A supply of goods to another country is exempt from VAT
A business that sells goods and sends them to another European country makes what is known in VAT as an intra-Community supply of goods. If the customer is a business, the seller knows that he must invoice his customer without VAT. What he is less aware of is that this exemption from VAT is not automatic but depends on the following five material conditions being met:
1) the power to dispose of the goods as an owner has been transferred to the purchaser
2) the goods are physically dispatched from one Member State to another
3) the customer is a taxable person
4) the customer has provided a VAT number of a European country other than a VAT number of the country of departure
5) the seller has taken over the sale in the correct intra-Community listing of goods
Two additional conditions that are confusing
The last two conditions were added in 2020 as part of the European implementing regulation (quick fixes) which aimed to better regulate intra-Community flows:
- The VAT exemption is only acquired if the purchaser communicates his VAT identification number to the supplier. This VAT number has therefore become a material condition for the application of the VAT exemption since 1 January 2020, rather than a mere formal requirement as was previously the case. If, through ignorance or negligence, the purchaser does not communicate his VAT number within the deadline, the supplier will have no choice but to invoice the intra-Community supply ... with local VAT. There is legal doubt as to whether or not it is possible to correct the situation at a later date and as to how this VAT can be recovered. It is immediately clear that some companies could end up in a dead end. Moreover, this again fuels the debate on whether the VAT number is not just a formal requirement.
- The VAT exemption is only valid if the supplier has fulfilled his obligation to lodge and complete the intra-Community of goods declaration correctly. Extreme care must be taken to identify the chargeable event and the tax liability in order to complete the listing for the correct reporting period. If the sale is not included in the correct listing or if the listing contains incorrect data concerning the supply, the tax authorities will have the power to revoke the VAT exemption and will turn to the supplier to claim the payment of VAT, fines and interest for late payment, unless the supplier can duly justify its failure to the satisfaction of the competent authorities.
The expert's view: towards a head-on collision with the tax authorities?
VAT is in principle a neutral tax for businesses. The above examples point to the serious tax neutrality problems that are bound to arise from the VAT rules on the exemption of intra-Community supplies.
Businesses involved in intra-Community trade in goods therefore have a compelling interest in analysing their internal procedures in order to guard against the above-mentioned inconveniences.