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EU VAT Quick Fixes: Not So Quick to Implement for Companies

Posted on July 8, 2019
Jeremy Gray
Jeremy Gray
Philippe Stephanny
Philippe Stephanny

Philippe Stephanny is a senior manager in the state and local tax group of the Washington national tax practice of KPMG LLP, and Jeremy Gray is a managing director in the Philadelphia office of KPMG’s state and local tax practice. Email: philippestephanny@kpmg.com, jpgray@kpmg.com

The information in this article is not intended to be written advice on one or more federal tax matters subject to the requirements of section 10.37(a)(2) of U.S. Treasury Department Circular 230 because the content is issued for general informational purposes only. The information in this article is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the authors only and does not necessarily represent the views or professional advice of KPMG.

In this article, the authors discuss the EU’s VAT “quick fixes” directive and regulations, which will enter into effect in 2020, focusing on how the new rules will affect businesses.

In 2016 the European Commission presented its action plan (COM(2016) 148 final) setting out ways to reboot the transitional EU VAT system, which has been in place since 1993, to make it simpler as well as more fraud-proof and business-friendly. According to the commission, the rules in the EU VAT directive (2006/112/EC) and implementing regulations urgently need to be updated so they can better support the EU single market, facilitate cross-border trade, and keep pace with today’s digital and mobile economy.

While no definitive replacement VAT system has emerged, on December 7, 2018, the EU published legislation to introduce four so-called quick fixes to the VAT system effective January 1, 2020 (the quick fixes directive (2018/1910) and regulations (2018/1912)).1 Those quick fixes require the customer’s VAT identification number to zero-rate intra-EU sales of goods, clarify proof of intra-EU shipments, and address the VAT treatment applicable to intra-EU chain transactions and intra-EU call-off stock arrangements. While they address specific topics, they will substantially affect all businesses that sell goods in the EU. With a relatively short implementation deadline, businesses should examine how the new rules affect not only their EU VAT positions, but also, and more importantly, how enterprise resource planning (ERP) systems and business processes may need to be updated to meet the new requirements. This article discusses why the quick fixes are needed and how they will affect businesses.

Mandatory VAT ID

The Underlying Issue

Under the EU VAT directive, member states are required to zero-rate the sale of goods made to a taxpayer and shipped to another member state by or on behalf of the vendor or the person acquiring the goods. In other words, cross-border sales of goods are zero-rated in the member state from which the goods depart if the goods are shipped to another EU state and the sale is made to a taxpayer in another member state.

The need for tax authorities to verify compliance with the second condition arises from the fact that the definition of taxpayer for VAT purposes is broad. Under the EU VAT directive, a taxable person is any person who independently carries out in any place any economic activity, whatever the purpose or result of that activity. EU tax authorities have thus started requiring vendors to prove the taxpayer status of their customers by obtaining from each a valid VAT ID in a member state other than that of departure (for example, where the goods arrive).

The underlying thought behind that approach is that as a matter of VAT compliance, a vendor must include its customer’s VAT ID on a cross-border sale of goods invoice and report the sale on a separate recapitulative statement, which includes the customer’s VAT ID. The tax authority of the vendor’s state transfers the recapitulative statement to the tax authority of the customer’s state via the EU’s VAT Information Exchange System (VIES).

However, the Court of Justice of the European Union has challenged having a valid VAT number of one’s customer as a requirement for zero-rating the intra-EU sale of goods. It has acknowledged that a VAT ID provides proof of the taxpayer’s tax status in applying the VAT and facilitates the tax audit of intra-EU transactions, but has said that formal requirement cannot undermine the right of zero-rating when the substantive conditions for an intra-EU sale are satisfied.2

However, the CJEU has said it is legitimate to require that the vendor act in good faith and take every reasonable measure to ensure that the transaction he effects does not lead to his participation in tax evasion. A member state would be going further than the measures strictly necessary for the correct collection of tax if it refused to zero-rate an intra-EU sale solely because the vendor did not supply the VAT ID to the tax authority if that vendor, acting in good faith and having taken all measures that can reasonably be required, cannot provide that number but can provide other information that sufficiently demonstrates that the person acquiring the goods is a taxable person.3 As a consequence, a member state cannot deny the application of the zero rating solely because at the time of sale, the purchaser domiciled in the state where the goods arrived is not registered in the EU VIES. It also cannot deny it if there is no sound evidence pointing to fraud and the basic conditions of the zero rating have been fulfilled.4

