Having identified the VAT complexities for business trading in international goods, the European Council has approved the introduction of four so-called "quick fixes" to simplify international trade. The quick fixes will be effective beginning 1 January 2020.
2. Four quick fixes
a. Compulsory VAT number
Currently, the provision to the supplier by the customer of a valid VAT number is a formal requirement so that zero VAT rate is applied to intra-Community supplies of goods.
It is important to highlight, however, that according to the Court of the Justice of the European Union, the application of the zero VAT rate cannot formally be refused by the supplier due to the fact that a taxable person did not provide a valid VAT number.
With the introduction of the quick fixes rules, the requirement for the provision of a valid VAT number from the customer to the supplier is considered mandatory for applying the zero VAT rate to intra-Community supplies of goods.
b. Simplified proof of intra-Community supplies
EU countries currently maintain different rules for proving that a transportation took place between member states, creating uncertainty and significant administrative expenses and burden for businesses involved in trading in goods within the EU.
This second quick fix aims for the harmonization and simplification of the proof of transport for the purpose of applying the zero VAT rate to intra-Community supplies.
According to the new rules, for applying the zero VAT rate to intra-Community supplies, the supplier shall be in a position to provide at least two non-contradictory evidential documents that were prepared independently from each other. For example, signed CMR documents, together with a copy of payment for transport issued by the bank. As you can appreciate, logistics service providers will play a very important role based on the new rules regarding the provision of evidence for applying the zero VAT rate.
c. Uniform rules to simplify chain transactions
Chain transaction with consecutive supplies of goods between three or more taxable persons in different EU Member States, the intra-Community goods transport can only be attributed to one link in the chain. Therefore, based on this, the zero VAT rate for intra-Community supplies only applies to one supply. The rest of the supplies are local supplies of goods. As you may appreciate, this creates uncertainty again with respect to which link must be attributed to the intra-Community goods transport.
In accordance with the new rules, the starting point is that the intra-Community supply takes place in the link in which the goods are supplied to the taxable person that arranges the intra-Community transport or has this arranged. In most of the cases, this is the first supply in the "link A-B". Exceptions may apply, for example, if intermediary B, which arranges the transport (or has this arranged), gives the supplier with an EU Member State VAT identification number of the of dispatch of the goods, the intra-Community goods. In this case transport is attributed to the link between the taxable person arranging (or having arranged) the transport and its customer (in this example the "link B-C").
d. Simplified treatment for call-off stock
Businesses within the EU tend to transfer stock to a warehouse or another location of regular customers within the EU to improve their competitiveness in the market. As a result, the goods remain the property of the supplier until the possession passes to the customer. Based on the current VAT rules, when a supplier transfers the goods to another EU country, it performs an intra-Community acquisition in the other EU country upon arrival. Once the goods are sold to the customer, the supplier performs a domestic supply, resulting in the VAT registration of the supplier in the other EU country where the customer is located. Most EU countries have simplification arrangements for call-off stock, but these differ by country.
Under the new simplified rules, the transfer of goods to a warehouse in another EU country will not be considered as an intra-Community supply and a deemed acquisition (for a maximum period of one year). Therefore, as soon as the customer takes the goods out of the warehouse, the supplier makes a direct intra-Community supply to the customer. As a result, the supplier will not be required to register for VAT purposes in the EU country of arrival of the goods. The supplier and customer that use this simplification, however, must keep a register that complies with specific conditions. In addition, the supplier must report on the EC sales list that it transported goods to foreign stock. If a supplier does not fulfil all the conditions for call-off stock, it must in principle still register for VAT purposes.
Businesses engaged in cross-border goods trading will be required to evaluate if and how the new VAT rules may affect their transactions starting from 1 January 2020, as this change may require administrative and IT organization.
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