Since January 1 2020, following the entry into force of Directive 2018/1910, the so-called ‘quick fixes’ for VAT have been implemented at an EU level to harmonise and simplify certain aspects of intra-community trade of goods.
The quick fixes are intended to address several practical problems affecting the following intra-community operations: call-off stock arrangements, chain transactions, the obligation to count on a VAT ID number to be able to exempt intra-community supplies of goods and the documental proof of transport of intra-community movements of goods.
The reason why they are known as quick fixes is because they are interim measures until the definitive system of taxation at destination comes into force, which at present seems difficult, however, this is an idea that is by no means abandoned.
Unfortunately, these solutions are far from perfect and pose a number of problems in their implementation that jeopardise the real aim, which is the harmonisation and simplification of the EU VAT treatment of the above-mentioned intra-community transactions.
One of these problems may create situations of double taxation and irrecoverable VAT which must always be avoided if the principle of VAT neutrality is to be preserved. We are referring to the quick fix related to the VAT ID number on intra-community supplies of goods and the interactions between Article 138 of the VAT Directive, Article 16 of the VAT implementing Regulation 282/2011 and Article 4 of the Directive 2008/9, on VAT refunds for not established taxable persons.
According to the wording of Article 138 of the VAT Directive in force since January 2020, in case the recipient of goods in an intra-community supply of goods does not count on a VAT identification number allocated by the tax administration of a member state other than the state of shipment of the goods, the supplier may legitimately charge VAT on the supply as the requirements for the exemption to apply are not fulfilled.
At the same time, in Article 16 of the VAT Implementing Regulation member states exercise their power of taxation of intra-community acquisitions of goods “irrespective of the VAT treatment applied to the transaction in the Member State in which the dispatch or transport began”.
On a literal interpretation of these two VAT provisions, the controversy is open as it is possible for the supplier to charge VAT to his customer in the member state of dispatch of the goods and at the same time the latter can be taxed on the purchase in the country or arrival of said goods.
As the current common system of VAT is designed, situations like the above should be avoided. However, with the addition of the mandatory VAT number requirement for intra-community supplies of goods, this situation could occur in practice.
The situation can become more problematic for taxable persons as obtaining a refund of the VAT that has been charged to them can be a complicated task. In this respect, Article 4 of the VAT Directive on refunds for not established entrepreneurs expressly excludes cases where VAT has been charged as part of an intra-community supply.
If, according to the above, no refund is possible following the Directive procedure, the VAT charged by the supplier should be recovered by issuing corrective invoices once the recipient has a VAT number in place.
The conditions for issuing corrective invoices are far from being uniform among member states, subject to different requirements in terms of format, content and especially, timing. This disparity of criteria will make difficult in some cases to obtain the refund of the VAT charged.
Those taxable persons facing this type of situation will, therefore, find themselves in a kind of legal limbo in which they have been taxed in the member state of dispatch of the goods, they have also been taxed in the member state of arrival and, in addition, they may encounter enormous difficulties in obtaining a refund of the VAT charged.
The above is not a hypothetical problem. By strictly applying the current EU VAT legal provisions, it is something that could occur with some frequency and some action to mitigate this would be needed.
Having a VAT number when doing intra-community transactions is important but there are many situations where a taxable person may not have one at the time of a particular transaction occurs and given the slow allocation processes in some member states, it may take a considerable time to obtain it. A practical solution should therefore be provided.
Reviewing Article 4 of Directive 2008/9, which precisely regulates the cases in which the Directive does not apply, could be a good place to start.
Fernando Matesanz
Managing director, Spanish VAT Services
