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Major reform of VAT on trade within the EU begins

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The transitional solution for intra-community trade introduced more than 25 years ago is to be replaced by a definitive VAT system. Ronny Langer of KLMZ discusses the first proposals published by the European Commission.

On October 4 2017, the EC released the proposals for Council Directives and explained the new system’s basic structure.

In the first phase, the taxation of intra-community supplies will be converted by 2022. Cross-border deliveries of goods should be handled in the same way as domestic supplies in the member state of destination and be subject to the VAT rate applicable there. Generally, the supplier should be liable to pay the VAT in its country of establishment through a one-stop shop. However, during the first phase, as an exception and transitional solution, the VAT liability may be shifted to the acquirer if the acquirer has the status of a certified taxpayer (Article 13a of the VAT Directive). In order to obtain this status, the taxpayer must not have committed any serious or repeated infringements of taxation rules or customs legislation or any serious criminal offenses relating to the economic activity. He must also be able to demonstrate a high level of control of his operations and of the flow of goods, as well as evidence financial solvency. If the applicant is a taxable person, who has been granted the status of an authorised economic operator for customs purposes, these criteria shall be deemed to have been fulfilled.

In the second phase, the destination principle will be extended to all services. Only the suppliers should then be liable to pay the VAT for all supplies of goods and services. However, this extension should take place, at the earliest, five years after the introduction and evaluation of the first phase.

While the final VAT system is being introduced during the next few years, the current system shall be improved with some quick fixes in the short-term in the following areas:

  • Consignment stocks (Article 17a of the VAT Directive): The intra-community transfer of goods to the member state of destination, followed by the local supply shall be treated as a direct intra-community supply under certain criteria. The supplier and the customer must both be certified taxpayers.

  • VAT ID Number (Article 138, paragraph 1 of the VAT Directive): The VAT exemption for intra-community supplies should be subject to the requirement that the customer is registered for VAT purposes in another member state. In addition, the supply must also be included in the EC sales list. Hence, the VAT ID number listed in VIES (VAT information exchange system) is intended to be a material requirement for the VAT exemption.

  • Chain transactions (Article 138a of the VAT Directive): For chain transactions where the intermediary is responsible for the transport and the first supplier as well as the intermediary are certified taxpayers, uniform regulations as to how the transport is to be ascribed are to be introduced. The transport is to be ascribed to the supply of the supplier to the intermediary, if: (i) the intermediary communicates the name of the member state of destination; and (ii) the intermediary is registered in a member state other than that in which the transport begins.

These amendments are expected to come into force from January 1 2019.

This article was written by Ronny Langer, partner at Küffner Maunz Langer Zugmaier.

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