Intra-EU chain transactions
A chain transaction describes a scenario where the same goods are supplied successively between three or more parties in different MS, but the goods themselves are transferred directly from the first supplier to the last customer in the chain. The current VAT treatment of chain transactions is based on complex case law of the Court of Justice of the European Union (CJEU) which is often interpreted differently at a MS level, making it difficult to determine which supply qualifies as a zero-rated Intra-EU transfer of goods and which supplies are deemed to be domestic transactions for VAT purposes that may require a local VAT registration. Therefore, the revised VAT Directive aims to provide greater legal certainty by including new rules to determine the applicable VAT treatment where the intermediary operator is in charge of arranging the transportation, as follows:
- The general rule is that the zero-rated Intra-EU transport will be ascribed to the supply made to the intermediary;
- The intermediary is deemed to be the supplier in the chain, other than the first supplier, who transports or arranges for the transport of the goods;
- By way of derogation from the general rule, the zero-rated Intra-EU transport will be ascribed to the supply by the intermediary where the intermediary has notified the supplier of its VAT ID number in the MS from which the goods are dispatched.
- The new rules try to ascribe the Intra-EU transport to a specific supply in the chain based on certain preconditions. Specifically excluded from the scope of the rules are:
○ Chain transactions involving imports and exports.
○ ‘Ex-works’ supplies - ie, where the customer or a third party on its behalf, picks up the goods from the first supplier.
- If the first supplier in the chain arranges the transport or has the transport arranged in its own name, the Intra-EU supply is by default assigned to the supply by the first supplier.
- If the last customer in the chain arranges the transport or has the transport arranged in its own name, the intra-Community supply is by default assigned to the supply to the last customer.
- Communication of the VAT ID-No from the intermediary operator to the supplier should not be bound by any particular formalities - eg, including the correct VAT ID number on the invoice should be sufficient to substantiate the applicable VAT treatment, although for risk management purposes anything in writing might also be helpful.
- Careful analysis is still required where a chain transaction involves more than three parties - the new rules have not been designed to create additional legal certainty in such circumstances and thus analysis of the applicable VAT treatment for each party in a chain of four or more parties will still rely on CJEU case law and local interpretation.
Questions for businesses to consider:
- Are you involved in chain transactions
- If yes, chain transactions involving three parties, or more?
- Which party are you in the chain?
- Which party is responsible for arranging the transport?
- If you are the intermediary in the chain and registered for VAT in the country of despatch, which VAT ID number will you give to your supplier?
- Are you involved in ex-works supplies?
- As a result of the new rules would you be able to deregister for VAT in any MS?
Information on the third quick fix to follow soon...
For a deeper discussion of how these issues might affect your business, please call your usual PwC indirect tax specialist or if you prefer to speak to one of our global indirect tax policy specialists, please contact:
Tom Corbett, Dublin: +353 (1) 792 5462 email@example.com