The New Rule

The quick fixes directive will substantially overturn that case law by making the obtaining of a customer VAT ID a substantive requirement for zero-rating intra-EU sales of goods. It also states that the zero rating will not apply if the vendor has not submitted a recapitulative statement or if that statement does not set out the correct information regarding the sale as required by the EU VAT directive, unless the vendor can justify the shortcoming to the satisfaction of the relevant tax authorities.

Business Impact

From a practical standpoint, obtaining and verifying a customer’s VAT ID was already standard practice. The new rule, however, will leave no room for error in that process. All companies will need to collect VAT IDs when making cross-border sales.

The quick fixes directive does not require the vendor to verify that the VAT ID provided is valid. However, because the CJEU has said a tax administration can require a vendor to take every reasonable measure to ensure that the transaction does not lead to his participation in tax evasion, tax authorities will likely argue that it is insufficient to merely collect VAT IDs. They might expect vendors to also verify the validity of their customers’ VAT IDs through VIES, a tax authority’s website, or some other manner (for example, requesting a copy of the VAT registration certificate).

Relying only on VIES may be problematic. First, there is no real-time information exchange between EU tax authorities and VIES. Thus, there may be a delay between when a VAT ID is obtained or canceled and when the information is published in the system. Second, depending on the information provided by each tax authority, VIES provides information only on whether the VAT ID is valid, not on whether it belongs to a particular business. A vendor could thus verify the VAT ID in VIES and yet be dealing with a noncompliant taxpayer.

Further, because VAT is a transaction-based tax, the substantive conditions, including the new VAT ID requirement for zero-rating, should be met for each individual transaction. That would mean that for each intra-EU supply of goods, the vendor should ensure that the customer has a valid VAT ID even if that number is already in the vendor’s ERP system.

Those constraints could be burdensome, but the CJEU case law may provide helpful guidance. The Court has clearly said the zero rating should be denied only when a vendor has not taken all reasonable measures to verify that the customer is a taxpayer. While the quick fixes directive adds the VAT ID as a substantive requirement, it should not void the CJEU’s position protecting taxpayers acting in good faith and performing measures that could reasonably be expected of them.

To begin implementation, taxpayers should review their customers’ (and preferably their suppliers’) master data and verify whether all VAT IDs are valid. Taxpayers should further retain proof of the verification performed. For instance, VIES provides a time stamp when a review is performed, so a taxpayer could keep a picture of that stamp in its records.

Taxpayers should establish procedures to ensure the VAT ID is verified when a new customer or vendor is set up. VAT IDs should also be verified regularly, a step that could be added when the company verifies its customers’ payment history, for instance. Having that kind of process in place and documented, as well as having up-to-date VAT ID records, should help taxpayers prove they took sufficient reasonable steps to verify the VAT IDs.

Taxpayers could also add checks based on VAT due diligence guidance published by some EU tax authorities to assist taxpayers to identify VAT fraud schemes.5

While the quick fixes directive imposes the requirement to have a VAT ID only for intra-EU sales of goods, taxpayers providing services should also perform those verifications to avoid interacting with fraudulent parties.

In case of doubt regarding the validity of the VAT ID, or if the customer does not provide a number, taxpayers should treat the sale as one made to a non-VAT-registered customer. In general, that means the sale would be subject to VAT in the EU state of departure of the goods — but taxpayers should take care to avoid falling under the distance selling rules. Under the EU VAT directive, sales of goods are generally taxable in the state of departure. However, the sales will be taxable in the state of arrival if the total sales to non-VAT-registered customers exceed a threshold determined by that state. Therefore, a taxpayer that has not obtained VAT IDs for several customers in a member state and makes sales above the distance selling registration threshold of the arrival state might be required to register for, charge, and collect VAT in the arrival state.6

Finally, taxpayers should review whether the VAT IDs they use are effectively attributable to the transaction at hand. It is common for a business operating across the EU to have multiple VAT registrations, and thus multiple VAT IDs, making it crucial that vendors apply the correct ID to each transaction.

