Establishing a stock abroad
A business may decide to move its goods to a stock located in the country of its customers, the latter acquiring the goods either when they find a buyer themselves ("consignment stock") or when they take the goods from the stock to integrate them into a manufacturing process ("call-off stock" or "stock under deposit contract"). Alternatively, the business may keep total control over that stock ("advanced stock").
These movements of goods between two Member States require the supplier in the country of departure of the goods to comply with the following VAT obligations:
- Issue of a transfer document (pro forma invoice)
- Report the transaction in the VAT return and the intra-Community listing
- Record the transaction in the output ledger. The neutralisation of this output transaction as turnover will be done as and when the sales to the final customer are entered in the VAT return.
VAT obligations in the country where the stock is built up
The building up of advanced stock also entails VAT obligations in the Member State of arrival of the goods for the supplier. In practice, this means that a business moving goods to another Member State must also comply with the VAT obligations in the Member State of arrival (registering for VAT, submitting a VAT return and accounting for the VAT due on the intra-Community acquisition in that return).
The business transferring and subsequently supplying these goods, in addition to declaring an intra-Community acquisition of goods, must normally declare the VAT on the (domestic) supply in the Member State where the stock is located (unless the reverse charge mechanism applies, usually under Article 194 of the VAT Directive).
The EU legislator has introduced since 1 January 2020 a simplification scheme for consignment stock arrangements (stocks under a deposit agreement) as part of the implementation of the VAT Quick Fixes. The conditions of application of this simplification scheme are therefore harmonised (which was not the case before) and avoid the supplier having to register for VAT in the country where the stock is held.
However, the conditions for the application of this simplification scheme are very strict and not all practical situations were taken into account when the law was drafted. So much so that the European Commission had to urgently issue an 89-page explanatory note on the subject.
The expert's eye
Businesses with stocks in several Member States are necessarily confronted with a mosaic of situations in terms of VAT. Effective management of this problem leads either to optimisation and/or to the avoidance of tax risks. This necessarily involves an analysis of the flow of goods and invoices, which must be matched with the list of countries applying a simplification scheme in order to establish an optimum model.