The EU’s 2020 quick fixes on VAT for cross border transactions within the EU
Jan Garioch CA discusses the changes implemented on 1 January 2020 where the EU seeks greater uniformity of treatment for cross-border transactions.
Businesses moving goods between EU Member States need to respond to the new VAT rules for cross-border transactions which came into effect on 1 January 2020. Regardless of Brexit, UK businesses will have to take action to remain compliant.
The “2020 quick fixes” are intended to make the EU VAT system more definitive by harmonising and simplifying some of the uncertain areas surrounding how VAT is treated on cross-border transactions within the EU. The hope is that increased uniformity will create savings in administrative expense. Whether that hope will be realised remains to be seen, and businesses in the UK may find this as an extra burden on top of the Brexit uncertainty they face.
Call off stock
Four quick fixes have been introduced. The first quick fix aims to simplify VAT rules on call-off stock arrangements (where the supplier knows who will acquire the goods at the time they are transported to another Member State but transfer of title takes place after they have arrived at their destination.)
The new rule is that the recipient must account for VAT in the destination Member State, provided that the supplier does not have a fixed establishment in that destination state and that the acquirer is VAT registered there at the time the transport begins. This uniformity will give more certainty and will reduce the need to register in the destination Member State.
Chain transactions
The second quick fix aims to harmonise the application of VAT rules regarding chain transactions (successive supplies of goods which involve only one intra EU movement of the goods). Where goods are transported directly from the first supplier to the last customer in the chain, the transport is ascribed to the supply from the first supplier to the intermediary, making that the zero-rated supply.
However, when the intermediary is registered in the Member State from which the goods are despatched and is responsible for the transport, the intra- EU zero-rated supply is ascribed to the supply by the intermediary to the final customer. UK businesses involved in complex chain transactions will have to give close attention to these changes and decide if there are circumstances where they will be best served by registering in another EU state and arranging the transport.
Intra-EU supplies
Thirdly, to zero rate intra-EU supplies of goods, the supplier must obtain the customer’s valid EU VAT registration number and the transaction must be included in the supplier’s EC Sales List for the relevant period. It is already a requirement in the UK to obtain the EU VAT registration number and display it on the invoice, so that does not constitute a change. However, it is a new requirement that an intra EU supply cannot be zero rated if the supply is not on the supplier’s EC Sales List for the relevant period.
Proof of transport
The fourth quick fix introduces harmonised rules for proof of transport of goods supplied intra-EU. Suppliers must be able to produce two pieces of non-contradictory evidence from two independent people to prove that a supply is destined to go to another Member State. Suitable evidence is set out in the regulations and includes consignment notes specifying transport conditions, bills of lading, insurance policies for the transport of goods and receipts from a warehouse keeper at the destination.
If the acquirer is responsible for transport, he must provide the supplier with a written statement that the goods have been transported (by him or on his behalf) by the 10th of the month following the date of supply and the two items of evidence. The UK already requires satisfactory evidence to be held, and the new rules provide clarity on what is satisfactory.