Proof of Intra-EU Supply

The Underlying Issue

As mentioned, the EU VAT directive sets out several conditions for intra-EU cross-border sales to qualify as zero-rated sales. One of those is that the goods must be shipped from one member state to another. Since the intra-EU rules have been implemented, member states have imposed various rules on how businesses can prove their goods meet that condition.

For instance, the Belgian VAT authority recently issued a notice indicating that the intra-EU sale of goods may be evidenced by various documents, such as transport documents, order forms, or a proof of payment from the customer.7 In Poland, the minimum evidence includes shipping documents from the transport company that confirm that the goods were shipped outside Poland and delivered to another EU country, and details of the cargo.8 If those documents do not clearly confirm shipment from Poland and delivery to another EU country, other documents, such as trade correspondence or cargo insurance certificates, may also be used. Additional evidence is required when the seller or customer is using its own means of transport. Germany has an even stricter approach, requiring a so-called entry certificate when the customer performs the cross-border shipment of goods.9 That certificate may consist of several documents, provided they include the name and address of the recipient, the description and quantity of goods, the date of arrival, and the signature of the recipient.

The divergent approaches to applying the zero rating for cross-border transactions has created difficulties and legal uncertainty for businesses. According to the European Council, that is contrary to the objectives of enhancing intra-EU trade and abolishing fiscal borders. Because cross-border VAT fraud is primarily linked to the zero-rating of intra-EU sales, the council has specified circumstances in which goods should be considered having been shipped from one EU member to another for uniformity and ease of enforcement.

The New Rule

To provide a practical solution for businesses and assurance for tax administrations, the quick fixes regulations introduce two presumptions in the VAT implementing regulation under new article 45a, which the tax authorities may rebut if presented with alternative evidence.

When the vendor ships the goods, they will be presumed shipped from one member state to another if the vendor indicates that they have been transported or dispatched by the vendor or by a third party on his behalf. Also, the vendor must have at least two pieces of noncontradictory evidence regarding the shipment of the goods issued by two independent parties (who are also independent of the vendor and the acquirer), such as a signed CMR document or note (Convention Relative au Contrat de Transport International de Marchandises par la Route, an international agreement required for road transport), a bill of lading, an airfreight invoice, or an invoice from the carrier of the goods. If two pieces of noncontradictory evidence are unavailable, the vendor may use one of the noncontradictory items plus one of three other documents, as long as both are issued by two independent parties:

  • an insurance policy regarding the shipment of the goods, or bank documents proving payment for shipment;

  • official documents issued by a public authority (such as a notary) confirming the arrival of the goods in the member state of destination; or

  • a receipt issued by a warehouse keeper in the member state of destination confirming the storage of the goods in that state.

When the customer ships the goods, they will be presumed shipped from one member state to another if the vendor has a written statement from the acquirer that he (or a third party on his behalf) has shipped the goods and that identifies the member state of destination. The document must include the date of issue; the name and address of the acquirer; the quantity and nature of the goods; the date and place of the arrival of the goods; and for vehicle sales, the vehicle identification number. Further, if applicable, the document should also identify the individual accepting the goods on behalf of the acquirer. Finally, no later than the 10th day of the month following the sale, the acquirer must furnish the written statement to the vendor, who must be in possession of the two pieces of required evidence.

Business Impact

Companies should ensure that they have for each intra-EU shipment the two pieces of required evidence and should establish procedures to ensure that they collect and store the required documentation. Moreover, to facilitate discussion during audits, companies should ensure that they can easily establish a link between the two pieces of evidence and the relevant intra-EU sale of goods. Those processes will likely require the intervention and training of multiple stakeholders, including tax, IT, logistics, and accounts payable and receivable.

Other complexities will arise when the customer organizes the shipment because the vendor must obtain the written statement and verify that all required data points are included. Companies should thus be able to send automatic requests for those statements if not received in a set time frame, noting that in the absence of the requested document, they will be obliged to charge domestic VAT on the transaction.

