Demetra Constantinou
Partner - Accounting Department
This case refers to the use of the simplified scheme of Triangular Trade and examines whether the reference to the Reverse Charge (RC) in the invoice of the intermediate seller is a substantive requirement or just a formality for the scheme to apply.
In particular, whether the narrative ‘Exempt Intra-Community triangular transaction’ on the invoice of the intermediate seller is sufficient to pass on to the last undertaking of the chain the liability to pay vat on the acquisition of goods in the destination country and if this narrative is not sufficient whether the intermediate seller could issue an invoice with the RC narrative subsequently.
The opinion of Advocate General Kokott specifically states the following:
(1) The person to whom the supply is made is to be regarded as having been designated as liable for payment of VAT within the meaning of Article 197 of Council Directive 2006/112/EC on the common system of value added tax only if the invoice concerned referred to a reverse charge to the recipient of the supply. The indication ‘Exempt Intra-Community triangular transaction’ is not sufficient in that regard.
(2) An invoice that contains the required indication ‘Reverse charge’ can still be issued subsequently, but only with ex nunc effect. In that respect, it is necessary that that invoice be received by the recipient of the supply.
A. Introduction
The Triangular Trade Special Scheme allows the intermediate seller to avoid registration in the country of destination of the goods and the existence of an intra-Community acquisition by the last undertaking in the chain by transferring the tax liability for its supply to the last undertaking in the chain (and thus also to the country of destination).
However, in order that the latter undertaking is aware of this and pays, in the country of destination, the appropriate tax on the acquisition of the goods, the scheme is tied to, inter alia, the issuing of an invoice which refers to that transfer of the tax liability.
B. Facts
Luxury Trust Automobil GmbH is an Austrian limited liability company with its registered office in Austria (‘the applicant’). Its business includes cross-border brokering and cross-border sales of luxury vehicles.
On multiple occasions in 2014, the applicant purchased vehicles from a supplier in the United Kingdom and sold them on to a company with its registered office in the Czech Republic (‘M s. r. o.’). The three undertakings involved each acted under the VAT identification number (‘the VAT ID’) of their State of establishment. The vehicles arrived directly from the supplier in the United Kingdom to the recipient in the Czech Republic; the transport of the vehicles had been arranged by the applicant.
The applicant’s three invoices (each from March 2014) stated the Czech VAT ID of the recipient, the Austrian VAT ID of the applicant and the United Kingdom VAT ID of the supplier. Each of the invoices included the reference ‘Exempt Intra-Community triangular transaction’. VAT was not mentioned on the invoices (only the ‘net amount of the invoice’ in each case).
In the recapitulative statement for the month of March 2014, the applicant reported these supplies of goods in relation to the VAT ID of the Czech recipient and reported the existence of triangular transactions.
The Czech company M s. r. o. is classified by the Czech tax authorities as a ‘missing trader’. The company could not be contacted by the Czech tax authorities and it did not declare or pay VAT in the Czech Republic on the triangular transactions. However, during the period in which the supplies at issue were made, M s. r. o. was registered for VAT purposes in the Czech Republic.
In its decision dated 25 April 2016, the Finanzamt (Tax Office, Austria) assessed the applicant’s VAT liability for the year 2014. In the grounds of its decision, the Tax Office stated that the three invoices issued by the applicant to the Czech company M s. r. o. did not contain any reference to the transfer of the tax liability.
The Bundesfinanzgericht (Federal Finance Court, Austria) dismissed the action brought by the applicant against that decision, as the provisions relating to triangular transactions are not mandatorily applicable in a set of circumstances, rather, the acquirer (the intermediate undertaking in a triangular transaction) has the right to choose whether or not to apply the triangular transaction regime with respect to a particular supply.
If the acquirer wishes to obtain tax exemption for its intra-Community acquisition in the Member State of destination and to transfer the tax liability relating to its supply to the recipient, it must include in the invoice the details stipulated in Article 25(4) of the UStG.
The applicant brought an appeal against that judgment before the Verwaltungsgerichtshof (Supreme Administrative Court, Austria). That court stayed the proceedings and referred questions to the Court for a preliminary ruling.
