The EU has introduced four measures as of 1 January 2020 to help standardise and (allegedly!) simplify cross-border transactions in the Single Market. They are commonly called Quick Fixes as they are intended to be interim measures before a long-planned review of the entire intra-EU trade regime later in the 2020’s.
Fix 1 – call-off stock simplification
Cross-border call-off stock (where a supplier sends goods to a customer’s location but sells them to the customer only as and when the customer needs them) has long been a difficult area. Under basic EU VAT law logic, the supplier would be required to treat the sales as local sales in the customer’s country and register for VAT there. However, to avoid unnecessary registrations, some Member States have long applied a simplification of treating these as intra-Eusales by the supplier and acquisitions by the customer. This simplication is now mandatory throughout the Union. It should be noted that this applies only to call-off stocks, where one customer is involved, not consignment stocks, where are shipped abroad and then allocated to multiple cusomers’ orders.
Fix 2 – chain transactions
Intra-EU chain transactions refer to successive supplies of the same goods with the goods being dispatched from the first supplier in the chain in one EU country directly to the last customer in the chain in another EU country. Therefore there are two or more consecutive supplies however there is just one intra-EU movement of those goods, leading to the question of which should enjoy the zero rating available for a trasaction involving an intra-EU movement. There has been a certain level of uncertainty in the legislation as to this matter, leading to frequent litigation and complex case law.
As of 1 January, it is now stipulated that the transport of goods should be ascribed to the first supply in the chain, that made to the intermediary operator, unless the intermediary operator is VAT registered in the country of dispatch of the goods and he communicates this number to the supplier, in which case the transport of goods should be allocated to the supply made by the intermediary operator (i.e. the first supply will be domestic one taxable in the country of dispatch and the second supply will be the exempt intra-Community one).
Fix 3 – mandatory VAT identification number of the customer for intra-Community supply
Currently in most EU countries it is already a requirement for the supplier to obtain and quote the customer’s valid EU VAT number on the invoice in order to exempt/zero-rate an intra-Community supply. However, even the European Court of Justice ruled it a merely ‘formal’ requirement, which has led to relaxed enforcement in some Member States.
As of 1 January 2020it will be a ‘substantive’ requirement in all Member States that a valid EU VAT number of a customer is obtained and quoted on the invoice. This means that, without it, the zero rating is legally lost and the supplier becomes liable to account for VAT on the supply. Furthermore, the transaction must also be reported on the recapitulative statement (European Sales List) in order to qualify for the exemption.
Fix 4 – proof of intra-Community transport
Currently there is no pan-EU criteria for the documentary evidence required to claim an exemption for intra-Community supplies. Each Member State can determine which documents are acceptable and sufficient as a proof of delivery of goods from one EU country to another. Consequently, the evidence is open to interpretation by different fiscal authorities (or even individual tax inspectors).
From 1 January 2020 there will be a ‘rebuttable presumption’ that the condition regarding the documentary evidence required to claim an exemption for intra-Community supplies of goods has been fulfilled if:
- The supplier is responsible for the and holds two non-contradictory pieces of evidence, such as:
- – Customer-managed relationship documents, bills of lading, or airfreight or carrier invoices;
- One piece of evidence such as that above, plus:
- – An insurance policy in relation to the transport of the goods; Or
- – Banking documents in relation to the movement of goods
- – Official documents issued by a public authority confirming arrival of goods in the Member State of destination, or
- – A receipt from a warehouse
- the customer is responsible for the shipment of the goods and the supplier holds:
- – Two non-contradictory pieces of evidence as above (but not the alternatives, only the non-contradictory pieces of evidence) and:
- – A written statement from the customer that it has acquired the goods into another Member State keeper for storage of goods in the Member State of destination.
As can be seen from the complexity of the list, this ‘simplification’ may be a double-edged sword. While bringing taxpayers certainty in some Member States where inspectors have been making excessive or even vexatious demands for documentation, it is likely to raise the bar for compliance in those Member States that have had a more relaxed enforcement of this matter.
If you would like to read more on the Quick Fixes, you can access a detailed EU summary here: https://ec.europa.eu/taxation_customs/sites/taxation/files/explanatory_notes_2020_quick_fixes_en.pdf