As from 2020, VAT simplification schemes for international trade in goods: quick fixes
From 1 January 2020, four changes – called the "quick fixes" – will take effect in the VAT system. We will discuss three changes in this article. You can read about the fourth change in a separate article on the subject.
1. Obligation of VAT number with zero-rate intra-Community transactions
When applying the zero rate it is required that:
- you perform the intra-Community delivery to another VAT entrepreneur;
- the goods are delivered;
- you can demonstrate that the goods have been transferred to the other Member State.
From 1 January 2020, you must have a valid VAT number of your purchaser in order to apply the zero rate. This foreign VAT number must be included in the Intra-Community Supplies Statement. Therefore requesting a foreign VAT number, processing it on your invoices, and checking it becomes very important.
2. New evidence rules for intra-Community transactions
When applying the zero-rate VAT for intra-Community deliveries, the seller must be able to demonstrate that goods have been transported from one Member State to the other. As from 1 January 2020, the purchaser must be able to supply at least two independent supporting documents to this effect.
If you have sufficient supporting documents for each intra-Community transaction, it is assumed that you may apply the zero-rate VAT. This is called evidentiary presumption. Evidentiary presumption is thus introduced in order to make it easier for you to be able to show the intra-Community transport and therefore application of the zero rate. This evidentiary presumption gives you certainty about the zero-rate VAT and clarity about which documents you must collect, request and save for this purpose.
The transport of the goods can occur in various ways. You may transport the goods yourself or engage a third party (carrier) at your cost. It may also be that your purchaser personally collects the goods or independently engages a third party to do so. If your purchaser collects the goods or has them collected, you as supplier must have a statement from the purchaser.
You satisfy the evidentiary presumption when you as supplier have two "non-contradictory" statements which have been issued by two different and independent parties. Examples here are a CMR waybill (for land transport) or a bill of lading (for transport by sea), completed with an invoice from the transport company. Insurance agreements for the cargo which is being transported, proof of payment through the bank or a delivery receipt from the other Member State also apply as proof.
Does your purchaser arrange transport? Then three supporting documents are required for the evidentiary presumption: a statement from your purchaser, completed with two other supporting documents.
Especially in situations in which you engage another party to transport the goods for you, this evidentiary presumption can prove beneficial for you if you collect the proper supporting documents. Do you personally bring the goods or does your purchaser personally collect the goods? Then the situation becomes more complex, as there are no supporting documents from a transporting party. Moreover, the Dutch Tax and Customs Administration may refute this evidentiary presumption. If the Tax and Customs Administration is successful in doing this, you must still prove the transport to prevent the Tax and Customs Administration imposing an additional tax assessment for the VAT – which you have not received from your purchaser – for "improper" use of the zero-rate VAT.
3. New VAT rules for intra-Community chain transactions
Uniform rules for chain transactions are being developed. There are always multiple parties involved in a European chain transaction. For example, you are a trader in construction materials. You sell from your office in the Netherlands (A) to a German trader (B). This German trader resells the goods to an Italian construction company (C). The goods go directly from the Netherlands to Italy. Naturally it is possible for even more parties to be involved in a chain. The following diagram clarifies the (consecutive) chain transaction:
Your business must 'earn' the application of the zero rate. That's why it is important to determine whether the zero rate applies to your transactions. Only one transaction (the intra-Community delivery) can qualify for application of the zero rate. New rules will be introduced to determine to which link in the chain the zero-rate VAT applies.
Is Party A or B arranging the transport to Party C? Then, on the basis of the new rules, the transaction between A and B is the intra-Community transaction (and thereby falls under the zero-rate VAT). The transaction between B and C is a local delivery in Italy with Italian VAT, unless B provides to A a VAT number from Member State A. If the German party (B) should provide a Dutch VAT number to the Dutch party (A), then this delivery (delivery A-B) is a local delivery (with Dutch VAT). The delivery between the German party (B) and the Italian party (delivery B-C) is then the intra-Community delivery to which the zero-rate VAT applies.
The new rules apply specifically if B arranges the transport. Often there is a discussion about in which link the zero-rate VAT should be applied: A-B or B-C. An end (more or less) is now coming to this discussion to which significant risks of additional assessments of VAT are associated. The allocation of the intra-Community transport is now easier (less complex).
The quick fixes provide simplification and ensure a reduced administrative burden. Because of the new VAT rules, it will become even more important for your business to properly structure your VAT position and ERP system. You must have access to a valid VAT number and the proper evidentiary documents in a timely manner. The VAT specialists from ABAB can advise you on mapping your flow of goods and the application of the proper VAT treatment.