VAT: implementation of short-term fixes, pending overhaul

This package of proposals is aimed at fixing some practical problems that the market experiences with the current VAT rules. At the same time, it is considered of high relevance for businesses who will benefit from the harmonised rules. It should be understood also that benefits always come with downsides and, common within VAT, compliance requirements.

The four ‘quick fixes’ initially presented by the Commission:

1.  call-off stock. The proposals provide for a simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another Member State;
2. the VAT identification number. To benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer will become a material condition;
3. chain transactions. To enhance legal certainty in determining the VAT treatment of chain transactions, new uniform criteria are established;
4.  proof of intra-EU supply. A common framework will apply for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

These adjustments will apply from January 1, 2020. Further information is provided below.

1. Call-off Stock

By “call-off stock” we refer to situations in which a supplier transports goods to another Member State for their supply at a later stage. At the moment the transport takes place, the supplier already knows the identity of the person that will be acquiring the goods. Transfer of title however takes place after delivery abroad (for example, when the customer “calls” the goods for its production proces). This currently gives rise to the supplier carrying out a deemed supply in the Member State of departure of the goods and a deemed intra-Community acquisition in the Member State of arrival of the goods, followed by a ‘domestic’ supply in the Member State of arrival when transfer of title occurs. This requires the supplier to be identified for VAT purposes in that Member State. Over the years, various Member States have introduced simplifications to prevent foreign VAT registrations in this regard but the conditions for use of the simplification (e.g. time limits) were not aligned and therefore difficult to implement and manage regionwide. Aiming to ease compliance for businesses, it has been considered necessary to harmonize the applicable rules to this type of supplies as follows:

a. Conditions for call-off stock arrangements under the new rules
It is not relevant whether the words call-off, consignment or other name is given to the stock transfer agreement, nor if the taxable person dispatching or transporting the goods is already registered for VAT purposes in the country of arrival of the goods. The call-off stock arrangement applies per January 1, 2020 when the following conditions are met:

• goods are dispatched or transported by a taxable person, or by a third party on his behalf, to another Member State with a view to those goods being supplied there, at a later stage and after arrival, to another taxable person who is entitled to take ownership of those goods following an existing agreement between both parties;
• the taxable person dispatching or transporting the goods has not established his business nor has a fixed establishment in the Member State to which the goods are dispatched or transported;
• the taxable person to whom the goods are intended to be supplied is identified for VAT purposes in the Member State to which the goods are dispatched or transported and both his identity and the VAT identification number assigned to him by that Member State are known to the taxable person dispatching or transporting the goods, at the time when the dispatch or transport begins;
• the taxable person dispatching or transporting the goods records the transfer of the goods in a register and includes the identity of the taxable person acquiring the goods and the VAT identification number assigned to him by the Member State to which the goods are dispatched or transported in a qualifying recapitulative statement.

b. Applicable rules
In the above cases, an intra-Community supply of goods shall be deemed to be made by the taxable person that dispatched or transported the goods. This intra-Community supply is followed by an intra-Community acquisition of goods by the taxable person to whom those goods are supplied in the Member State to which the goods were dispatched or transported. Both taxable events take place at the moment of transfer of title to the goods, provided that such transfer of title occurs within 12 months after the arrival of the goods in the Member State to which they were dispatched or transported.

If the 12-month time limit is exceeded, a transfer of own goods within the meaning of Article 17 of the Directive will be deemed to take place on the day following the expiry of the 12-month period. This transfer of own goods will also be deemed to occur:

• in case any of the conditions for the call off stock arrangements ceases to be met (and at that very same moment); or
• if the goods are sent to another Member State, in which case the transfer of own goods is deemed to occur immediately after the transport to the “new” Member State takes place; or
• in the event of the destruction, loss or theft of the goods, in which case, the transfer of own goods will be deemed to occur on the date that the goods were actually removed or destroyed.

