From 1 January 2020, changes to the VAT treatment of B2B supplies of goods have been introduced throughout the EU. These changes will remain relevant to businesses within the UK through the Brexit transitional period.
Historically, Member States within the EU have adopted differing approaches to various issues arising from the cross-border movement of goods. This has meant that businesses which supply goods to other EU Member States have operated in an increasingly complex and uncertain environment. To address this, four ‘quick fixes’ have been adopted across the EU. These changes come in advance of the new definitive VAT system that is expected to be introduced with effect from 1 July 2022.
Fix 1 – Call off stock
Call off stock refers to goods that a business has moved from one EU member state to another with the intention of later supplying on to a known customer. The default position here is that the supplier must register for VAT in the country of destination in order to account for acquisition tax on a deemed supply to himself. He later then accounts for VAT in the country on the domestic supply to his customer when the stock is called off.
Under the new rules, these arrangements will be treated as an intra-Community supply of goods from the supplier to the customer, provided:
- a sale occurs under a call-off stock agreement with a VAT registered customer,
- the delivery occurs within 12 months of the shipment of the goods, and
- the supplier does not have a fixed establishment in the country to which the goods are dispatched.
These provisions could avoid the need for the supplier to register for VAT in the country to which he has moved the goods.
It should be noted that a supplier will have a fixed establishment if he owns or rents the warehouse where the call off stock is kept and directly runs it with his own employees, but not if the warehouse is operated by a third party.
Prescribed records of call off stock must be maintained and the movement of the goods must be reported on an EC Sales List.
Fix 2 – Changes to the requirements for zero rating intracommunity supplies of goods
The supply of goods to businesses in other EU Member States is zero rated under the EU VAT Directive, with the customer accounting for acquisition tax in their own country. The Directive requires only that the supply is to another taxable person to secure this treatment, although in practice most countries have imposed further conditions such as evidence of dispatch and the retention of the customer’s VAT number.
These additional rules have been repeatedly challenged by businesses – often successfully – within recent years. The ‘quick fix’ amends the wording of the Directive so that it is now a material condition of zero rating that the customer’s VAT registration number is identified and the supply is correctly recorded on the Supplier’s EC Sales List.
Customers will need to ensure that they do not subsequently become liable for VAT due to a supplier’s failure to report the sale. It is not clear how such instances of double taxation will be dealt with.
Fix 3 – Chain transactions
A chain transaction occurs when there is a successive supply of goods between different parties, with the goods making a single movement from one Member State to another. Only one transaction can benefit from zero rating as an intracommunity supply of goods but Member States have different approaches to identifying which transaction this would be.
Under the new rules, the original supplier will generally be treated as making a zero rated dispatch if he has responsibility for transporting the goods to the final recipient. However, if the intermediary is established in the country from which the goods are being dispatched, he can provide his VAT registration number to the original supplier to create a domestic supply. The intermediary will then be treated as making the zero rated cross-border sale.
Fix 4 – Evidence of intracommunity supplies of goods
The final change is to harmonise the evidence required to support the zero rating of intra-EU supplies of goods. It is now necessary for either the supplier or the customer to acknowledge the movement of goods to the other party. The supplier will also be required to retain two independently prepared documents that evidence the movement of the goods.