VAT triangulation regime : what does it mean?
Supply chain transactions (A-B-C) are referred to as such when goods are the object of successive sales (A Þ B and then B Þ C) but a one and only intra-Community transport.
In this supply chain, only one supply with transport can be defined as an intra-Community supply exempt from tax. Other operations are supplies without transport.
Let's take an example
Your company (B) based in Germany purchases goods from a Czech supplier (A) and resells the goods to a Belgian client (C). The goods are transported directly from the Czech Republic to Belgium by the Czech supplier himself (no stop in Germany).
This is a so-called “supply chain transaction” for VAT purposes, a chain of sales involving at least 3 companies (A, B, C) with only one physical movement of goods.
VAT registration in the country of arrival of the goods is normally required…
Your company (“B”), the middle man, is normally required to be VAT registered in the country C (where the transport of the goods ends) to report an intra-community acquisition of goods followed by a domestic sale. Your company basically must self-assess local VAT and must invoice its client (“C”) with local VAT. However, a local reverse charge mechanism could be applicable (payment of VAT shifted to the client) depending on local regulation
…unless the triangulation simplification scheme is applicable
The EU Directive provides however for a Simplified Scheme avoiding to middle man (“B”) the obligation to register in the last Member State (C). The main issue that businesses face is that the Simplified Scheme is not interpreted consistently throughout EU by National Tax Authorities. Some Member States do not accept the use of the simplification measures where B is also VAT registered in Member State A or Member State C. By contrast, some Member States accept to apply the simplification rules even if 4 or more parties are involved in the chain transaction etc.
The Expert's eye
Companies involving in chain transactions must pay attention to the following issues:
- Verify the exact flow of goods and invoices in order to determine the correct VAT treatment of the chain transaction and possible VAT obligations of the company in another Member State;
- Check how the triangulation 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 triangulation 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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