As a customer in charge of shipment, a company should ensure that it issues the statement in the required time frame. While the quick fixes regulations do not state that noncompliance will result in penalties, it is likely that member states will introduce penalties to ensure that all parties comply with the new rules.

On audit, EU tax authorities will likely automatically deny the zero-rating of noncompliant cross-border sales. Domestic VAT would be assessed on the transaction and penalties would likely be imposed.

To avoid those kinds of problems, vendors could start charging domestic VAT on cross-border transactions in the absence of sufficient documentation. Whether that VAT would constitute a final cost for the customer or be refundable under the EU mechanism for nonresident refund claims is unclear. On the one hand, member states should deny refund claims if VAT was incorrectly invoiced, and tax authorities may decide that the transaction should in principle have been zero-rated. On the other hand, the customer could argue that because not all the conditions for the zero rating were satisfied, the vendor duly charged domestic VAT and the amount should thus be refunded to the customer.

However, even if a nonresident refund claim would be allowed, charging domestic VAT on cross-border transactions would add a compliance burden and a temporary cash-flow cost to the customer because it would be required to file separate claims, which tax authorities generally take several months to process. Moreover, if the customer is registered for VAT in the EU but is not established in the EU, other conditions would apply:

  • not all member states refund VAT to non-EU businesses because of the application of some reciprocity requirements;

  • the refund application process is more cumbersome for non-EU companies because they must file refund claims with each tax authority where VAT was incurred rather than via a streamlined system; and

  • tax authorities more heavily scrutinize non-EU refund claims (for instance, applicants must submit original invoices with the refund claims, so providing copies could result in claims being denied).

Chain Transactions

The Underlying Issue

Chain transactions involve the successive sales of goods between taxpayers that constitute only a single intra-EU shipment. For instance, company A in France sells to company B, also in France. B in turn sells to company C in Germany. The goods are directly shipped from A to C.

According to CJEU case law, in a chain transaction, the intra-EU movement of the goods should be attributed to only one of the sales, and only that sale should be considered a zero-rated intra-EU sale.10 The other sale in the chain should be considered a domestic sale and may thus require the intermediary — that is, B — to register for VAT in another member state. The CJEU has held that the zero rate will apply to the first transaction if the first acquirer — that is, B — expresses its intention to transport those goods to another member state, and the right to dispose of the goods as their owner has been transferred to the second acquirer — that is, C — in the state of destination of the intra‑EU shipment.11 The Court has also held that it is necessary to determine when the second transfer of the right to dispose of the goods as their owner to the person finally acquiring the goods has taken place.12 To do so, the purchaser’s intentions at the time of the acquisition of the goods should be considered if supported by objective evidence. In other words, if it appears that C is the owner of the goods before the intra-EU shipment takes place, the second transaction — that is, between B and C —will be considered the zero-rated intra-EU sale.

The cases addressing chain transactions demonstrate that for companies with EU operations, the application of CJEU case law can be more than challenging. Therefore, to avoid differing approaches among EU states (which could lead to double taxation or nontaxation) and to enhance legal certainty for businesses, the EU Council has agreed on a common simplified rule for chain transactions when B is in charge of shipping the goods.

The New Rule

The quick fixes directive will add article 36a to the EU VAT directive. The new article recognizes the CJEU’s holding that when the same goods are sold successively and are shipped from one EU state to another directly from the first seller to the last customer in the chain, only one transaction can be considered a zero-rated transaction.13

However, the quick fixes directive departs from the above-mentioned rulings and simplifies the way taxpayers and tax authorities should attribute the zero-rated sale to a specific transaction. The new article creates a presumption that for a chain transaction, the shipment should be ascribed only to the sale made to the intermediary operator — that is, between A and B. Thus, the first transaction will be considered a zero-rated intra-EU sale performed by A in the state of departure and an intra-EU acquisition of goods performed by B in the state of arrival. The second transaction — that is, between B and C — should thus follow the domestic VAT treatment of the country of arrival.

