The EU VAT regime applicable to cross border supplies of goods is complex and insecure. It is due to undergo huge reforms over the next few years. The current ‘temporary’ systems will be replaced by 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 came into place January 1st 2020. The reforms, known as ‘quick fixes’, cover the following areas:
- Call-off stock
- Proof of cross-border transportation
- Customer VAT number
- Chain transactions
Companies involved in cross-border supplies of goods should consider the possible impact of these ‘quick fixes’ on their businesses in order to mitigate VAT risks and seize the opportunities.
- EU cross-border call-off stock supplies
From January 1st 2020, all Member States are 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.
- Documentary evidence of proof of EU transport
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.
- Mandatory VAT ID nummer verification for EU supplies
As from January 2020, the importance of quoting the purchaser’s VAT number in cases of intra-EU supplies 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.
- EU cross border chain transactions
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.