR document). A completely new and additional requirement will be introduced when the buyer takes care of the transport of the goods (or a person on their behalf) in which they must provide the seller with a written statement that the goods have been transported to the destination Member State. This written statement is an innovation of the new legislation and has indeed, never been seen before by the VAT Directive.
It is therefore extremely important that businesses performing intra-EU supplies of goods, determine the evidence that they will be able to collect as well as the appropriate procedures to collect and keep it, including the new purchaser statement.
As from January 2020, the importance of quoting the purchaser’s VAT number in cases of intra-EU supplies (goods transported from one Member State to another) will become even more important than it is currently. In fact, it will become a substantive condition instead of a formal one.
Practically speaking, not quoting the VAT number of the purchaser or quoting an invalid VAT number will imply that intra-EU supplies of goods will not be VAT exempt in the Member State of departure of the goods and that the local VAT will instead be due. This could subsequently have a significant financial impact.
Businesses performing intra-EU supplies of goods should ensure that they have appropriate measures and procedures in place to check their clients’ VAT registration numbers systematically, easily and reliably.
Determining which transaction in a multiple supply chain of sales is the intra-EU supply, and can therefore potentially benefit from the exemption, is likely to become clearer following changes in 2020 surrounding the transportation of goods arranged by an intermediary supplier (i.e. where goods are dispatched or transported by the intermediary or by a third party acting on its behalf).
In principle, the supply between the original supplier and the intermediary will be considered the intra-EU supply and therefore will be exempt, except if the intermediary provides to the original supplier the VAT number under which he is registered in the Member State of the original supplier.
Businesses should therefore verify any contractual arrangements applicable to chain transactions that they are involved with, including those more complex and involving several intermediaries and transports.
Depending on the final terms of Brexit, some of these changes may no longer affect UK based businesses if the UK leaves the EU. However, the changes come into effect from 1 January 2020 so businesses need to take action now in order to remain compliant. Irrespective of Brexit, many businesses will continue to have an interest in the movement of goods across the EU so will need to be aware of, and comply with, these changes.
The above information is for guidance purposes only. It does not amount to, nor should it be construed as, any form of tax, VAT or legal advice. We recommend that the appropriate professional advice be sought before entering into any transactions of this kind.