If it is impossible to determine that date, the date on which the goods were found to be destroyed or missing.
However, the right to apply the simplification is not lost in case the goods are dispatched back to the Member State of origin (before the mentioned 12-month period) and such return of goods is posted in the applicable register. In case the original acquirer of the goods is substituted by another taxable person, no transfer of goods shall be deemed to take place at the time of the substitution either, provided that all other applicable conditions are met and the substitution is recorded by the supplier in the applicable register.

c. Current simplification
The Netherlands already applies a long-standing simplification for goods entering the Netherlands upon call-off or consignment agreements (“Announcement 15, VB93/3672”). The State Secretary of Finance has mentioned in Parliament that existing simplifications will be amended in line with the new regime.

2. The VAT-id number / availability and Recapitulative Statement

Under the new provisions, the VAT-id becomes a material requirement for the VAT exemption of intra-Community supplies of goods. This is a change in comparison to the CJEU judgments (e.g. Plöckl, C-24/15) which stipulated that an intra-Community supply may be VAT exempt even if the supplier did not know the purchasers’ VAT-id when the supply took place.

This new EU provision will cause problems when the purchaser has applied for a VAT-id but does not receive it on time. According to the new rules, a VAT exemption is not applicable as their material requirements are not met. Moreover, the recapitulative statement (i.e. the European Sales Listing) is now regarded as prerequisite for the VAT exemption. That means that the Tax Authorities will deny the VAT exemption for intra-Community supplies of goods if the recapitulative statement is wrong, incomplete or not submitted. This is a crucial change in comparison to the current standing of the recapitulative statement for the intra-Community supply of goods. Until now the VAT exemption for the intra-Community supply of goods did not depend on the correct submission of the recapitulative statement.

We note there is a time span between the moment the supply is made and invoiced to the acquirer and the moment when the supplier has to comply with the obligation of submitting a recapitulative statement. Thus, the question arises if the supplier may VAT exempt the supply at the time the supply is made without having received (and verified in VIES) the VAT-id number at that time. It seems to us this should be acceptable though at the suppliers’ risk should his customer not timely provide him with the required VAT-id number. We expect more guidance will be issued in this regard.

Following the adaptions, the VAT zero rate can only be applied when, simply said, the following conditions are met:
(a) the goods are supplied to another taxable person acting as such in a Member State other than in which dispatch or transport of the goods begins;
(b) the taxable person making the supply is identified for VAT purposes in another Member State than where the dispatch or transport of the goods ends;
(c) the taxable person to which the supply is made has indicated this VAT-id number to the supplier, and
(d) a correct European Sales Listing (recapitulative statement) has been submitted. A correct Sales Listing means that the VAT-id’s numbers reported are verifiable in the VIES system.

We stress that the VAT zero rate shall not apply when the supplier has not complied with the administrative obligations to submit a recapitulative statement or when the submitted recapitulative statement does not set out the correct information concerning this supply. This unless the supplier can duly justify his shortcoming to the satisfaction of the Dutch tax authorities. This can be done, for example, within a period determined by the inspector to provide the correct VAT identification number of his buyer. According to the State Secretary, that possibility of rectification remains. We are pleased to provide further detail on the quality requirements of the recapitulative statement upon your request.

3. Chain Transactions

a. Background for amending VAT Directive
The European Court of Justice (“CJEU”) has ruled on chain transactions in various cases, for example in the cases EMAG Handel Eder (C-245/04), Euro Tyre Holding (C-430/09), VSTR (C-587/10), Toridas (C-386/16), Kreuzmayr GmbH (C-628/16), Hans Bühler KG (C-580/16) and AREX CZ a.s. (C-414/17).

According to these decisions chain transactions refer to successive supplies of goods which are subject to one single intra-Community transport movement. The intra-Community movement of the goods can therefore only be ascribed to one of the supplies (being the moved supply), and only that supply should benefit from the VAT zero rate applicable for intra-Community supplies. The other supplies in the chain should be taxed as local supplies and could require a VAT registration of the supplier in the Member State of supply. However, as there are no further rules (neither in the VAT directive nor in the implementing regulation) on how to apply the interpretation of the CJEU in a uniform manner, a common rule should be established conditioning how to attribute transport of the goods to a single supply within the chain. Only then can different application amongst Member States be avoided, can risk of double taxation or non-taxation be minimized and is legal certainty for operators enhanced.

