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EU: VAT quick fixes; valid VAT identification number

EU: VAT quick fixes; valid VAT identification number

One of four areas under the EU’s value added tax (VAT) “quick fixes” concerns the requirement for a mandatory VAT identification number to apply the exemption for intra-Community supplies.

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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 third item—uniform rules to simplify chain transactions.

Read prior KPMG reports discussing:

  • The rules under the simplified proof for intra-Community supplies: TaxNewsFlash
  • Simplified treatment for call-off stock: TaxNewsFlash
  • Uniform rules to simplify chain transactions: TaxNewsFlash


Valid VAT identification number to apply the exemption for intra-Community supplies

The third item relates to two new material conditions in order to apply the exemption for intra-community supplies.

Currently, being in the possession of a valid VAT identification number from a customer is only a formal requirement for applying the VAT exemption for intra-Community supplies. According to the Court of Justice of the European Union, a taxable person is entitled to apply the VAT exemption if the material conditions of the VAT exemption are met. In other words, the VAT exemption cannot be refused merely because of the fact that the supplier did not receive a valid VAT identification number from the customer. In order to clarify the situation and prevent fraud, the EU Council has introduced two new material conditions.

As of 1 January 2020, the use of a valid VAT identification number of the customer will be a material condition of the VAT exemption for intra-Community supplies. If the customer does not communicate a valid VAT identification number, the supplier cannot apply the VAT exemption and will need to invoice local VAT of the EU Member State of dispatch of the goods. This local VAT will, in principle, not be recoverable for the customer.

In addition, filing a correct EC sales list will also become a material condition. As a result, the VAT exemption may be rejected if the intra-Community supply is not correctly or timely reported in the EC sales list.
 

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

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