Having various stocks abroad: what does it mean?
In order to have a clear view on the European VAT compliance obligations of your company, you need to understand how VAT regulations treat differents kind of transactions.
Businesses may have a commercial interest in relocating part of their stock as close as possible to their customers.
This relocation can take different forms: advanced stock, consignment stock, call-off stock, etc.
In an intra-EU context, this operation must be processed in two phases (transfer of own goods followed by a local sale) and generates a VAT registration for the supplier in the country where the stock is situated. A simplification regime applies however to stocks under “call-off stock arrangements”.
Let's take an example
Your company based in France sends raw materials to the premises of its Portuguese client without transferring the ownership of the goods to him. The Portuguese client can take the ownership of the goods at the time he needs them (when he resells the goods or when he uses the goods in his production process).
VAT registration is normally required in the country of the client ...
Your company should normally be VAT registered in Portugal to report the physical movement of goods from France to Portugal. The subsequent sale of the raw materials to the client is treated as a domestic transaction subject to local VAT. Your company should therefore invoice its client with Portuguese VAT unless a local reverse charge mechanism is applicable (payment of VAT switched to the client).
…unless a special scheme is applicable
A simplification regime has been implemented in all Member States. The simplification regime only applies to stocks under “call-off stock arrangements” i.e. when the goods are transported to another Member State, the supplier already knows the identity of the purchaser of the goods to whom they will be supplied at a later stage.
The simplification regime provides for that the transaction is considered as a non-transfer at the time of sending out the goods to another stock (in another EU Member state) and as an intra-EU acquisition at the time when the power to dispose of the property as an owner is transferred to the purchaser. It may apply as soon as the following conditions are met:
- A call-off stock contract is required between the parties. The goods do not have to be necessarily sent to the buyer's warehouses;
- The supplier must not be established in the country where the stock is situated;
- The purchaser is identified for VAT purposes in the country where the stock is situated;
- The goods must be supplied to the purchaser within 12 months or returned to the country from which they were shipped;
- The supplier and the recipient must keep an appropriate register in their respective countries;
- The supplier must include the purchaser's VAT number in his intra-EU Listing at the time of shipment of the goods.
If any of these conditions is not met, the non-transfer is not of existence and the physical movement of stock should be considered as a transfer of goods requiring VAT registration of the supplier in the country where the stock is located.
The VAT expert's eye
Businesses wishing to apply this new VAT simplification regime will have to be careful as no error or omission will be allowed. The ink of the Directive is not yet dry and many practical issues are already emerging. For example, the questions raised by many sectors (particularly those selling perishable goods) in the event of loss or destruction of a part of the goods. The new Directive does not allow any tolerance measures for loss, destruction or theft. It is therefore easy to imagine the possible reaction of some local tax authorities if they were to detect during an audit that a part of the stock could not finally be sold to the buyer because it had been destroyed, lost or stolen.
Pay attention to
Companies dealing with various stock in the EU should pay attention to the following issues:
- Verify the exact flow of goods and invoices in order to determine the correct VAT treatment of the transaction and possible VAT obligations of the company in another Member State;
- Check how simplification scheme measures are applicable in the country of arrival of the goods and which conditions should be fulfilled in this respect.
- In case the simplification scheme is not applicable, proceed to the local VAT registration;
- Check whether or reverse charge is applicable for the subsequent domestic sale to the client.
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