May 2014

VAT survey on supplies of goods

Tax Alert

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Alternative Taxation models for the VAT treatment of Business to Business Cross-Border Supplies of Goods

The current VAT treatment of supplies of goods between businesses (B2B) can be complex and can differ across the 28 Member States of the European Union. The current rules for intra-EU trade state that a supplier must invoice goods at the zero rate of VAT, and that the customer must account for acquisition VAT in the member state of arrival.

For businesses, the current model can be seen as a deterrent to participating in intra-EU trade, therefore they are not able to fully capture the benefits of the single market. In order to address this, we have been appointed by the European Commission to analyse the impact of current legislation whilst assessing the economic impact of five alternate taxation models. Following on from our previous communication, we thought that it would be useful to provide a brief description of each of the alternative options proposed by the European Commission.

Option 1b: Improving the current rules without modifying them fundamentally

This option essentially maintains the status quo, whilst seeking to harmonise the VAT treatment applied to call-off stock (and consignment stock) arrangements, and also chain transactions, as well as the form of documentation to be held to support the exemption of the intra-community supply. In order to have consistency across all Member States, this model suggests amending the following key items:

i) Where there is call off stock (i.e., where the customer is known prior to dispatch of the goods), the cross border transfer of goods would be treated as an -intra-EU supply at the time that the buyer removes the goods from stock. The supplier and the customer would need to maintain a register of all goods dispatched/transported, and also submit a recapitulative statement which would indicate that the transfer of the goods will be disregarded for VAT purposes until the customer removes the goods from stock.
ii) For consignment stock (i.e., where the customer is not known prior to dispatch of the goods), the VAT treatment should be aligned to that of call off stock mentioned above.
iii) For chain transactions, there are two alternative VAT treatments proposed. Firstly, that the exemption should apply to the first supply in the chain which takes place in the Member State where the goods are dispatched or, alternatively, that the exemption should apply to the supply of goods by the person who then arranges the transport of the goods.
iv) The following options that are currently granted to Member States would become mandatory:

  • Domestic reverse charge for supplies carried out by non-established businesses
  • In the case of triangulation the ability for a non-established business to appoint a tax representative
  • The scope for exemption will be extended to services linked to intra-EU acquisitions
  • The supply of goods which are intended to be placed under warehousing arrangements (other than customs warehousing) will be exempt, when the goods are removed and transported to another member state the person removing the goods is deemed to have carried out the intra-EU supply

v) Suppliers who exempt intra community supplies would be required to hold a mixture of non-contradictory commercial evidence and other associated documents.

Option 2a: Adapting current rules whilst still following the flow of goods with the supplier charging the VAT of the Member State of destination.

In this option the supplier has obligation to collect and account for VAT in the member state of arrival.

  • Where goods are transported, the place of supply will be where the goods are located at the time when the transport ends.
  • Where goods are not transported, the place of supply continues to be the place where goods are located at the time when the supply takes place.
  • The transfer of goods forming part of a supplier’s business assets is treated as a supply of goods.

If the supplier is not established in the Member State of taxation, he will report the VAT due in the Member State of taxation using an enhanced One Stop Shop (essentially this would allow the offsetting of input tax against output tax due).

This would require Member States to standardise the definitions of products eligible for reduced rates and to make this information readily available. Or an alternative suggestion is that regarding B2B supplies the standard rate is applied.

There are various possible simplifications provided, for example:

  • Customers could become “Certified Taxable Persons” and account for the VAT using the reverse charge procedure
  • In relation to supplies between entities within the same corporate group the customer could account for VAT using the reverse charge procedure
  • This approach could be extended to services

There are various anti-fraud measures provided, for example, customers could be required on their VAT return to include the non-established suppliers VAT number when making a deduction for the VAT charged by the non-established supplier.

Option 2b: Adapting current rules whilst still following the flow of the goods with the customer applying the reverse charge mechanism.

In this model instead of there being two taxable supplies on the movement of the goods (i.e., an intra-EU movement and a corresponding intra-EU acquisition), this is replaced by a single transaction (i.e., the supply of the goods). In this model the reverse charge mechanism is applied to the movement of the goods cross border, and the customer is required to account for VAT irrespective of whether the customer is established in the Member State of arrival of the goods.

As in Option 2a:

  • Where goods are transported, the place of supply will be where the goods are located at the time when the transport ends.
  • Where goods are not transported, the place of supply continues to be the place where goods are located at the time when the supply takes place.
  • The transfer of goods forming part of a supplier’s business assets is treated as a supply of goods.

Therefore this model would require the customer to register for VAT in a Member State where they have no establishment.

In addition suppliers would be required to register in the Member State to which they have transferred their own goods.

Option 4b: Aligning the rules governing the place of supply of services with the customer applying the reverse charge mechanism.

Once again in this model there is a single transaction - the supply of the goods

  • The place of supply where goods are provided to a taxable person will be where the customer has established his business.
  • However, if those goods are provided to a fixed establishment of the taxable person located in a place other than the place where he has established his business, the place of supply of those goods shall be the place where that fixed establishment is located.
  • In the absence of such place of establishment or fixed establishment, the place of supply of goods shall be the place where the taxable person who receives the goods has his permanent address or usually resides.
  • The transfer of goods forming part of a supplier’s business assets is not treated as a supply of goods.

This option would therefore not require the customer to register for VAT in Member States where they have no establishment, nor would it require a supplier to register where they transfer their own goods.

As the customer will account for the VAT via the reverse charge mechanism, there is no need for a full One Stop Shop. Instead, a Mini One Stop Shop will be used in two situations: firstly, where goods are supplied to a non EU customer but are staying in the EU and secondly, in relation to other supplies made by the supplier for example, B2C supplies.

There are various anti-fraud measures provided, for example, customers could be required on their VAT return to include the non-established suppliers VAT number when making a deduction for the VAT charged by the non-established supplier.

Option 5a: Aligning with the contractual flows with the supplier charging the VAT of the Member State of destination.

In this option the supplier has obligation to collect and account for VAT in the member state where the contracting party is established.

  • Irrespective of whether or not goods are transported, the place of supply of goods will be where the contracting party (the customer) is established.
  • The transfer of goods forming part of a supplier’s business assets is not treated as a supply of goods.
  • If the supplier is not established in the Member State of taxation, he will report the VAT due using the enhanced One Stop Shop.

There are various possible simplifications provided, for example, customers could become “Certified Taxable Persons” and account for the VAT via the reverse charge procedure, or if the supply is between two entities within the same corporate group, the customer would account for VAT under the reveres charge procedure.

There are various anti-fraud measures provided, for example, customers could be required on their VAT return to include the non-established suppliers VAT number when making a deduction for the VAT charged by the non-established supplier.

Business Survey

A key component of the study is a survey that will be targeted towards businesses in all member states. Our survey aims to capture information from business that will help us to populate a number of economic analysis tools so that we can assess the financial impact on business of the current taxation model, and then compare this to each of the proposed alternate models as well as assess the financial impact for the revenue authorities an the wider economy as a whole. We would therefore like to encourage business – and in particular, small and medium enterprises - to engage with this survey and help to test whether current VAT rules may be acting as a brake on greater involvement with intra-EU trade.

Why is this survey important to you?

Do please look out for links to this survey when it launched on 12 May. This is an opportunity for you to influence future legislation that will impact your business where it is involved in any B2B cross-border supplies of goods. Your input will be invaluable. The proposed options could affect how you do business across the European Union in the future.

Download the Tax Alert (pdf, 558kb).