On January 1 2020, the “quick fixes” to the EU’s VAT regulations were transposed into Luxembourg law. These measures aim to simplify, clarify, and harmonise rules applicable to certain intra-Community supplies of goods. The EU VAT Committee (a group of representatives from the VAT authorities of EU member states) recently published guidelines to clarify the application of the rules.
Although not binding, the guidelines are noteworthy as they reflect the collective view of the national VAT authorities in the EU member states. The most salient ones are examined in the briefing.
A supplier that has call-off (or consignment) stock in another member state may be exempt from VAT registration in that member state under certain conditions. Based on a strict interpretation of the legislation, the loss of goods under call-off stock arrangements would be treated as a transfer of the goods. However, because losses typically are almost unavoidable, the committee decided almost unanimously (i.e. 24 to 27 member states out of 28) that “small” losses should be acceptable and would not be treated as a transfer of the goods and a large majority (i.e. 19 to 23 member states out of 28) decided that “small” losses should be defined as losses that amount to less than 5 percent in value or quantity of the stock.
The committee decided unanimously that a supplier that is VAT-registered in the member state where the call-off stock is transported may qualify for the call-off stock arrangement simplification (i.e., VAT registration exemption), but not if it has a fixed establishment in that member state (even if the fixed establishment is not involved in the stock). The committee also unanimously decided that the warehouse to which the goods are transported is not a fixed establishment for VAT purposes when run by a third party. However, a large majority of the committee found that the supplier should be treated as having a fixed establishment if the supplier is the owner (or lessee) of the warehouse and it runs the warehouse by its own means. In this case, the supplier will not qualify for the simplification.
Conditions for VAT exemption for the intra-Community supply of goods
An intra-Community supply of goods between taxable persons is VAT-exempt in the member state of departure under certain conditions. The VAT Committee unanimously decided that the conditions for the exemption must be satisfied at the time that the supply is made. It also decided almost unanimously that the VAT authorities could revoke the exemption retroactively if the supplier has not reported or incorrectly reported the supply in its European sales listing, unless it is able to justify this shortcoming “to the satisfaction of the competent authorities.” Various authorities may interpret the term “satisfaction” differently as it is not defined in the guidelines.
The VAT Committee agreed unanimously that the supplier must indicate the purchaser’s VAT number issued by a member state other than the state of departure for the VAT exemption to apply. The committee noted that this was a substantive condition.
Another condition is that the supplier or the purchaser, or a third party acting on their behalf, must dispatch or transport the goods from one member state to another. The supplier must hold two separate documents proving that the transport occurred. The documents must be chosen from two lists that include, for example, transport, insurance, and CMR (transport) documents. Moreover, the person issuing these documents must be independent from the supplier and the purchaser.
The VAT Committee decided almost unanimously that any person related by “family or other close personal ties, management, ownership, membership, financial or legal ties” pursuant Article 80 of the VAT Directive should not be considered independent for these purposes. This may be problematic for persons transporting the goods themselves and/or group companies using their own transport company. In fact, the transport documents they issue would not qualify as valid proof of transport even though such documents would be the most obvious proof of transport. Contrary to well-established principles, the way a business is organised may affect the application of the VAT rules.
A simplification applies when goods are transported directly from one member state to another but the intermediary buyer/seller is established in a third member state. Under certain conditions, the intermediary does not have to register in the member state of departure or arrival of the goods as would be the case under normal VAT rules.
The VAT Committee decided almost unanimously that this simplification applies when the intermediary buyer/seller provides to the first seller a VAT number issued by a member state other than the member state of departure of the goods. This implicitly confirms that, as is already the position of various member states, the intermediary may be VAT-registered in the member state of departure to the extent that it provides to the first seller a VAT number issued by another member state. This may be of interest to many businesses involved in the EU cross-border trade.
Despite their aim to simplify and harmonise the EU VAT rules, the quick fixes leave many questions unanswered. Nevertheless, businesses and practitioners may find some guidance in the VAT Committee guidelines.
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