C. Questions referred to the Court
D. Considerations made
In order to determine whether such a reference is a mandatory requirement of an intra-Community triangular transaction, the purpose of the scheme for intra-Community triangular transactions must first be established and then, the importance of the reference – which is required in that respect – to the transfer of the tax liability to the recipient of the supply must be clarified.
D1. Purpose - Simplification
The purpose of the special scheme for intra-Community triangular transactions is to simplify matters for the parties involved. That simplification is twofold.
1. No need to register in the country of destination provided that the last undertaking of the chain becomes the person liable for payment of the VAT.
Article 141 of the VAT Directive allows the intermediate trader (in the present case, the applicant) to avoid having to register in the country of destination (in the present case, the Czech Republic).
Article 197 prescribes that the recipient of that (second) supply (in the present case, M s. r. o.) becomes the person liable for payment of the VAT (reverse charge to the recipient of the supply).
Article 141(e) the last undertaking in the chain is vat registered in the MS of destination and has been ‘designated in accordance with Article 197 as liable for payment of the VAT due on the supply’.
2. Article 42: Article 41 shall not apply if the intermediate seller acquired the goods for the purposes of a subsequent supply within the MS of destination to a person VAT registered there and submits a recapitulative statement. In particular, the applicant must establish that the recipient of the supply (in the present case, M s. r. o.) ‘has been designated in accordance with Article 197 as liable for payment of VAT’.
Both simplifications are based on the fact that the recipient of the applicant’s supply has been designated in accordance with Article 197 of the VAT Directive as liable for payment of VAT. In order for that to be the case, the invoice for the applicant’s supply to M s. r. o. contains a reference to the reverse charge to M s. r. o. in accordance with Article 226(11a) of that directive – which is in Section 4 of Chapter 3.
D2. Importance of the reference
It is clear from the above considerations that the simplification measure is available to the intermediate trader (in the present case, the applicant). That trader can avail itself of the simplifications, but is not obliged to do so.
Therefore, he needs to evidence his decision through the content of the invoice to its own customer.
To avail himself the simplification, the invoice detail referred to in Article 226(11a) of the VAT Directive is necessary so as the recipient of the supply can be said to have been ‘designated in accordance with Article 197 as liable for payment of VAT’ (Article 42(a) and Article 141(e)).
The aim of that is to inform the recipient of the supply (addressee of the invoice)Art and to ensure that the latter pays the VAT in the country of destination.
For that reason, the wording ‘Exempt Intra-Community triangular transaction’ used by the applicant in the present case may indeed satisfy the requirements of Article 226(11) of the VAT Directive, but it does not satisfy the requirements of Article 226(11a) thereof.
If the legislature expressly distinguishes between the reference to exemption and the reference to a reverse charge in Articles 226(11) and (11a), that legislative intention must also be taken into account.
Without such an invoice, it must therefore be assumed that the intermediate trader (in the present case, the applicant) has not exercised its right of option and that the recipient of the supply (in the present case, M s. r. o.) has not been designated in accordance with Article 197 of the VAT Directive as liable for payment of VAT.
Consequently, the intra-Community acquisition will not be deemed to be taxed and Article 41 will continue to apply. Therefore, the applicant must pay tax on an intra-Community acquisition in Austria as long as it does not establish that it has paid tax on the acquisition in the Czech Republic. If the conditions for non-application of the ‘normal’ taxation scheme to an intra-Community acquisition that are set out in Article 42(a) of the VAT Directive are not met, use cannot be made of the simplification scheme.
Consequently, without an invoice referring to a reverse charge to the recipient of the supply, the normal treatment of chain transactions applies. Therefore, the applicant is required to pay tax on an intra-Community acquisition in the Czech Republic (Article 40 of the VAT Directive) and, until it has established that it has done so, it is required to pay tax on an intra-Community acquisition in Austria (Article 41 of the VAT Directive). Likewise, tax on the supply made to M s. r. o. must be paid in the Czech Republic.
As the VAT Directive does not set a time limit within which use can be made of the simplification scheme, this can still be done subsequently. Therefore, a corresponding invoice can be issued at a later point. Possible time limits result, at best, from national procedural law, but not from the VAT Directive.
