Starting from the 1st of January 2020, an EU-wide VAT reform has been implemented for the cross-border supply of goods within the EU. The so-called “Quick Fixes” are meant to improve the current business-to-business (B2B) VAT rules concerning intra-community (IC) supplies before the introduction of the “definitive” VAT system, which is expected to replace the old one in July 2022. This way, businesses will have a clearer understanding of their VAT obligations and in which countries they have to apply for VAT registration. The 4 reforms also aim to improve areas that are vulnerable to VAT fraud.
Call-off stock simplification
To ensure complete customer satisfaction, most suppliers have several warehouses in their state or different countries in the EU and transfer the goods where most regular buyers are located. Until the products are picked up by the customers, they are call-off stock, the property of the supplier.
The current regulations deem any transfer of these supplies to the call-off stock to be an intra-Community acquisition in the EU Member State it arrives to and that it’s an intra-Community supply in its own EU Member State. The suppliers have to do a VAT registration in the countries where their warehouses are located but simplification arrangements for call-off stock are different in each state.
The new reform aims to harmonize these rules: any transfer of products to a warehouse in another EU Member State is no longer considered to be an intra-Community supply but rather an acquisition. Only when the buyers pick up the goods do they become a direct intra-Community supply to the customers. This way, suppliers don’t have to register for VAT in countries where the supplies arrive, and the VAT payment falls to the customer.
This simplification introduces new obligations to those that implement it. Customers and suppliers must have a register that adheres to specific conditions. Furthermore, suppliers transporting goods to foreign stock must be reported on the EC Sales List. If these requirements aren’t met, then they have to apply for VAT registration.
When a chain transaction of consecutive supplies of products happens between three or more taxable persons in different EU Member States, intra-Community goods transport is attributed to only one party. This way, the zero VAT rate for this type of goods only applies to only one supply, and others are deemed local supplies of goods. This system still confuses most as to which exact party should be attributed IC goods transport.
The second reform clarifies both chain transactions and transport responsibility:
- If the products were dispatched/transported by the first party, then the movement is attributed to their first supply as the exemption can only be applied to it.
- If the intermediary dispatches/transport the products, then the delivery to this party is deemed moved delivery. This applies only if the intermediary hasn’t provided their VAT number of the country of departure to the supplier.
- The if the last recipient transports the goods, then IC goods transport is attributed to them as the tax exemption is only attributed to the last delivery.
Additional conditions for exempting IC supply
A customer’s VAT identification number is a formal requirement when applying for a tax exemption for IC goods, meaning that suppliers could apply for a zero VAT rate without providing a buyer’s VAT number. Naturally, companies could take advantage of this and pay less in taxes.
The third reform states that suppliers are required to provide the customer’s VAT number regarding IC goods if they want to get a tax exemption. Failure to do so will result in the supplier being unable to apply for a zero VAT rate anymore. Additionally, they have to file for the EC Sales List as well.
Harmonized proof of transport for IC supplies
Suppliers can apply for the zero VAT rate and not do a VAT registration if they can prove that their goods were dispatched from one EU Member State and transferred to another. The problem is that these regulations differ from country to country, causing problems for the companies and additional administrative expenses.
The fourth reform clarifies how suppliers can prove the transport of their products. Now, sellers need at least two non-contradictory pieces of evidence out of the list that this new legislation outlines, for example, CMR, transfer, insurance documents, or a VAT identification number of the country from which the goods were dispatched. If the buyer or a person on their behalf takes care of the transport of the products, then they have to provide a written statement to the seller that they were transferred to the destination country.
administrative and order processes are strongly advised to act promptly and comply. Doing so will not only make compliance with VAT regulations easier but will benefit the business as well.