b. The VAT directive text and, in line with this, the Dutch VAT act will be updated striving to come to a uniform approach of transport attribution.
For the purposes of this arrangement, the term ‘intermediary operator’ is introduced. This means a supplier within the chain other than the first supplier in the chain who dispatches or transports the goods either himself or through a third party acting on his behalf. Knowing this, transportation shall be attributed as follows:

1. Where the same goods are supplied successively, and those goods are dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain, the dispatch or transport shall be ascribed only to the supply made to the intermediary operator.
2. By way of derogation from what is mentioned under 1, the dispatch or transport shall be ascribed only to the supply of goods by the intermediary operator where the intermediary operator has communicated to his supplier the VAT-id number issued to him by the Member State from which the goods are dispatched or transported.

4. Proof of intra-Community supply of goods

Even after many years of practice, the standard of proof of intra-Community supplies still leads to discussions. Question generally is whether the taxable person applying the VAT zero-rate for Intra-Community supplies can sufficiently substantiate the correct use of the VAT zero rate. If such proof cannot be provided, the taxable person risks additional VAT assessments. The standing practice will be continued but in addition, new rules are introduced to aid the taxable person (safe-harbor).

Following the new regime, the vendor applying the VAT zero-rate will need to be in possession of at least two items of non-contradictory evidence which were issued by two different parties that are independent of each other, of the vendor and of the acquirer. In practice, we consider this provision will cause problems. It is at least questionable if the supplier can provide two different documents which meet the demands of the Implementing Regulation. Nevertheless, the Regulation unfolds direct effect towards the entrepreneurs. In this regard, it is debated how the term ‘independent’ is to be interpreted and how close the relationship between the entities may be.

The question also arises about the relationship between the provisions in the Implementing Regulation and any national provisions about the proof of transport.
a. Concerning the proof of Intra-Community supply, the Implementing Regulation is worded as follows:

1. For the purpose of applying the exemptions laid down in the VAT Directive 2006/112/EC, it shall be presumed that goods have been dispatched or transported from a Member State to a destination outside its territory but within the EU in either of the following cases:
   • the vendor indicates that the goods have been dispatched or transported by him or by a 3rd party on his behalf, and either the vendor is in possession of at least two items of non-contradictory evidence, referred to in point (a) of paragraph 3 below, which were issued by two different parties that are independent of each other, of the vendor and of the acquirer, or the vendor is in possession of any single item referred to in point (a) of paragraph 3 together with any single item of non-contradictory evidence referred to in point (b) of paragraph 3 confirming the dispatch or transport which were issued by two different parties that are independent of each other, of the vendor and of the acquirer;
   • the vendor is in possession of the following:
   1. a written statement from the acquirer, stating that the goods have been dispatched or transported by the acquirer, or by a third party on behalf of the acquirer, and identifying the Member State of destination of the goods; that written statement shall state: the date of issue; the name and address of the acquirer; the quantity and nature of the goods; the date and place of the arrival of the goods; in the case of the supply of means of transport (e.g. vehicles), the identification number of the means of transport; and the identification of the individual accepting the goods on behalf of the acquirer. The acquirer shall furnish the vendor with the written statement by the tenth day of the month following the supply (note: we imagine this deadline might be difficult to meet in practice); and
   2. at least two items of non-contradictory evidence referred to in point (a) of paragraph 3 below that were issued by two different parties that are independent of each other, of the vendor and of the acquirer, or any single item referred to in point (a) of paragraph 3 together with any single item of noncontradictory evidence referred to in point (b) of paragraph 3 confirming the dispatch or transport which were issued by two different parties that are independent of each other, of the vendor and of the acquirer.
2.  The tax authorities may rebut a presumption that has been made under paragraph 1.
3.  For the purposes of paragraph 1 above, the following shall be accepted as evidence of dispatch or transport:
   (a) 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;
   (b) the following documents:
   • 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;
   • official documents issued by a public authority, such as a notary, confirming the arrival of the goods in the Member State of destination;
   • a receipt issued by a warehouse keeper in the Member State of destination, confirming the storage of the goods in that Member State.