However, it also follows from the purpose of an invoice as explained above that – if it triggers legal consequences for the recipient of the supply, as in the present case – the recipient of the supply must necessarily receive it. How is the recipient of the supply supposed to know that the supplier has exercised its right of option to make use of the simplification scheme and has designated it as liable for payment of VAT in accordance with Article 197 of the VAT Directive if it is never informed of this?
For the same reason, the question as to retroactive effect can be answered quite clearly. Such an issuance of an invoice (for the first time) cannot have retroactive effect. Once such an invoice has been issued, and is received by the recipient, the legal consequences of the administrative simplification scheme are triggered ex nunc.
E. Conclusion
As the Triangular Trade Scheme is not obligatory, the intermediate seller needs to make sure that it is clear to the last undertaking that the obligation to pay the relevant acquisition VAT has been delegated to it. This is achieved with the reference to the Reverse Charge (RC) in the invoice of the intermediate seller, thus the reference to the Reverse Charge is a substantive requirement for the scheme to apply.
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Appendix A
Relevant Articles of the Principal VAT Directive (COUNCIL DIRECTIVE 2006/112/EC)
Article 197
1. VAT shall be payable by the person to whom the goods are supplied when the following conditions are met:
(a) the taxable transaction is a supply of goods carried out in accordance with the conditions laid down in Article 141;
(b) the person to whom the goods are supplied is another taxable person, or a non-taxable legal person, identified for VAT purposes in the Member State in which the supply is carried out;
(c) the invoice issued by the taxable person not established in the Member State of the person to whom the goods are supplied is drawn up in accordance with Sections 3 to 5 of Chapter 3.
Article 141
Each Member State shall take specific measures to ensure that VAT is not charged on the intra-Community acquisition of goods within its territory, made in accordance with Article 40, where the following conditions are met:
(a) the acquisition of goods is made by a taxable person who is not established in the Member State concerned but is identified for VAT purposes in another Member State;
(b) the acquisition of goods is made for the purposes of the subsequent supply of those goods, in the Member State concerned, by the taxable person referred to in point (a);
(c) the goods thus acquired by the taxable person referred to in point (a) are directly dispatched or transported, from a Member State other than that in which he is identified for VAT purposes, to the person for whom he is to carry out the subsequent supply;
(d) the person to whom the subsequent supply is to be made is another taxable person, or a non-taxable legal person, who is identified for VAT purposes in the Member State concerned;
(e) the person referred to in point (d) has been designated in accordance with Article 197 as liable for payment of the VAT due on the supply carried out by the taxable person who is not established in the Member State in which the tax is due.
Article 40
The place of an intra-Community acquisition of goods shall be deemed to be the place where dispatch or transport of the goods to the person acquiring them ends.
Article 41
Without prejudice to Article 40, the place of an intra-Community acquisition of goods as referred to in Article 2(1)(b)(i) shall be deemed to be within the territory of the Member State which issued the VAT identification number under which the person acquiring the goods made the acquisition, unless the person acquiring the goods establishes that VAT has been applied to that acquisition in accordance with Article 40.
If VAT is applied to the acquisition in accordance with the first paragraph and subsequently applied, pursuant to Article 40, to the acquisition in the Member State in which dispatch or transport of the goods ends, the taxable amount shall be reduced accordingly in the Member State which issued the VAT identification number under which the person acquiring the goods made the acquisition.
Article 42
The first paragraph of Article 41 shall not apply and VAT shall be deemed to have been applied to the intra-Community acquisition of goods in accordance with Article 40 where the following conditions are met:
(a) the person acquiring the goods establishes that he has made the intra-Community acquisition for the purposes of a subsequent supply, within the territory of the Member State identified in accordance with Article 40, for which the person to whom the supply is made has been designated in accordance with Article 197 as liable for payment of VAT;
(b) the person acquiring the goods has satisfied the obligations laid down in Article 265 relating to submission of the recapitulative statement.
Article 226
Without prejudice to the particular provisions laid down in this Directive, only the following details are required for VAT purposes on invoices issued pursuant to Articles 220 and 221:
……
(11) in the case of an exemption, reference to the applicable provision of this Directive, or to the corresponding national provision, or any other reference indicating that the supply of goods or services is exempt;
(11a) where the customer is liable for the payment of the VAT, the mention ‘Reverse charge’;…..