However, the quick fixes directive ascribes the shipment to the transaction made by the intermediary — that is, between B and C — when the intermediary has communicated to its seller the VAT ID issued to it by the member state from which the goods are shipped. In other words, the transaction between A and B will be deemed a domestic transaction performed in the country of departure. The second transaction between B and C will follow general VAT treatment. If C is a taxpayer for VAT purposes, B will be considered to perform a zero-rated intra-EU sale in the country of departure, and C will be considered performing an intra-EU acquisition in the country of arrival.

When C is a final consumer, the intermediary should verify whether the transaction falls within the distance selling rules.14 When the intermediary makes distance sales to final consumers in the arrival state, the sale between B and C should fall within the scope of VAT of the departure state. However, when B makes sales above the distance sales threshold of the arrival state — that is, where the final consumers should be located — the transaction between B and C will be taxable in the arrival state and B may thus be liable to comply with that state’s VAT obligations.

Business Impact

Companies with EU operations making cross-border sales of goods should review their EU-wide supply chains and the related VAT liability, especially when using a principal limited-risk distributor model. Under that model, a principal established either in or outside the EU purchases finished products from a manufacturing plant in the EU, which it sells to a limited-risk distributor in another EU state. The distributor then sells the finished products to customers, generally in its state of establishment. In principle, the finished products are shipped directly from the manufacturing plant to the customer.

Those kinds of structures might have resulted in complex VAT analyses subject to the mentioned CJEU case law. The quick fixes directive simplifies the analysis, and companies may be able to deregister for VAT purposes in some member states. The principal’s establishment outside the EU should not be a problem because the main criterion for the simplified analysis is that goods must be shipped from one member state to another.

The simplification should not apply when goods are shipped to or from a non-EU member; in that case, import and export rules must be considered in addition to any EU VAT chain transaction rules. Historically, however, some member states have applied chain transaction rules to non-EU-to-EU supply chains, so their implementation of those rules should be carefully reviewed when performing those kinds of transactions.

Moreover, the new presumption should also apply when more than three parties are involved, in which case the VAT analysis requires a two-step approach. First, companies must identify which party qualifies as the intermediary operator, defined as a vendor in the chain other than the first vendor who dispatches or transports the goods itself or by a third party on its behalf. Companies should then apply the new presumptions based on which party acts as intermediary operator.

Call-Off Stock Arrangement

The Underlying Issue

Call-off stock refers to situations in which, at the time the goods are shipped to another member state, the vendor already knows the identity of the person to whom they will ultimately be sold after they arrive in the destination state. That situation must be differentiated from a consignment stock arrangement in which the buyer’s identity is unknown when the vendor moves the goods to another member state. Call-off stock arrangements generally give rise to a deemed zero-rated sale in the departure state and a deemed intra-EU acquisition in the arrival state, followed by a domestic sale in the arrival state. That treatment requires the vendor to register for VAT in the arrival state.

To avoid that, some EU states have implemented simplifications.15 Some say the purchaser must self-assess VAT under a reverse-charge mechanism, thus requiring the vendor to report only the deemed intra-EU acquisition of goods (and not the domestic sale) in the state of arrival. In others, there is no deemed intra-EU transaction, but there is a normal intra-EU sale made by the vendor and an intra-EU acquisition by the buyer, when the goods are transferred to their storage location (in one state, the buyer must take possession within one year). Finally, in some member states there is no deemed intra-EU transaction, but there is an intra-EU sale by the vendor and an intra-EU acquisition by the buyer, when the goods are taken out of inventory. A subgroup imposes time limits ranging from 90 days to two years for the goods to be taken out of the stock after their arrival in the member state.

The New Rule

The European Council agreed to simplified and uniform treatment for call-off stock arrangements in which a vendor transfers stock to a warehouse at the disposal of a known purchaser in another member state. That treatment is meant to prevent the vendor having to register for VAT in all states where the stock is held. However, the simplification should not apply to consignment stock arrangements, which should in principle remain subject to general VAT treatment, unless an EU member applies a simplification for those transactions.

