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Indirect Tax Update - AL regarding chain transactions

Indirect Tax Update AL regarding chain transactions

Date: 7/07/20

On 3 July 2020, the Amending Law (No 2) Ν.79(Ι)/2020 (hereinafter ‘AL’) was published in the Official Gazette of the Republic of Cyprus. The purpose of the AL is to transpose the provisions of Directive (EU) 2018/1910 which amended Directive 2006/112/EC regarding the harmonization and simplification of certain rules for intra-community transactions.

Articles 10, 42C and 45A of the VAT Act have been amended.

A.  Amendment of Article 10 – Chain Transactions

New subparagraph 15 after subparagraph 14

Subparagraph 15 is divided into points (a) and (b). Point (a) sets out the general rule for the attribution of the transport in case of chain transactions concerning supply of goods with transport, while point (b) refers to a derogation from the general rule.

General rule: Where the same goods are supplied successively and those goods are dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain, the dispatch or transport shall be ascribed only to the supply made to the intermediary operator.

Derogation: the dispatch or transport shall be ascribed only to the supply of goods by the intermediary operator where the intermediary operator has communicated to his supplier the VAT identification number issued to him by the Member State from which the goods are dispatched or transported.

New subparagraph 16

Subparagraph 16 defines the intermediary operator as follows:

‘intermediary operator’ means a supplier within the chain other than the first supplier in the chain who dispatches or transports the goods either himself or through a third party acting on his behalf.

Example 1

Supplier A established in MS1 supplies goods to an intermediary operator B also established in MS1 and the intermediary operator supplies the goods to customer C who is established in MS2. The transfer of goods from MS1 is arranged by B and are sent directly to MS2 and delivered to customer C. According to the general rule, the transfer from MS1 to MS2 is ascribed to the supply from A to B. It is noted that for the intra-community supply to be applicable (imposition of zero VAT by A), B must provide a valid VAT registration number issued by another MS. If B provides a VAT number issued by MS2, the supply from A is an intra-Community supply which means that B applies double posting in MS2 (intra-community acquisition) and then a domestic supply to C by imposing VAT that applies to MS2.

Example 2

In the example above, if the intermediary operator gives a valid VAT number issued by MS1, then the derogation from the general rule applies and the transfer is ascribed to the supply by the intermediary B to the final customer C with the result that A imposes VAT applicable in MS1 and B carries out intra-Community supply resulting in C applying the double posting mechanism in MS 2 ( i.e. intra-community acquisition).

B. Amendment of Article 42C

(a) Replacement of subparagraph 2 with new sub paragraph

The new subparagraph 2 is essentially similar to the previous subparagraph 2 with the difference that the new subparagraph clearly states that in addition to the transactions falling under Articles 10 and 11 and the triangular transactions of 12 E(1), supplies of goods together with installation (12(E) (2)) must also be included in the VIES. In addition, the new subparagraph (2) provides that:

· VIES shall be submitted on or before the 15th day of the month following the relevant month and

· VIES must NOT include supply of goods or services that are either exempt or zero-rate at the MS where the recipient is established.

(b) Addition of subparagraph 2A

With the addition of the new paragraph 2A, persons who transfer goods as call off stocks to other MSs are required to submit information with regards to customer’s VAT number of the issued by the MS of their establishment.

VIES has been modified accordingly so that taxpayers can provide the information about customer’s VAT number.

(c) Replacement of a phrase in paragraph 4

It provides that the taxable person must, if the submitted VIES contains errors, submit a corrective statement within one month from the relevant month.

C. Replacement of paragraph (1) of Article 45C

The wording of paragraph (1) of Article 45C is amended so as to be consistent with the amendment of new subparagraph 2 and provides that late submission of a corrective statement is subject to an administrative penalty amounting to €15.

D. Effective date

The effective date of the above amendments and additions is 1 January 2020.

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.