Important changes for international trade
The VAT rules for international trade will change as of 2020 on important topics. EU Member States have already or are finishing the implementation of these new rules. But what does it mean for businesses? Do you know the impact of the new rules on your situation?
Four quick fixes
The changes in VAT legislation applying as of 1 January 2020 to international trade within the EU are called the quick fixes. They intend to simplify and repair some situations under the current EU VAT system. The intention of the European Commission is to replace the current system with a new VAT system that should apply as of 1 July 2022. However, this new VAT system has not been adopted yet by the EU Member States and it is uncertain whether EU Member States will achieve agreement on this particular file.
The four quick fixes applying as of 1 January 2020 are:
- New substantive requirements for application of the exemption/zero rate
- A rebuttable presumption for proving the transport in relation to a supply
- A simplification for chain transactions
- A simplification for call-off-stock
New substantive requirements for application of the exemption
A supply currently qualifies as an intra-Community supply if certain conditions are met:
- The ownership of the goods is transferred
- The customer is a VAT entrepreneur or another person required to report intra-Community acquisitions
- The goods are transported from one EU Member State to the other in relation to the supply (transport requirement). It is of no relevance whether the goods are transported by the supplier or customer.
If the conditions of the intra-Community supply are met, the supply is exempt from VAT (with a right to deduct VAT). The customer must report an intra-Community acquisition in the Member State of arrival of the goods.
As of 1 January 2020 two new conditions apply for application of the exemption for intra-Community supplies:
- The supplier has a valid VAT identification number of its customer from an EU Member State different from the Member State of departure of the goods.
- The supplier files a correct intra-Community Sales Listing. In this Sales Listing the supplier amongst others specifies its intra-Community supplies.
If no correct Sales Listing has been filed the supplier can correct this. Whether this is sufficient for application of the exemption is at the discretion of the tax authorities.
In order to apply the exemption, a supply must meet all conditions for an intra-Community supply. This includes the proof that the goods have been transported from one EU Member State to another. As of 1 January 2020 a rebuttable presumption applies stating that the goods are assumed to be transported from one EU Member State to the other if the conditions of the presumption are met. The presumption applies in all EU Member States. A supplier is presumed to meet the transport requirement if he or she collects two pieces of evidence that are non-contradictory and from two independent parties. The pieces of evidence that can be used are restricted to certain evidence mentioned in the legislation. If transport takes place by the customer or on his or her behalf the supplier must also possess a written declaration of the customer that meets certain conditions. If the supplier does not possess the pieces of evidence of the presumption he or she can still prove the transport using other documents. The presumption can be rebutted by the tax authorities. In that case the supplier can still prove the transport using other documents.
Simplification for chain transactions
A chain transaction is a transaction where A sells goods to B and B subsequently sells the goods to C. The goods are transported directly from A to C. For VAT purposes there are two taxable supplies: the supply from A to B and the supply from B to C. Where the goods are transported from one EU Member State to another only one of the supplies is the intra-Community supply. There are two options:
- The A-B supply is the intra-Community supply. A needs to report the intra-Community supply in the Member State of departure. B reports an intra-Community acquisition in the Member State of arrival. The B-C supply is a local supply subject to VAT in the Member State of arrival.
- The B-C supply is the intra-Community supply. B needs to report the intra-Community supply in the Member State of departure. C reports an intra-Community acquisition in the Member State of arrival. The A-B supply is a local supply subject to VAT in the Member State of departure.
If B arranges the transport of the goods the transport can be either ascribed to the A-B or the B-C supply. As of 1 January 2020 it is important which VAT number B uses for the transaction in such a case. As of 1 January 2020 the main rule is that in case of chain transactions the intra-Community supply is the A-B supply. However, if B provides A with a VAT identification number of the Member State of departure of the goods, then the B-C supply is the intra-Community supply. The new rule only applies if B arranges the transport. The simplification can be used in longer supply chains too. The 2020 simplification does not affect the already existing simplified triangulation rule. This rule will be maintained.
Simplification for call-off-stock
Regularly two businesses agree that one of them will transfer a stock of its own goods to the EU Member State of the other. The ownership of the goods is not directly transferred to the customer, but is transferred at the moment the customer takes the goods from the stock.
Because the ownership of the goods is not transferred at the moment the goods are transported from one EU Member State to the other, there is not yet a supply of goods for VAT purposes. Instead, the transfer of own goods is deemed a supply of goods from the business transferring the goods to itself. Consequently, this business needs to report a deemed intra-Community supply in the Member State of departure of the goods and a deemed intra-Community acquisition in the Member State of arrival. As a consequence, the business will need to register for VAT in the Member State of arrival and file VAT returns there.
Many EU Member States already have simplifications implemented to deal with the VAT consequences of call-off-stock. As of 1 January 2020 an identical simplification will apply for call-off-stock in all EU Member States. Under the simplification, the transfer of own goods will trigger no VAT consequences. But, when the customer takes goods from the stock the supplier will need to report an intra-Community supply in the Member State of departure of the goods. The customer will need to report an intra-Community acquisition in the Member State of arrival of the goods. This simplification thus avoids the VAT registration of the supplier in the Member State of arrival of the goods. The simplification is subject to certain conditions that must be met at the moment of the transfer until the moment the goods are taken from the stock and the ownership is transferred to the customer. Goods must be transferred to the customer within a 12-month period.
EU Member State’s implementation
Even though these new rules apply EU wide, the new rules, except the rebuttable presumption, have to be implemented by EU Member States and applied by local tax authorities. When implementing or interpreting these new provisions differences may occur. EU explanatory notes are expected shortly, but these are not legally binding. It is therefore always important to consult a local tax advisor.