The quick fixes directive adds article 17a to the EU VAT directive, which states that a taxpayer’s transfer of goods forming part of his business assets to another member state under a call-off stock arrangement will not be treated as a sale of goods for consideration. A call-off stock arrangement will be deemed to exist if:

  • goods are shipped by a taxpayer, or by a third party on his behalf, to another state with a view that those goods will be sold there after arrival to another taxpayer who is entitled to take ownership of them in accordance with an agreement between the taxpayers;

  • the taxpayer shipping the goods has not established a business and does not have a fixed establishment in the arrival state;

  • the taxpayer to whom the goods are to be sold is identified for VAT purposes in the state to which the goods are transported or dispatched and both his identity and the VAT ID assigned to him by that state are known to the vendor when the shipment begins; and

  • the taxpayer shipping the goods records their transfer in the new register for goods shipped to other EU states under a call-off stock arrangement16 and includes the buyer’s identity and VAT ID assigned by the state to which the goods are shipped in the recapitulative statement of goods.17

If all the above conditions are met, the call-off stock transaction should be considered a zero-rated intra-EU sale of goods performed by the taxpayer shipping the goods in the departure state and an intra-EU acquisition performed by the taxpayer to which the goods are sent in the arrival state when the right to dispose of the goods as owner is transferred (for example, at the time of sale). However, if within 12 months of their arrival the goods have not been sold to the taxpayer for whom they were intended, the transaction will be subject to the general VAT principles the day after those 12 months expire. The transaction will thus be considered a deemed sale in the departure state and a deemed intra-EU acquisition in the arrival state by the vendor, followed by a domestic sale in the arrival state, where the vendor must be identified for VAT purposes. The quick fixes directive further clarifies that a transfer will not have taken place if:

  • the right to dispose of the goods has not been transferred;

  • the goods are returned to the member state from which they have been shipped; and

  • the vendor records the return in the register of goods shipped to other EU states.18

The quick fixes directive includes a safeguard provision that allows a vendor to substitute the purchaser without jeopardizing the simplification measure if the goods are transferred within 12 months, the other conditions for the call-off stock simplification are met (for example, the new recipient is VAT registered), and the change in recipient is recorded in the register of goods shipped to other EU states under the call-off stock arrangement. Finally, the quick fixes directive clarifies that if within the 12-month period any of the simplification measure conditions cease to be fulfilled, the general VAT rules will apply. If the goods are sold to a taxpayer other than the original taxpayer and the safeguard provision is not fulfilled, the simplification measure conditions cease to be fulfilled immediately before sale. If the goods are shipped to a country other than the original departure country, the simplification measure conditions cease to be fulfilled immediately before shipment to that other country. In case of destruction, loss, or theft, the simplification measure conditions cease to be fulfilled on the day the goods were actually removed or destroyed, or if it is impossible to determine that day, on the day the goods were found to be destroyed or missing.

The quick fixes directive requires taxpayers using the simplified call-off stock arrangement rules to keep a specific register for the goods subject to the arrangement.

The vendor’s register must contain:

  • the EU state from which the goods were shipped and the shipment date;

  • the VAT ID of the taxpayer for whom the goods are intended, issued by the state to which the goods are shipped;

  • the state to which the goods are shipped, the VAT ID of the warehouse keeper, the address of the warehouse where the goods are stored on arrival, and the date of their arrival in the warehouse;

  • the value, description, and quantity of the goods that arrived in the warehouse;

  • the VAT ID of the taxpayer substituting the original recipient of the goods (in case of customer substitution);

  • details on when one of the simplification measure conditions ceased to be fulfilled; and

  • the value, description, and quantity of the returned goods and the return date.

The recipient’s register must contain:

  • the VAT ID of the taxpayer who transfers goods under a call-off stock arrangement;

  • the description and quantity of the goods intended for that taxpayer;

  • the taxable amount, description, and quantity of the goods sold and the date;

  • the date the goods arrived in the warehouse;

  • the description and quantity of the goods and the date they are removed from the warehouse by order of the vendor; and

  • the description and quantity of the goods destroyed or missing and the date of destruction, loss, or theft of any goods that previously arrived in the warehouse or the date they were found to be destroyed or missing.

However, when goods are shipped under a call-off stock arrangement to a warehouse keeper different from the taxpayer for whom the goods are intended, that taxpayer’s register need not contain the information in the last three bullets.

