One of the main topics of the traditional autumn seminar on value added tax, which is organised every year by Deloitte, were the new rules in the area of VAT, jointly referred to as “quick fixes”. Their primary purpose is to unify certain rules for cross-border transactions with goods within the European Union. What do they bring, specifically? How can preparations be made for them?
New legislative rules in the area of VAT, quick fixes, will come into effect on 1 January 2020. They are a set of transitional measures that will be applicable until a final VAT system is established within the EU. However, when I read through the quick fixes, and I have been reading them for half a year, I feel that they are rather ambiguous and could be understood to mean anything. Therefore, we keep waiting to see how these rules will actually be interpreted.
1. Tax exemption with respect to the supply of goods to another EU member state
The first quick fix states that when supplying goods to another member state, the customer will now have to communicate their VAT ID to the supplier, otherwise it will not be possible to exempt the supply of these goods from VAT. At present, the VAT Act stipulates that an intra-community supply of goods is exempt from tax if it is supplied to a person registered for income tax in another member state, which you can check by verifying their VAT ID. What changes is that now you will need to have proof that the customer has actively communicated the VAT ID to you and in addition, there will be a deadline when the customer has to do so. The question is how to determine this deadline. And there is no clear answer to that, because there are several interpretations.
A relatively comprehensive view is offered by the financial administration, which says that the last date for obtaining the customer’s VAT ID is the 15th day of the month following the month when the supply of goods to another member state occurred, which is actually the last date by which the supply has to be reported.
At the same time, to obtain VAT exemption it will be necessary to include a record of the supply in the EC sales list. If the record contains incorrect information, for example a typo, such flaws can be remedied with a proper justification to the satisfaction of the relevant bodies.
Deloitte’s point of view: Companies will have to create a system for obtaining VAT IDs from their customers and store evidence of the date when the VAT ID has been communicated to them – meaning communicated actively. It is therefore not enough to discover the VAT ID yourself on the internet. Ask your existing customers to send you their VAT IDs as well, even if you have been doing business with them for years.
2. Methods of demonstrating the transport of goods to another member state
Another change concerns the demonstration of transportation to another member state. The supplier holding evidence of such transportation will transfer the burden of proof to the tax administrator, and the tax administrator will be the one to have to demonstrate that the transportation did not take place.
At first glance, this second “fix” seems positive for the supplier. At second glance, however, some complications start taking shape. The rule governing the obligation to demonstrate transportation is called “2 or 1+1”. What does that mean? The supplier has to provide two pieces of evidence. Two groups of evidence are set and the supplier can choose to provide both pieces of evidence from the first group, or one piece from the first and one from the second group of documents.
First group: Documents concerning transportation – signed CMR waybill, bill of lading, invoice for air transportation, invoice from the transportation provider
Second group: Other documents – transportation insurance policy, bank confirmation of payment for the transportation, official confirmation of completion of transportation in the destination state (e.g. from a notary public), confirmation form the storage provider of receipt in the warehouse in the destination state
What is the problem? That these pieces of evidence cannot be prepared by the supplier or the customer and each of these two pieces of evidence have to be prepared by a different person that must be independent of the supplier and the customer. These conditions can be met if transportation is arranged by the supplier – the first piece of evidence could be the CMR sheet signed by the carrier, the second a bank confirmation of payment for the transportation. However, what if the transportation is arranged by the customer? In such a situation, you essentially have only the CMR sheet.
Deloitte’s point of view: Under such conditions, try to secure a set of some other documents prepared by you or the customer to have a sufficient number of them, so that you could tell the tax administrator that while you do not meet the conditions of the regulation, you have not just two pieces of evidence but instead as many as four, for example.
In addition, remember that you will need a written confirmation of transportation from the customer by the 10th day of the following month.
3. Transport assignment
The third quick fix focuses on so-called chain transactions, the subject of which is the supply of the same goods between several business partners. In general, the new rule provides that the shipment is automatically assigned to the first supply, i.e. the transaction between a supplier and an intermediary, and thus potentially exempt from VAT. The second supply will then be taxed. However, in the case that the intermediary provides the supplier with his VAT ID assigned to him for VAT purposes in the country of commencement of shipment, the shipment will be assigned to the second supply.
Deloitte’s point of view: In this context, however, we will encounter a new phenomenon. As the fact that the intermediary provides the supplier with the VAT ID from the country of his tax residence does not necessarily mean that the intra-Community supply made by the supplier must be exempt from tax. Can the supplier trust the intermediary that he will actually deliver the goods? He may, but naturally, it will not be enough for the tax administrator. Therefore, given the above-mentioned regulation on the means of evidence of the transport of goods, suppliers will tend to tax the first supply.
4. Call-off stocks
The amendment introduces a modification of the rules for call-off stocks and simplification in the case of call-off stocks where the supplier moves his own goods from another member state. A customer who takes goods from such a call-off stock will self-assess his VAT not at the time of entry into stock, but at the time of release from stock, i.e. when the customer actually acquires the right to dispose of the goods as their owner. The law will also explicitly anticipate that the customer may change.
However, the new rule also brings new obligations:
- The goods must not be stored in the call-off stock (i.e. in the customer’s state) for more than 12 months. On the 366th day, the conditions are breached and the supplier will have to report the relocation of goods to the given member state.
- Goods should not be stolen, lost or destroyed (including technological losses) – in these cases, the goods will be reported in a traditional way, not in the above-mentioned simplified regime. Thus, in case of theft, the supplier will have to report that he had moved the goods to the Czech Republic, for example, and that the goods had been stolen there.
- New code for supplies to another member state for the EC Sales List.
More news in the area of VAT
Transfer of selected services and products to the reduced 10% VAT rate from 1 May 2020
- Catering services including serving soft drinks or draught (keg) beer
- Books, e-books and audiobooks, including lending
- Tap water and water / sewage
- Repair of footwear, leather products, clothing and textile products, bicycles
- Hairdressing and barber services
- Home care for children, elderly, sick and disabled citizens
- Window cleaning and cleaning services in homes