Your Taxes: EU VAT: 4 quick fixes

On January 1, 2020, four new value-added tax (VAT) rules will apply to intra-EU trading, known as the four quick fixes, pending a broader reform, provisionally planned for July 2022.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)
The European Union is an affluent market of around 450 million people post-Brexit and 515 million until then. If you want to sell to them you may do so directly from Israel, or you may set up a closer presence in one or more EU countries to sell into the others.
On January 1, 2020, four new value-added tax (VAT) rules will apply to intra-EU trading, known as the four quick fixes, pending a broader reform, provisionally planned for July 2022.
These fixes will help businesses operating cross-border supply chains by clarifying their VAT obligations. They also seek to tighten up areas vulnerable to VAT fraud.
Call-off stock
The first quick fix seeks to harmonize the requirement not to VAT register where a seller has sent stock (inventory) to a specific customer in another EU member state for their exclusive use on a “call-off” basis. Only when the customer removes the stocks does the commercial sale happen. This arrangement is termed call-off stock.
Under current EU rules, the movement of the supplier’s stocks to another EU state obligates the supplier to VAT register in the country of destination.
What’s being fixed? All EU states will be required to withdraw the obligation on the supplier to VAT register in this call-off stock scenario. For VAT purposes, only when the customer takes the stock for use will there be a sale.
This will be an exempt intra-community supply between the seller and customer – a zero-rated dispatch and arrival, respectively.
The requirements to qualify for this simplification include:
• The supply of stocks should only be to a single customer, and under its control at site (or nearby).
• The customer does not have a fixed establishment for VAT in the country from where the goods were dispatched.
• The customer is VAT registered in the country to where the stocks are dispatched.
• The supplier records the physical movement of the stock in its EC (European Commission) sales listing, and both parties must maintain a register of the goods.
• The stocks must be used by the customer within 12 months of dispatch. If not, the stock should be returned, or the transaction recorded as an intra-community supply
Chain transactions
When three parties – a supplier, intermediary and customer – are involved in a cross-border transaction, it can be challenging to determine on which transaction between the three parties to apply VAT zero-rating.
What’s the fix? The new rules clarify two scenarios for defining where to zero-rate the movement of goods in the chain:
• If the intermediary presents a non-resident VAT number in the supplier’s country where the goods are dispatched from, then the sale is treated as a domestic transaction in the supplier’s country. The supplier charges local VAT to the intermediary. The intermediary then transports the goods to the customer’s country and performs a zero-rated cross-border supply to the customer.
• If the intermediary instead provides a VAT number from another EU state, then the supplier zero-rates the sale as a cross-border supply to the intermediary.
Proof of cross-border transportation
Currently, the rules of proof of cross-border transportation vary across the EU member states.
This can result in legal uncertainty on the treatment and liability for VAT by the supplier and customer. It has also meant that businesses have incurred a disproportionate expense in maintaining varying systems to support the EU proof of movement rules.
The fix? The supplier or the customer must retain two pieces of non-contradictory evidence that the goods where transported to the customer’s member state.
Customer VAT number
The fourth fix confirms that obtaining the customer’s VAT number is a requirement for the seller before applying zero-rated VAT. There had been doubt following several rulings of the European Court of Justice.
Managing the fixes
Among other things, businesses with stocks in other EU member states at a customer’s disposal, call-off, should review if they are VAT registered to support this. They may be able to de-register and follow the new reporting requirements.
Businesses with cross-border chain transactions in their supply chains, including a supplier, intermediary and customer in different countries, need to review the VAT status of the intermediary.
Businesses should ensure they have proper processes to collect and store the two pieces of documentary proof of export within 10 days of the movement.
Businesses should be prepared to collect and validate customers’ VAT numbers before zero-rating a sales invoice.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
With thanks to Avalara.
The above is not intended to be advice. For further information, see The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.