Business Impact

The new call-off stock simplification will likely affect fewer companies because it is limited to a specific type of arrangement. Moreover, the simplification applies only to cross-border call-off stock arrangements in the EU, because the first requirement is to have goods shipped from one member state to another. Thus, call-off stock arrangements involving goods shipped from outside the EU into the EU should be subject to general VAT rules and country-specific guidance on those kinds of arrangements.

Although the new simplification is limited in scope, companies involved in EU call-off stock arrangements might still benefit from it. If all conditions in the quick fixes directive are met, they can deregister from VAT in the member states where the stock is held and thus reduce their VAT compliance burden. Because the simplification does not apply to consignment stock arrangements, companies might want to review their supply chains to determine whether they can turn any consignment stock arrangement into a call-off stock arrangement.

Companies applying the simplification should also establish procedures to ensure that all the call-off stock conditions are met. Failure to meet those requirements could result in complex adjustments, registration in the arrival state, and penalties.

Companies should track and keep records of the location of goods, their length of stay in the warehouse, and the customer. They should also ensure that the goods are not shipped to a member state other than the original departure country because that would jeopardize the simplification.

Finally, companies should ensure that they comply with all the recordkeeping requirements and that the special registers for call-off stock arrangements are up-to-date. Given the complex requirements for compliance, as well as the risks of noncompliance, companies should educate all stakeholders involved in the call-off stock arrangements.

FOOTNOTES

1 The EU also published Council Regulation (EU) 2018/1909 of Dec. 4, 2018, amending Regulation (EU) No. 904/2010 concerning the exchange of information for monitoring the correct application of call-off stock arrangements.

2 See, e.g., Mecsek-Gabona kft v. Hungary, C-273/11 (CJEU 2012).

3 See, e.g., VSTR v. Germany, C-587/10 (CJEU 2012).

4 See, e.g., Euro Tyre BB v. Portugal, C-21/16 (CJEU 2017); and Traum EOOD v. Bulgaria, C-492/13 (CJEU 2014).

5 See, e.g., Irish Tax and Customs, “How to Protect Your Business From Becoming Involved in VAT Fraud” (Nov. 2018).

6 In 2021 the EU distance selling rules will be replaced with a system in which taxpayers making cross-border sales of goods to non-VAT-registered persons will be required to charge VAT in the member state of arrival if their EU-wide cross-border sales exceed €10,000 annually. However, those businesses will be allowed to register under a simplified one-stop-shop mechanism. See European Commission, “Modernising VAT for Cross-Border E-Commerce.”

7 Marc Govers, “Belgium — Value Added Tax,” IBFD Topical Analyses (accessed Oct. 30, 2018).

8 Jacek Buziewski, “Poland — Value Added Tax,” IBFD Topical Analyses (accessed Oct. 30, 2018).

9 Jens Müller-Lee, “Germany — Value Added Tax,” IBFD Topical Analyses (accessed Oct. 30, 2018).

10 See EMAG Handel Eder OHG v. Finanzlandesdirektion für Kärnten, C-245/04 (CJEU 2006).

11 Euro Tyre Holding BV v. Staatssecretaris van Financiën, C-430/09 (CJEU 2010).

12 Kreuzmayr GmbH v. Austria, C-628/16 (CJEU 2018).

13 EMAG, C-245/04.

14 Which are subject to changes effective January 1, 2021. See supra note 6.

15 See, e.g., European Commission, VAT Expert Group, “Option 1B — Sub-Groups Report — Consignment Stock,” VEG No. 28, taxud.c.1(2014)27553 (Jan. 9, 2014).

16 The quick fixes directive creates paragraph 3 in article 243 of the EU VAT directive requiring every taxpayer who transfers goods under the new call-off stock arrangement to keep a register that allows the tax authorities to verify the correct application of the simplification measure.

17 According to article 262 of the EU VAT directive, taxpayers must submit a recapitulative statement (commonly known as an EC sales list) for all intra-EU sales of goods and services for which the purchaser must self-assess VAT. The quick fixes directive includes a new requirement to include in the recapitulative statement the VAT ID of the taxpayer for whom the goods are intended and which are shipped under a call-off stock arrangement.

18 The record referred to in article 243 of the EU VAT directive.

END FOOTNOTES

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