New VAT rules for EU cross-border supplies of goods
From 1 January 2020 the VAT rules for EU cross-border supplies of goods will change in all EU countries. This 2020 EU VAT reform is also referred to as “the 4 quick fixes” and is a first step towards the definitive EU VAT regime.
In short, the 4 quick fixes are an attempt to:
Harmonise call-off stock rules across the EU;
Harmonise EU cross-border chain transactions rules;
Harmonise the rules for documenting EU cross-border movements of goods;
Introduce a mandatory VAT ID number check for Intra-Community supplies.
How could this impact your business?
The quick fixes are designed to simplify the VAT rules for b2b EU cross-border supplies of goods. The areas addressed are those that have given rise to the most confusion over the last number of years. Taxpayers have often found themselves caught in the middle of disputes between tax authorities each trying to tax the same cross border transaction. To the extent that these changes will mitigate that they are to be welcomed.
However, these changes may result in less flexibility and may require changes not only to current VAT treatments but also to current supply chains, IT systems and accounting processes.
The precise impact on businesses will vary but all businesses involved in cross border trade of goods will be impacted by EU VAT reform and that impact will be felt beyond the tax function.
The 4 quick fixes are also an opportunity to benefit from call-off stock/consignment stock relief in Member States that don’t currently apply it and it allows consistent processes to be put in place that will meet requirements across the EU. Done correctly this should reduce multi-jurisdictional cross border issues.
What should you do?
Now is the time to act to prepare for the changes
Determine which quick fixes will impact the current supply chains (‘must do’s’);
Determine which benefits can be derived from the quick fixes (‘nice-to-haves’);
Determine the actions and priorities for the stakeholders including Sales, Procurement, IT, Tax, Legal, etc.;
Initiate the process of change.
We can support the transition and would be pleased to have a conversation with you to help you understand how the rules will impact you.
Explanation of the 4 quick fixes
1. Implementation of EU wide call-off stock relief
Call-off stock generally refers to stock that is moved cross border within the EU to be held at a customer or third party warehouse. The key identifier is that the customer is known before the goods are shipped but the title in the goods only passes to the customer as the goods are called off.
In the absence of call off stock relief the supplier would have to register for VAT in the member state of arrival, account for VAT on the acquisition of the goods and charge VAT on the subsequent sale(s) as the goods are called off. Some member states provided call off stock relief to allow the end customer to simply account for VAT on the acquisition basis as and when the goods are called off.
A new Article 17A has been added to the VAT Directive that requires all member states to apply call off stock relief. This is a welcome simplification and should reduce the requirement for many businesses in Ireland to have to register for VAT in other EU countries. However, there are a number of strict conditions to be met to avail of the relief. If all are not met the supplier will be required to register and account for VAT in the country of arrival.
You should assess if you meet the call-off stock requirements. If so, then you should consider the new administrative requirements for yourself and your customers and define appropriate actions.
2. EU cross-border chain transactions
In short, EU cross-border chain transactions concern supply chains involving 3 parties (or more) and which entail the shipment of goods from one EU country to another. For example, supplies by an EU head office to its EU sales subsidiary followed by an onward supply to a customer in the course of which the goods are shipped directly from the (central) warehouse to the customer in another EU country.
The new VAT rules introduce harmonised criteria for determining which of the transactions in a chain is the intra-community supply. This can change the VAT registration and reporting obligations for yourself and your customers.
You should assess whether the new rules change your VAT obligations or make changes to the supply chain to avoid unnecessary VAT obligations for yourself and possibly your customers. The new rules can be used to configure more VAT efficient supply chains.
3. Harmonised documentation requirements
The EU VAT Implementing Regulation has been updated to specify what evidence will be required to support the application of the zero rate to an Intra Community Supply.
You need to assess whether your current document collection and retention process is sufficient under the new rules. If not, you will have to enhance your procedures. As these rules apply to all EU countries the new rules are an opportunity to standardise your processes across the EU.
4. Mandatory VAT ID number verification for EU cross-border supplies
Currently the zero rate can apply to an Intra Community supply even if the customer does not provide a valid VAT number issued by another Member State.
From Jan 2020 the zero rate will only apply where the customer provides a valid VAT number and the VIES/ESL returns are correctly filed. If these conditions are not met the supply will be subject to VAT in the state of dispatch.
In order to avoid assessments and penalties VAT validation and accurate VIES/ESL reporting will become essential.
Risk will be mitigated through the collection and maintenance of accurate customer data. A process that will often be enabled by technology. We can support you with ensuring that your business does not fall foul of these requirements.