EU VAT “Quick Fixes”

Four “quick fixes” relating to VAT, approved by The European Council, will come into effect on 1 January 2020. It is important to familiarise yourself with how these will work and how your business may be impacted as some of the changes are quite significant. These changes to the VAT system will be implemented through Council Directive 2018/1910.

A brief synopsis is provided below and if you feel that any of the quick fixes may have an effect on your business, please do not hesitate to contact Constable VAT; we will be happy to provide our analysis and discuss any issues or opportunities which the changes will present.

VAT Number for Zero-Rating

In order to apply the zero-rate to intra-community supplies of goods, it has always been necessary to show the customer’s EU VAT number on the sales invoice. Despite this, the CJEU had previously ruled that the zero-rate may still apply where this does not occur if all the “substantive” conditions have been met i.e. goods have been sent from one Member State to another, in the course of a supply between taxable persons and within the prescribed time limits.

Under the new rules, the application of the law will become much stricter. The requirement to obtain a valid customer VAT number prior to dispatching goods will be regarded as a substantive requirement for zero-rating goods. It will, therefore, no longer be permissible to zero-rate dispatches in the absence of a valid customer VAT number.

Simplification of “Call-off stock”

In order to prevent delivery delays, it is commonplace for a supplier to transfer stock to another Member State where it is entered into a customer’s warehouse prior to transfer of ownership. In this type of arrangement, the goods remain the property of the supplier until they are removed from the warehouse by the intended recipient. This differs from consignment stock where the eventual customer is not known when the goods are moved.

Member States have different rules regarding call-off stock arrangements. In some, there is a deemed acquisition by the vendor and subsequent domestic sale, which gives rise to a liability for the supplier to register for VAT in the destination country. In others, a simplification is applied and the usual rules for EU dispatches apply – the initial sale is zero-rated and the customer is responsible for acquisition VAT.

The new rules will formalise and extend the call-off stock simplification to all Member States (it will become mandatory), making it non-discretionary.

Simplified Evidential Standard for Dispatches

This rule aims to further the harmonisation of the VAT system by implementing an assumption that transport to another EU Member State has taken place if the supplier indicates that the goods have been dispatched or transported out of the member state in which the sale arises and is in possession of:

  • A written statement from the customer that the goods were dispatched and have been acquired, and
  • At least two items of non-contradictory evidence which are issued by two different parties which are independent of the parties to the transaction.

The Commission has clarified in Implementing Regulation 2018/1912 that the following documents will be acceptable as proof of dispatch:

  • documents relating to the dispatch or transport of the goods, such as a signed CMR document or note, a bill of lading, an airfreight invoice or an invoice from the carrier of the goods;

and the following documents:

  1. an insurance policy with regard to the dispatch or transport of the goods, or bank documents proving
    payment for the dispatch or transport of the goods;
  2. official documents issued by a public authority, such as a notary, confirming the arrival of the goods in the Member State of destination;
  3. a receipt issued by a warehouse keeper in the Member State of destination, confirming the storage of the goods in that Member State.’

Currently, Member States set their own rules on acceptable evidence which leads to variation, inconsistency and confusion when trying to prove that goods have been exported. This uniform standard should create certainty – although not necessarily less work in the sense that some EU countries have historically taken a less prescriptive line.

Uniformity of Rules in Chain Transaction

Currently where a chain of transactions underpins a single movement of goods between two Member States, it can be difficult to determine where the suppliers in the chain must register and account for VAT and to which transaction the zero-rate for VAT may apply: The zero-rated intra-Community supply can only occur once. For example, in a chain where goods pass from A to B and then B to C but are transported directly from A to C, the question is:

  • Must A charge B VAT in the country of dispatch (to allow B to zero-rate the sale to C); or
  • Must A zero-rate its sale to B, leading to a requirement for B to register for and charge VAT in the destination country?

Provided that there is no revenue loss, Member States have, historically, been content to allow businesses to apply the zero-rate to the transaction in the chain which is most administratively straightforward in the context of the overall transaction. For example, taking account of whether B is already registered in the country of dispatch or destination.

The new rules state that the intra-community dispatch takes place at the point in the chain where the goods are supplied to the taxable customer who arranges the intra-community transport. This will normally be at the A – B link in the above example (as B will ask A to transport the goods to C). B will then need to register for VAT in the country of delivery and, bearing in mind the first “quick fix”, will need to do this before the transaction in order to provide a VAT registration number to A to secure zero-rating. Having registered for VAT, B will then charge VAT to C in the country of delivery.

Our View

Broadly, these changes must be considered positive in the sense that they remove uncertainty from situations that have caused disputes and prevent Member States from adopting unduly burdensome rules. However, many businesses may have given themselves the benefit of the doubt in areas covered by the provisions; for example, in dealing with responsibilities resulting from chain transactions. With clearer rules will come a strict obligation to apply them.

Many businesses could find themselves exposed to significant liabilities if they do not review their current arrangements and either adapt the way that they do business or place a far greater emphasis on obtaining the correct documents to support VAT liabilities applied. For example, in the A, B, C supply chain illustrated above, there will be numerous UK businesses with an overseas VAT registration obligation if they make A contractually liable to arrange a direct shipment to C who are not recognising this at the moment. If businesses wish to avoid the compliance costs of multiple overseas VAT registrations they will, when selling goods, need to pay close attention to these rules.