The road to the new definite VAT system: Quick Fixes January 1, 2020

Erstellt von Marion Fetzer | |  BTadvice 2019-Q4

Some time ago, the EU Commission has proposed several reforms of the VAT system that are aimed at improving and modernizing the levy of VAT. The central element of the proposal consists of a new system for the levy of VAT on cross-border intra-Community supplies of goods. Even though the proposal is still pending, the EU legislator has already adopted four measures which are meant to improve the current system. These so-called ‘Quick Fixes’ become effective as of January 1, 2020 and have been implemented into German law with the “Jahressteuergesetz 2019” (adopted on November 29, 2019).

In this article, we want to inform about four Quick Fixes, which relates to the VAT treatment of call-off stock, allocation of transport for chain transactions, proof of the cross-border transport of goods and the obligation to obtain and document VAT identification numbers of customers with a special focus on the German perspective.

Quick Fix 1: The simplified VAT treatment of call-off stock

In order to make sure that goods are at the disposal of customers at all times, suppliers often hold stock at the premises of their customers. If the stock is transferred from one EU Member State to another EU Member State, the supplier is often confronted with a VAT registration and reporting obligation in the Member State where the stock is transported to. In case no simplification is in place, the transfer leads to a deemed intra-Community supply in the Member State of dispatch and an intra-Community acquisition in the Member State of arrival, both of which are to be reported by the supplier. At the moment the customer removes the stock from the warehouse, the supplier is generally considered to perform a domestic supply of goods in the Member State where the goods are located. 

Currently, several Member States have simplification measures in place. Such measures often imply that the actual supply of goods to the customer is being considered as a zero-rated (or VAT exempt) intra-Community supply of goods by the supplier in the Member State of dispatch. The customer must report the intra-Community acquisition of the goods in the Member State of arrival.

New rules: Quick Fix for call-off stock
The current simplification measures for call-off stock differ per Member State. In fact, some Member States have not even implemented any into their national legal order. This leads to complexities and legal uncertainty for businesses who operate in a cross-border context. In order to solve this problem, the EU legislator has decided to adopt a uniform simplification measure which will be implemented in all EU Member States.

On the basis of the new measure, the transfer of own goods (call-off stock) from one Member State to the other will no longer be regarded as a fictitious intra-Community transaction. At the moment that the customer withdraws the goods from the stock, the supplier carries out an intra-Community supply of goods in the Member State from which the stock was transported in the first place. The customer is required to report an intra-Community acquisition in the Member State where the goods have been transported to.

In order to apply the simplification measure, businesses need to adhere to certain conditions. The most important ones are the following:

  • the goods are dispatched to another Member State by the supplier or on his behalf with the intention that the goods will be supplied to the customer at a later stage after arrival;
  • the customer is a taxable person;
  • the customer is entitled to take ownership of the goods based on an existing agreement between the supplier and the customer;
  • the supplier is not established nor has a fixed establishment in the Member State of arrival;
  • the customer has a VAT identification number in the Member State of arrival of the goods;
  • the supplier has information about the identity of the customer plus the VAT identification number of the customer in the Member State of arrival prior to the moment of dispatch; 
  • both the supplier and customer must keep a special register of those goods, specific information must be included in this register;
  • and the goods must be supplied to the customer within 12 months after arrival of the goods.

In case the conditions are not met or if one condition is not met anymore, the simplification measure for call-off stock cannot be applied. In that case, the supplier is likely required to register for VAT purposes in the Member State in which the call-off stock is located.

Quick Fix 2: The allocation of transport for chain transactions

A chain transaction consists of multiple subsequent supplies of goods (e.g. party A supplies goods to party B, who in turn supplies the goods to party C). For logistic reasons, the goods are often sent directly from the warehouse of the first supplier (in this case: party A) to the last customer (in this case: party C). When the goods are transported from one Member State to the other, the cross-border transport can only be ascribed to one of the supplies in the chain. Only that supply can qualify for the VAT exemption (zero-rate) for intra-Community supplies of goods.

The current EU VAT legislation does not contain any consistent rules for the allocation of transport in situations involving cross-border supply chains. Even though the European Court of Justice has provided some guidance by means of its case law, the lack of consistent rules means that businesses face considerable uncertainty on this point. Additionally, the different national approaches to the levy of VAT on chain transactions may lead to double taxation or non-taxation.

New rules: Quick Fix for the allocation of transport
The second Quick Fix provides a uniform, simple rule for the allocation of transport in situations involving intra-Community chain transactions. As of January 1, 2020, the rule stipulates that in case the intermediary operator (party B) arranges the transport of the goods himself (or has it arranged on his behalf through a third party like a logistics service provider), the transport of the goods must be ascribed to the first supply (i.e. the supply by party A to party B). The second supply (i.e. the supply by party B to party C) is then a domestic supply in the Member State of arrival.

