Agreement reached on “quick fixes” to improve the functioning of the current EU VAT System - Update
On 2 October, 2018, at the ECOFIN meeting the EU ministers of finance agreed on the implementation of a number of quick fixes to the current EU VAT system. These quick fixes were introduced on 4 October, 2017 in a proposal of the European Commission towards a definitive VAT system for intra-EU trade of goods. These quick fixes enter into force on January 1, 2020 instead of January 1, 2019.
Under the current EU VAT system, whenever a supplier transfers own goods to another Member State in order to constitute a stock for a customer, this supply is deemed to be an exempted intra-Community supply of goods followed by an intra-Community acquisition made by the same supplier. Each time goods are taken out of the stock the supplier makes a supply to its customer in the Member State in which the stock is located. The supplier has to VAT register in that other Member State for both the intra-Community acquisition of own goods and the local supplies of goods from the stock. Under the proposal the transfer of own goods in order to constitute a stock for the customer is no longer treated as an intra-Community supply of goods if these goods are sold within a period of twelve months. Instead, an intra-Community supply by the supplier takes place in the Member State of departure each time goods are taken out of the stock, this is followed by an intra-Community acquisition by the customer in the Member State where the stock is located. Therefore, it is no longer necessary for the supplier to VAT register in the Member State where the stock is located.
VAT identification number:
Under the current EU VAT system the invoice that is issued in regard to the cross-boarder supply of goods from one Member State to another Member State must contain the valid VAT identification number of the customer in that other Member State. This VAT identification number is also necessary to file EC sales lists and the validity of the VAT identification number is checked via the VIES system. For the application of the exemption for intra-Community supply of goods however, it is not required to have a valid VAT identification number of the customer. Starting from 2020 having a valid VAT identification number of the customer in another Member State will be a substantive requirement for the supplier to apply the exemption of intra-Community supplies of goods. Secondly, also the correct filing of the EC sales lists will be a substantive requirement for the exemption of intra-Community supplies of goods.
In case three taxable persons, each with a VAT registration in another Member State, are involved in a single cross-border supply of goods, only one transaction can qualify as an Intra-Community supply whilst the other transaction is deemed to be a local supply of goods, either in the country of dispatch or the country of arrival. The proposal aims to simplify the rules and increase legal certainty when attributing the intra-Community supply of goods in case of chain transactions. The intra-Community supply is attributed to the first transaction, unless the transport has been made by or on behalf of an intermediate supplier in the chain and this intermediate supplier communicated to his supplier his VAT identification number of the Member States where the goods are dispatched from.
Proof of intra-Community supply:
A common framework of recommended criteria will be introduced for the documentary evidence required to claim an exemption for intra-Community supplies.
The following shall be accepted as evidence of the transport or dispatch:
(a) documents relating to the transport or dispatch of the goods such as a signed CMR document or note, a bill of lading, an airfreight invoice, an invoice from the carrier of the goods;
(b) other documents:
i. an insurance policy with regard to the transport or dispatch of the goods or bank documents proving payment of the transport or dispatch of the goods;
ii. official documents issued by a public authority, such as a notary, confirming the arrival of the goods in the Member State of destination;
iii. a receipt issued by a warehouse keeper in the Member State of destination confirming the storage of the goods in that Member State.
Certified Taxable Person
In the original proposal of the EU Commission these four quick fixes were introduced together with the concept of Certified Taxable Persons (CTP). The simplification rules introduced with the quick fixes could only be used if companies involved in the transaction are CTP’s. In order to get CTP status from their national tax authorities, companies should prove their compliance on a number of harmonized criteria, including: regular payment of taxes, reliable internal control systems and proof of solvency. Although the concept of CTP was dropped in regard to the proposed quick fixes, it remains one of the essential elements in the (definitive) VAT system.
Given the fact that the current EU VAT system still is a temporary VAT system, the EU Commission hopes to kick-start the discussion between EU Member States on a definitive VAT system for intra-EU trade of goods. Please contact us if you would like to know more about the agreed upon quick fixes or the proposed definitive VAT system.