The European Council implementation date for four adjustments to the current EU VAT rules will come into play from January 1st 2020.
The four short-term ‘quick fixes’ are related to the trade between the member states and deemed necessary to begin to counter VAT fraud.
"This package of proposals is aimed at fixing some of the practical problems we are experiencing with the current VAT rules”, said Hartwig Löger, Minister for Finance in Austria - and currently holds the Council presidency. “Businesses will benefit from the harmonised rules."
However, these changes are expected to have considerable implications for businesses trading in international goods, and businesses are advised to begin preparations now.
- To shorten delivery times, it is becoming increasingly common for suppliers to transfer stock to a warehouse or other location (for example, a store or showroom) of a regular customer in another EU Member State. The goods remain the property of the supplier until they are picked up by the customer (this process is also referred to as “call-off stock”). The new EU wide simplification measure for call-off stock arrangements is subject to a large list of cumulative requirements. If one of these requirements ceases to be fulfilled, the supplier can be subjected to large VAT penalties in both the Member State to which the goods were dispatched as well as in the Member State from which the goods were dispatched.
- In order for intra-Community supplies to be zero-rated as from 1 January 2020, two substantive conditions will be added to the existing ones: (i) a correct VAT number of the recipient and (ii) a correct reporting in the recapitulative statement.
According to the new rules, there is a rebuttable presumption of transport to another EU Member State if the supplier can provide at least two non-contradictory evidential documents that were prepared independently from one another. This may include signed CMR documents, together with a copy of payment for transport issued by the bank. Logistics service providers are expected to play an even more important role under the new rules in respect of the provision of proof for the purposes of applying the zero VAT rate.
Under the new rules, the use of a valid VAT identification number which the customer must communicate to the supplier will be regarded as a material requirement for applying the zero VAT rate. If a supplier fails to state the customer’s valid VAT identification number on the invoice, it will no longer be possible to apply the zero VAT rate as of 1 January 2020. Furthermore, as a condition for applying the zero VAT rate, the taxable person must file an EC sales list. In addition, this implies VAT registration abroad should be carried out before the supplies are made, therefore VAT implications should be considered at planning stage.
- For chain transactions, transport will be ascribed only to the supply made to the intermediary operator unless the intermediary operator has communicated to his/her supplier its VAT identification number from the Member State in which the goods are dispatched or transported. When they decide to do so, the acquirers should keep sufficient proof of this communication in order to verify the correct application of the measure in case of a tax audit. Moreover, they should also gather sufficient proof in order to substantiate the application of the zero-rate for their subsequent intra-Community supply and hence should take into account the new substantive conditions.
As these adjustments will apply from 1 January 2020, it clearly follows from the above that businesses should take actions now to ensure they are ready for the upcoming ‘quick fixes’. This requires an in-depth assessment of current internal compliance procedures for VAT and intra-EU trade.
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