The Quick Fix has a different outcome when party B provides party A with his VAT identification number of the Member State of dispatch. In that case, the transport must be ascribed to the second supply, i.e. the supply by party B to party C. The first supply by party A is then a domestic supply in the Member State of dispatch.
Please note that this Quick Fix is tailored to the scenario in which the intermediary operator (party B) dispatches or transports the good by himself or on his behalf. This means that the simplification is not applicable in the situation that party A or the end customer (party C) arranges the transport of the goods.

From a German perspective almost the same regulations are already existing in German VAT law, but the other Member States must implement the regulations in national VAT law.

Quick Fix 3: Proof of cross-border transport of goods

A supplier who makes an intra-Community supply of goods is required to have sufficient proof that the respective goods were indeed transported from one Member State to the other. The supplier needs this proof to apply the VAT exemption (zero-rate) for intra-Community supplies of goods. Currently, the EU Member States have different rules as regards this burden of proof. In practice, this often leads to discussions between businesses and the tax authorities.

New rules: Quick Fix for the burden of proof
The third quick fix is formulated as a presumption for the proof of the cross-border transport of the goods. In case the requirements are met, it shall be presumed that the goods have been transported from one Member State another. This allows the business (supplier) to apply the VAT exemption for intra-Community supplies.
The new measure contains two primary categories of documents that can be considered as proof: category A documents and category B documents. 

  • Category A documents:
    These are documents in relation to the transport of the goods. For example, a fully signed CMR transport document, a bill of lading, an airfreight invoice or an invoice from a carrier of the goods. 
  • Category B documents:
    These are other types of documents, such as an insurance policy in relation to the transport of the goods, bank documents stating the payment of the transport of the goods, official documents issued by a public authority (like a notary) confirming the arrival of the goods in the Member State of arrival, a receipt issued by a warehouse keeper confirming the storage of the goods in the Member State of arrival or a confirmation of arrival.

Under the new rules the presumption is deemed to be fulfilled if the supplier has transported the goods himself and if he has obtained at least two items of non-contradictory A documents, or two non-contradictory A and B documents. An important note to this is that the documents must be issued by two parties independent of each other and of the vendor and the acquirer. 

In the situation that the transport of the goods is arranged by or on behalf of the acquirer of the goods, the supplier must also have a special statement of the acquirer confirming that the goods have been transported to the Member State of arrival. This statement is subject to specific requirements. Finally, we note that the tax authorities are allowed to rebut the presumption.

From a German VAT perspective, the certicate of entry (“Gelangensbestätigung”) for purposes of confirming the arrival of goods in another EU Member State will be still an appropriate proof of transport to apply the VAT exemption (zero-rate) for intra-Community supplies of goods.

Quick Fix 4: Administration of the VAT identification number

New rules: Quick Fix relating to the VAT identification number
The fourth quick fix will change the current state of affairs. As of January 1, 2020, obtaining a valid VAT identification number of the customer in case of intra-Community supplies will become a material requirement for the application of the VAT exemption (zero-rate) for intra-Community supplies of goods. 

Additionally, reporting the intra-Community supply of goods in the EC Sales List will also become a material requirement, unless the supplier is acting in good faith and can justify any shortcoming in this respect. Please note that the figures EC Sales List have to be stated correctly and completely. Otherwise, intra-Community supplies can be considered as domestic supplies by the tax authorities.

How can you prepare your business?

At first you should analyze, if the quick fixes are applicable to your business processes. As the quick fixes contain different business cases the new regulations may be a chance to optimize your processes. We would like to summarize the new regulations on the Quick Fixes.

a)    Quick Fix 1, call-off stock in another EU Member State

  • If a call-off stock is already maintained, your company should reconsider their current VAT position. Slight restructuring processes of your company’s supply chain may be taken into account. Keep in mind that using a call-off stock may reduce your VAT obligations in the respective countries. 

b)    Quick Fix 2, allocation of transport for chain transactions

  • Reconsider the current structures of chain transactions. Which business case fits to the new simplification rules and how can your company achieve standardized supply chain processes to implement the simplification rule? Optimizing your companies transport concept can avoid registration obligations in other Member States.

c)    Quick Fix 3, proof of cross-border transport of goods

  • Certificate of entry (“Gelangensbestätigung”) will be still a proof for cross border transactions.

d)    Quick Fix 4, administration of the VAT identification number

  •  Regular check of validity of the customers VAT identification number.
  •  Use qualified online-check of the German Federal Central Tax Office (Bundeszentralamt für Steuern).

 

Even though the four Quick Fixes follow from EU law, Member States may implement the new rules differently. 

We hope that these explanations are helpful for you. In case one ore more of the Quick Fixes is applicable for your situation, please do not hesitate to contact us regarding more information. 

Disclaimer
All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Always consult a professional prior to making business decisions.

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