Customer’s VAT ID number as substantive requirement for zero-rating Intra-EU supplies
Obtaining a customer’s VAT ID number is currently a formal requirement in order to zero-rate the Intra-EU supply of goods. However, recent case law of the CJEU has established the principle that a taxable person is only required to meet the substantive conditions for applying the zero-rate, meaning that the mere failure to receive a valid customer VAT ID number should not remove the supplier’s right to zero-rate a supply. By contrast, under the new rules the use of a valid customer VAT ID number will be regarded as a substantive condition for zero-rating an Intra-EU supply - ie, from 1 January 2020 if the supplier fails to mention the customer’s valid VAT ID number on its invoice then it will not be permitted to zero-rate the supply. Moreover, zero-rating will also be dependent on including the supply on an EC Sales List, again as a substantive condition - failure to comply will result in the withdrawal of zero-rating, unless the supplier is deemed to be acting in good faith and can justify any short-coming to the satisfaction of the competent authorities.
- Communication of the VAT ID number from the customer 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.
- It is unclear as to when a supplier would be deemed to be acting in good faith and able to justify any short-coming to the satisfaction of the competent authorities – such analysis is expected to be conducted on a case by case basis, although the Notes suggest the following circumstances could be considered as examples of businesses acting in good faith:
- The supplier has not included the exempt intra-Community supply in the recapitulative statement covering the period in which the supply took place but has included it in a recapitulative statement covering the subsequent period;
- The supplier has included the exempt intra-Community supply in the recapitulative statement covering the period in which the supply took place but made an unintentional mistake as regards the value of the supply in question; or
- A restructuring of the company acquiring the goods has resulted in a new name and a new VAT identification number but the old name and VAT identification number continue to exist during a short interim period, and on the recapitulative statement the supplier has by mistake included the transactions under the previous VAT identification number.
- The new rules make the proper functioning of the Commission's VAT Information Exchange System (VIES) even more critical than today in order to ensure that businesses can validate VAT ID numbers on a real time basis including the use Intra-EU VAT ID numbers versus local tax numbers.
- In cases where some MS issue different numbers for domestic transactions and cross-border transactions, the Notes confirm that it is only the VAT identification number with the two letter MS prefix that is relevant for these purposes.
Questions for businesses to consider:
- Do you hold valid customer VAT ID numbers in your ERP master data in order to include them on your invoices?
- Do you validate your customer VAT ID numbers on a regular basis using the VIES system?
- What is your process if your customer does not have a VAT ID number - eg, the customer is waiting to complete its VAT registration process in order to obtain a VAT ID number, or the number you have is invalid?
- What about your EC sales list filing process, do you have a robust process in place?
Information on the final quick fix to follow next week...
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 firstname.lastname@example.org