Status: Approved
Date of entry into force: 1 January 2020
Scenario before 1 January 2020
The Intra-Community supplies of goods benefited from zero-rate treatment when the following substantive requirements were met:
- transport of the goods from one Member State to another; and
- capacity of the customer as a taxable person.
Moreover, other requirements applied but those were considered to be formal requirements rather than substantive. The failure of those requirement could trigger the imposition of penalties by the tax authorities but not the lost of the zero-rate treatment. Theses formal requirements were:
- VAT identification number of the customer in a Member State other than where the transport began; and
- reporting the intra-Community supply of goods in the recapitulative statements.
Scenario from 1 January 2020
As of 1 January 2020, new substantive requirements have been added. The failure to meet those could trigger the rejection by the tax authorities of the zero-rate to the Intra-Community supplies of goods. As a consequence, VAT in the country of departure of the goods should be charged by the supplier. These new requirements are:
- the transport of the goods between EU Member States (remains as a substantive requirement);
- the former requirement of the capacity of the customer as a taxable person is replaced with 2 new substantive requirements, namely:
- the taxable person or non-taxable legal person for whom the supply is made is identified for VAT purposes in a Member State other than that in which the dispatch or transport of the goods begins; and
- this taxable person or non-taxable legal person for whom the supply is made has indicated his VAT identification number to the supplier. The fact that the supplier has mentioned the VAT identification number of his customer in the invoice is sufficient to consider that the customer has indicated his VAT identification number to the supplier;
- the submission of a recapitulative statement by the supplier reporting about the intra-Community supply of goods moves from being considered formal to a substantive requirement, unless the supplier can duly justify his shortcoming to the satisfaction of the competent authorities
At first glance, the application from a technical point of view of this quick fix seems to be straight forward. However, many questions arise about its implementation, and the Explanatory Notes (see below the related documents and links) give answers to some of them. Issues dealt in the Explanatory Notes, among others, are:
- Inexistence or no indication of a VAT identification number of the customer
- The immediate consequence is that the supplier has to charge VAT in the country of departure of the goods. The question is whether the customer will have the right to claim for a VAT refund according to Directive 2008/9 – while the Explanatory Notes confirm the validity of this option, the Tax Administrations of different EU countries have expressed its reluctance to this and their preferred option is the supplier correcting the invoice once receiving a posteriori the VAT identification number of its customer.
- In the case of EU Member States not providing a VAT identification number to businesses when those only perform exempt Intra-Community acquisition of goods. The Explanatory Notes highlight the need for businesses, even if their intra-Community acquisition are exempt, to be registered for VAT purposes in the Member State where the intra-Community acquisition has taken place. Member States cannot refuse the registration and later application of the reverse charge mechanism.
- The fact the supplier charges VAT on the supply because the substantive requirement to apply the zero-rate are not met does not have an effect on the VAT treatment of the intra-Community acquisition made by the customer in the Member State where the dispatch or transport of the goods ends (Article16 Implementing regulation).
- The client has requested a VAT number but not yet obtained (VAT number given a posteriori) – VAT refund? Correction of invoice?
- Supplier dealing with customers established in EU Member States where there are different VAT identifications depending on whether the business only trade domestically or at an intra-community level should make sure that the VAT identification number provided by their customers is the one with containing the country prefix and that it is in the VIES.
- When the customer is a member of a VAT group the supplier needs the VAT identification number of the group in order to apply the zero-rate (ECJ, C-162/07 Amplifin) (e.g. NL)
- Interaction with other quick fixes: the quick fix on zero-rate Intra-Community supplies of goods has an immediate relation when the quick fix on call-of stock arrangements and on chain transactions since for both the suppliers also need their customers to be VAT identified to apply the zero-rate. More relevant, when the quick fix on call-off stock arrangement cease to apply with the need of the supplier to be VAT registered in the country of arrival of the goods to apply the zero-rate treatment to the deemed intra-Community supply of goods.
- Being the submission of the recapitulative statement essential for the application of the zero-rate – what should be considered a justification of the shortcomings regarding a non or incorrect reporting? The Explanatory Notes mention the following situations as examples of duly justification:
- Inclusion of the transaction in the recapitulative statement covering the subsequent period.
- Transaction informed in the correct recapitulative statement but the value has been unintentionally wrongly reported.
- Re-structuring of the company acquiring the goods.
- Others questions still remain unanswered (e.g. typo in the VAT number? Failure of the VIES data system? CJEU case law acting in good faith or not?
Moreover, recital 7 of Council Directive (EU) 2018/1910 of 4 December 2018, states:
- the relevance of the recapitulative statement in the fight against VAT fraud; and
- it mentions that the VAT exemption of article 138 of the Directive 2006/112 should not be refused when the supplier is acting in good faith, which could also include the provision by him of the correct information to be reported in the recapitulative statements at the time to justify before the competent authorities the shortcomings relating to reporting obligations.
Our VATinsights:
- The quick fix brings more administrative burden for businesses which is doubtfully balanced with its main goal (i.e. tackle VAT fraud).
- It is necessary for businesses to control all their call-off stock arrangement in a way that allows them to foresee in advance when the quick fix for those will cease since they will need to be VAT identified in the country where the goods are stocked in order to apply the zero-rate to the deemed intra-Community supply of goods.
- After the entry into place of this quick fix, the recapitulative statement will be of special importance. Businesses should guarantee the internal processes to make sure those are take care properly as well as train their staff.
- Businesses’ should road in the ERP systems correction of invoices, amendment of future recapitulative statements, and mention of valid VAT id number in the invoices and cross-reference and reconciliation of the relevant data.
Suggested reading:
Jordi Sol Rosa, 2020 Quick Fixes: Simplification or More Complexity for Businesses? – The Explanatory Notes, 31 Intl. VAT Monitor 3 (2020), Journal Articles & Papers IBFD (accessed 30 May 2020) – https://www.ibfd.org/IBFD-Products/Journal-Articles/International-VAT-Monitor/collections/ivm/html/ivm_2020_03_e2_4.html
Relevant documents and links:
Implementing Regulation 2018/1912
National transposition measures communicated by the Member States concerning VAT quick fixes