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EU: VAT quick fixes; uniform rules to simplify chain transactions

EU: VAT quick fixes; chain transactions

One of four areas under the EU’s value added tax (VAT) “quick fixes” concerns uniform rules to simplify chain transactions.

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Background

The EU Council in December 2018 adopted the “VAT quick fixes” that are intended to simplify international trade and to be implemented by the EU Member States by 1 January 2020.

The VAT quick fixes concern the following four items:

  • Simplified treatment for call-off stock
  • Uniform rules to simplify chain transactions
  • Mandatory VAT identification number to apply the exemption for intra-Community supplies
  • Simplified proof for intra-Community supplies

The following discussion focuses on the second item—uniform rules to simplify chain transactions.

  • Read an earlier KPMG report discussing the rules under the simplified proof for intra-Community supplies: TaxNewsFlash
  • Read an earlier KPMG report discussing simplified treatment for call-off stock: TaxNewsFlash

Uniform rules to simplify chain transactions

A chain transaction consists of multiple successive supplies of goods involving three or more taxable persons.

Consider this example: Party A supplies goods to party B, who in its turn, supplies the goods to party C. For logistical reasons, the goods are sent directly from the first supplier (party A) to the final customer in the chain (party C).

In chain transactions involving different EU Member States, it is important to identify the supply to which the transport of the goods can be allocated. Since only one transport takes place, only one supply in the chain can be considered as the intra-Community supply. This means that only one supply can benefit from the VAT exemption for intra-Community supplies. All other supplies are domestic supplies of goods taking place in the EU Member State of dispatch of the goods or in the EU Member State of arrival of the goods.

In practice, it is often not clear which supply of the chain is to be regarded as the intra-Community supply—in particular when the intermediary (party B) arranges the transport of the goods. Therefore, the EU Council introduced a new rule aimed at simplifying the rules to allocate the transport of the goods in chain transactions.

As of 1 January 2020, the standard rule is that the intra-Community transport is to be allocated to the supply made to the intermediary, who arranges the transport (in the example, the supply by party A to party B). There will be an exception to this standard rule if the intermediary communicates to its supplier its VAT identification number granted by the EU Member State from which the goods are dispatched or transported. In that situation, the transport of the goods would be allocated to the supply made by the intermediary to its customer (in the example, the supply by party B to party C).

This quick fix is only applicable if the intermediary dispatches or transports the goods either itself or through a third party acting on its behalf and for its account. This means that this quick fix is not relevant when the first supplier or the final customer in the chain arrange the transport of the goods.

The Belgian VAT authorities are currently working on an administrative circular letter with respect to the implementation of the quick fixes in Belgium. 
 

Read a December 2019 report prepared by the KPMG member firm in Belgium

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