VAT simplification arrangements for triangulation

Thu 03 May 2018

A recent CJEU (case C-580/16) has held that VAT simplification arrangements for transactions involving triangulation can be operated by an intermediary supplier who is registered for VAT in an EU member state, but may not yet have a permanent establishment there.  The CJEU also held that the simplification procedure cannot be disapplied just because of a failure to comply with administrative requirements for the member state of the intermediary supplier.

Triangulation for VAT involves an initial supplier, a customer and an intermediary supplier, all located in different EU member states. If your business has been prevented from using the simplification procedure on similar grounds, you may like to consider reviewing whether the case indicates there is the opportunity of possibly obtaining refunds or vacation of penalties for your situation.  If not already underway, consideration should also be being given to how any triangulation supply chains involving the UK will be impacted by Brexit.

VAT simplification arrangements

VAT simplification arrangements are available where there are three parties involved in a transaction for the movement of goods. It involves A – the initial supplier, who supplies to B – the intermediary supplier, where B sells on to C, and both B and C are VAT registered in different countries in the EU and the goods move from one EU country to the different EU country of C.  The simplification arrangement permits the intermediary supplier (B in this case) not to have to register for VAT in either A or C’s member state.  The customer, C, will account for acquisition VAT on the import.

Where the intermediary supplier (B) is a UK person, their invoice to C will state advantage has been taken of the simplification procedure and it will include its sale to C on its EC Sales list report. B will give its UK VAT registration number to A so that A can be treated as supplying the goods to B without any VAT charge.

Where the customer is in the UK, the customer will receive a notification from HMRC’s non-established taxable person’s unit (NETPU) for the first supply from a non-UK intermediary supplier. The UK customer will account for reverse charge VAT in the normal way.

A non-UK intermediary supplier supplying to a customer in the UK will need to initially notice HMRC’s NETPU of its own non-UK but EU VAT registration number and also the VAT registration number of the UK customer. It will need to issue an invoice to its UK customer stating that it is taking advantage of the simplification procedure.

Further detail on the UK VAT aspects of triangulation arrangements can be found in HMRC’s manual at VATSM5200

Similar rules apply in Austria (relevant for this CJEU case) and there is a requirement for an intermediary supplier to submit a return within a defined time period, which includes particular information about the triangulation arrangement.

The case details

The case concerned a German VAT registered partnership, which also had an Austrian VAT registration and was planning to set up a permanent establishment in Austria. The partnership bought goods from German suppliers for sale to Czech customers.  The German supplier gave the Czech customers’ VAT numbers and the Austrian VAT registration of the partnership as evidence for its zero rating of the transaction.  The German partnership gave its Austrian VAT registration details and the VAT registration of its Czech customers to the Austrian authorities, but did not mention the triangulation simplification arrangement had been used.  It subsequently corrected the error, but outside the time limit for amending the return.

The Austrian authorities considered the failure to timely comply with administrative requirements meant there was a VAT supply in Austria on which the German partnership had to account for VAT on its intracommunity acquisition.

As mentioned above, the CJEU held it was acceptable for the German partnership to use its Austrian VAT registration number to take advantage of the simplification arrangement, and that the law of a member state could not prohibit the application of the simplification arrangement for purely administrative reasons.

For a further discussion of the VAT aspects of cross border transactions, the application of triangulation simplification for VAT or what you should be considering with respect to the VAT and customs implications of Brexit, please get in touch with a member of the Mazars VAT team.