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VAT developments in cross-border sales of goods

Robert Marchant, Partner, VAT
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With so much recent focus on the impact of Brexit on international trade there are a number of changes to EU VAT law that UK businesses may not be aware took effect from 1 January 2020.  The VAT changes have been referred to as ‘VAT Quick Fixes’ and comprise four measures implemented in EU VAT legislation. UK VAT law has been updated and HMRC has issued updated information on the changes and some of the guidance has the force of law.

These changes will be relevant to businesses selling goods between EU Member States, including to/from the UK while the UK remains in the EU. 

1. Customer VAT number and European Sales List reporting

Many EU Member States, including the UK, already require the supplier to obtain a customer’s VAT number as a condition of being able to zero-rate a cross border sale of goods. The VAT Quick Fixes harmonise this requirement across the EU Member States. For an intra-Community supply to be zero-rated (exempt with input tax credit), the following conditions must be met:  

  • there must be a transfer of the right to dispose of goods as owner 
  • the customer must be a taxable person 
  • there must be a physical movement of the goods to another Member State. 

Suppliers in the UK will already have been familiar with a requirement to obtain a valid EU VAT number from the customer - it is recommended that the supplier uses the VIES database to check the validity of the number and retain evidence of the check having been carried out.

The Quick Fixes introduce a further condition for zero-rating - that the supplier correctly reports the supply in its European (EC) Sales List. Businesses may not feel that this is a ‘fix’ at all given zero-rating is not currently dependent on making a EC Sales List entry, but given that some organisations struggle to reconcile their VAT and EC Sales List reporting, this latter condition could require suppliers to have more robust procedures in place. There is also the potential for uncertainty for customers as they will likely be required by their local VAT laws to account for acquisition VAT when making an intra-Community purchase of goods, without knowing whether the supplier correctly included the sale on the EC Sales List; if the supplier did not, technically no acquisition VAT is needed.

2. Call-Off Stock harmonisation

Call-Off Stock is a VAT simplification operated by some, but not all EU Member States. The VAT Quick Fixes aim to resolve this by providing for Call-Off Stock to be available in all countries.

It is common for suppliers to store their own goods abroad, near or at their customer’s location, so that they can be quickly made available to that specific customer when needed. Some EU Member States require the overseas supplier to VAT register in the local country to account for VAT on a movement of their own goods and then a local sale.

Under certain conditions, and provided the goods are sold to the customer within 12 months, there will be a direct intra-Community supply of goods from the supplier to the customer and the supplier will not need to be VAT registered in the overseas location. The conditions are that:

  • a sale occurs under a Call-Off arrangement to an identified VAT registered customer
  • the delivery to the customer occurs within 12 months of the shipment of the goods
  • the supplier does not have a fixed establishment in the country to which the goods are sent.

Note that there will be no change to the principle that the Call-Off stock simplification cannot be applied when the supplier is keeping inventory in the local country that is not for an identified/ specific customer.

3. Identification of who makes a supply with transport in chain transactions

A frequent area of VAT difficulty is the treatment of chain transactions i.e. where goods are sold through a chain of parties, each located in different Member States, but with a single cross border movement of the goods being sold. There has been case-law arising from differences of interpretation between the EU Member States as to how to identify the sale which benefits from zero-rating as a cross-border sale, and which transactions take place in a Member State and probably require VAT registration and local VAT to be charged.

From 1 January 2020, the new measures require the starting point in the VAT analysis to be that the cross-border sale will be the one to the person in the chain who arranges for the goods to be shipped, referred to as the ‘intermediary operator’. The intermediary operator cannot be the original supplier. The new rules have no effect where the original supplier arranges the transport.

4. Evidence of shipment

A key condition to be able to zero-rate the intra-Community sale of goods is that the supplier holds valid commercial evidence of export. The evidence of shipment has been another area of frequent practical difficulty for businesses engaged in cross-border sales, with this being a high profile risk area. With effect from 1 January 2020, the presumption will be that transport is proved only if the supplier seeking to apply the zero-rate holds two or more documents, issued by independent parties, that evidence the shipment of the goods. There are detailed documentary requirements which businesses should review to ensure they are able to meet the conditions for applying zero-rating.

Businesses will need to ensure they have robust processes in place and liaise with their freight agents to ensure that the relevant documentation is retained, and within the right time periods.

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Next steps

New UK law to implement the EU VAT law changes has been published and HMRC’s guidance updated. Businesses engaged in intra-Community trade should review these provisions in detail to assess whether any changes to their arrangements are necessary. For example, users of the Call-Off Stock simplification will need to maintain a Call-Off Stock Register and may need to update their sales contracts to include a Call-Off Stock Agreement. All businesses selling goods cross-border will need to ensure that their EC Sales List processes are robust given that inclusion of the sale in the EC Sales List becomes a requirement to apply zero-rating to the sale.

The updated guidance on Call-Off Stock can be accessed here.

The updated guidance on intra-EU chain transactions and zero-rated goods is available here.

Crowe can support you by reviewing your existing legal and physical supply chains to help you identify where the Quick Fixes will require changes to your current VAT accounting processes, to either guard against unexpected VAT costs arising or to enable you to benefit from the simplifications for the first time to reduce complexity and compliance costs.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services