The VAT system applicable to intra-Community trade in goods and services is currently undergoing major reform.
New European directives must indeed be transposed into national laws in order to reform the transitional regime for the taxation of intra-community trade in goods and replace it with a definitive VAT regime in which deliveries will be subject to VAT in the Member State of destination of goods.
This reform will not only concern sales between taxable persons (B2B) of goods dispatched between two Member States of the European Union (EU) but also sales of goods and services to individuals (B2C) residing in the European Union. This article only covers intra-Union sales of goods between taxable persons (B2B).
1. New measures (“Quick fixes”) effective January 1, 2020 (B2B)
New measures known as “quick fixes” concerning intra-Community traffic in goods between taxable persons (B2B) came into force on January 1, 2020.
1.1 The conditions for exemption of intra-Community deliveries are reinforced
The exemption of intra-Community deliveries is now subject to the fact that the supplier knows, at the time of delivery, the VAT number under which his customer declares his intra-Community acquisitions, and that he indicates this number in his Intra-Community Sales Listing (in France “Déclaration d’Echanges de biens”).
1.2 Arrangement of proofs of shipment of goods for intra-Community deliveries
The supplier who intends to exempt an intra-Community delivery must prove that the goods have left the Member State of departure of the transport. While, up to now, proof of intra-Community transport has been provided by any legal means, there is now the possibility of benefiting from a presumption of shipment under certain conditions when the supplier is able to provide two elements non-contradictory evidence from independent third parties, and an acknowledgment of receipt from the customer when intra-Community transport is carried out by the latter.
1.3 Stocks under deposit contract
Harmonized rules for simplifying the system of stocks under contract for the deposit of goods dispatched from one Member State to another without transfer of ownership now make it possible to exempt the supplier from identifying himself with VAT in the Member State of destination of goods and to fulfil declarative and payment formalities for VAT due on its intra-community acquisitions and subsequent domestic deliveries to the depositary.
1.4 “Chain sales”
This is to simplify the treatment of successive sales between different operators (ABC) when the goods are dispatched from one Member State of the Union to another, directly from the initial seller (A) to the final buyer (C) by the intermediary seller (B). In summary, it will in principle be presumed that intra-Community transport relates to the first sale, which may therefore be exempt from VAT, at least if (B) communicates to (A) a VAT number which has been allocated to it by another Member State than that of the departure of the transport.
2. New measures by July 1, 2022 (B2B)
The following comments outline what the final VAT regime should look like on the basis of the draft texts currently published. These draft texts are currently being discussed at European level and will very likely be modified in the coming years.
2.1 Deliveries of goods between professionals (B2B) will be subject to VAT in the Member State of destination
Today, sales between taxable persons of goods dispatched from one Member State to another give rise in principle to two simultaneous operations for the application of VAT: an ‘intra-Community delivery’ exempt from VAT in the Member State of departure and an ‘intra-Community acquisition’ taxable in the Member State of destination. The VAT due on the intra-community acquisition is self-assessed by the recipient of the goods (simple writing game for the buyer to declare the VAT as due and deductible in the same turnover statement).
It appears from the draft texts currently published that from 1 July 2022, a sale between taxable persons of goods dispatched from one Member State of the Union to another will give rise to an ‘intra-Union delivery’ of goods subject to VAT at the rate of the Member State of destination.
2.2 The seller will in principle be liable for the VAT due in the Member State of destination unless his customer has the status of ‘Certified Taxable Person’
In principle, it will be the supplier who will be responsible for collecting VAT in the Member State of destination of the goods, unless his client has the status of ‘Certified Taxable Person’ (see below).
In practice, a supplier delivering goods dispatched from France to another Member State will no longer invoice in exemption from French VAT but will indicate on its invoice the VAT of the EU Member State of destination of the goods. To this end, it will be up to him to calculate the tax at the rate applicable in each of the countries to which he ships the goods. The system will thus be aligned with that of distance sales to individuals taxable in the Member State of destination.
2.3 The VAT one-stop shop for intra-EU deliveries of goods between taxable persons (B2B)
The seller should theoretically register for VAT in all the Member States of destination and remit the VAT to the tax authorities of that State when its customers are not certified taxable persons. That said, he could avoid it in practice by using a new one-stop shop (‘OSS’) accessible online in his Member State of establishment. This is an extension of the already existing mini one-stop shop for services provided electronically since January 1, 2015.
This VAT one-stop shop will enable established businesses to complete formalities for declaring and paying VAT centrally in a single Member State without having to identify themselves for VAT in each of the Member States where they are liable for VAT on their intra-Union deliveries of goods. The national tax services will compensate each other for the amounts of VAT which are due to them and which have been collected via a one-stop shop located outside their territory.
2.4 The status of ‘Certified Taxable Person’
The reform of the European VAT system introduces a new statute, that of ‘Certified Taxable Person’. As soon as the definitive taxation regime enters into force between taxable persons, this status will allow client companies to self-assess VAT on intra-Union purchases of goods (as today on intra-Community acquisitions), thus exempting supplier to collect tax at the rate applicable in the state of destination.
The status of certified taxable person should in principle be granted in a comprehensive manner to companies which have shown good tax behaviour (regular payment of VAT, absence of serious or repeated tax, customs or criminal offenses), a high level of internal controls with regard to the management of formalities for declaring and paying VAT, and their solvency. These criteria will be deemed satisfied when the company has obtained the status of Authorized Economic Operator (AEO) in customs matters.
Whether for trade with individuals or between businesses, the changes announced are of a similar magnitude to those implemented in 1993 when the transitional regime for the taxation of intra-Community trade was introduced, following the abolition of fiscal borders between the EU Member States.
In order to be ready on time, companies may already wish to anticipate the consequences of the changes to come with regard to their procedures for checking and managing declarative formalities and paying VAT (configuration of information systems, etc.)
Experience shows that in this matter, a review of the flows of goods / services and invoicing makes it possible to detect real margins of optimization in terms of reduction of tax costs and administrative costs beyond a simple risk prevention.