2020 EU VAT ‘QUICK FIXES’ AND THE ACTIONS REQUIRED
As of 1st January 2020, a first step towards achieving the definitive EU VAT regime was made by introducing "the 4 quick fixes". These 4 quick fixes have been formally approved by the European Council and are designed to simplify the VAT rules for business to business (B2B) Intra-Community supplies of goods aiming to harmonise and simplify the international trade.
In summary, these 4 quick fixes concern the following four changes:
Introduction of simplified VAT rules for call-off stock arrangements across the EU;
Uniform rules to simplify Intra-Community chain transactions;
Harmonised rules for documenting Intra-Community transportation of goods;
Valid EU VAT identification number to be a mandatory requirement for the application of the zero VAT rate.
Impact on your business
The exact impact on any business varies, but these changes affect every supplier dealing with Intra-Community trade of goods, therefore, if ignored or not properly adopted, can lead to significant cost for businesses.
It is also important for companies to seek proper advice, as if implemented correctly, this should reduce multi-jurisdictional cross border issues.
Explanation of the 4 Quick Fixes
1. Introduction of simplified VAT rules for call-off stock arrangements across the EU
Call-off stock arrangements generally refer to the transport or dispatch of stock by the supplier from one Member State to another in the following circumstances:
The stock is transferred for an intended acquirer whose VAT identification number is known before the transport begins.
The supplier has no establishment in the Member State of arrival of the goods
The ownership of the goods is not transferred from the supplier to the customer until the latter removes (calls off) the stock from the warehouse.
What does it fix?
In the absence of call off stock arrangements relief, the supplier would have to comply with the VAT obligations in the Member State of arrival (registration for VAT purposes, filing of a VAT return and accounting for VAT in that Member State).
Under the new harmonized rules and specifically under the new Article 17a of the Principal EU VAT Directive as amended, all Member States are required to apply call off stock arrangements relief provided certain conditions are met, thus suppliers operating under call off stock arrangements, will no longer require to comply with the VAT obligations in the Member State of arrival.
This simplification should reduce the requirement for many businesses to register with VAT in other EU countries. However, the supplier using this simplification must comply with strict conditions in order to benefit from the relief. In case the conditions are not met, the supplier must in principle, still register for VAT purposes in the Member State of arrival.
How to act
Every business operating under call-off stock arrangements should assess whether they meet the requirements. If so, they should then consider the new conditions and their proper implementation in order to benefit from the call off stock arrangement relief.
2. Uniform rules to simplify Intra-Community chain transactions
In summary, chain transactions involve consecutive supplies of goods between three or more parties, in which goods are delivered directly from the first party located in one Member State to the final purchaser in the chain, located in another Member State.
What does it fix?
In practice, there is often discussion about which transaction in the chain, the exempt (zero rated) intra-community supply is attributed to, thus leading to multi-jurisdictional cross border issues. The new VAT rules introduced through article 36a of the Principal EU VAT Directive, lay down harmonised criteria for determining and identifying which of the transactions in a chain is the intra-community supply (zero rated) and which are the domestic supplies. Article 36a, introduces the concept of the ‘Intermediary Operator’ and assigns the exempt supply to the one made to the ‘Intermediary Operator’.
How to act
Every business operating under chain transactions must consider the need to make changes to their supply chain in order to avoid any unnecessary VAT obligations or should assess whether the new rules change their VAT registration and reporting obligations.
3. Harmonised rules for documenting Intra-Community transportation of goods
The EU VAT Implementing Regulation has been updated by introducing the so called ‘safe-harbour rule’, which requires that the transport needs to be demonstrated by at least two independent documents, in order for the 0% VAT rate to be applicable.
What does it fix?
There are currently no harmonised rules across Member States as to what documents should be kept to support the application of the zero rate to an Intra-Community Supply. Thus, different sets of rules across Member States lead to difficulties and uncertainty for businesses.
How to act
All businesses dealing with Intra-Community supplies of goods on a business to business level (B2B) need to revise their document collection and retention process thus enabling them to support the application of the zero rate to an Intra-Community Supply upon request of the VAT authorities.
4. Valid EU VAT identification number to be a mandatory requirement for the application of the zero VAT rate
Prior to 1 January 2020, businesses could apply the zero rate to an Intra-Community supply even if the customer did not provide a valid EU VAT number. From 01 January 2020, the zero rate will only apply if the customer provides a valid EU VAT number of any Member State other than the Member State of dispatch and the VIES/ Recapitulative Statements are correctly filed.
What does it fix?
This new substantive requirement has been added in an attempt to combat VAT fraud, as it was difficult for Tax authorities to challenge the VAT exemption for supplies with the lack of a VAT identification number of the buyer or the absence of cross border reporting (VIES/Recapitulative Statement).
How to act
In order for businesses to avoid assessments and penalties, the VAT validation of their customers and accurate VIES/Recapitulative Statement reporting will become essential. Thus, businesses must comply with this new substantive requirement and mitigate their risk through the collection and maintenance of accurate customer data.
How the VAT team of Kinanis LLC may assist
Our VAT team has the practical knowledge and experience to guide a wide range of businesses through any VAT problems by providing tailored advice.
VAT issues need to be promptly tackled as they might significantly affect cash-flow and also cause administrative issues.
Author - Contact Person
Partner - VAT Department
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