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Does your company trade in goods within the European Union? This raises the question of the VAT treatment of your intra-EU sales:
- My company sells goods to a foreign company. Does my invoice have to include VAT?
- What is a supply chain sale?
- My business sells goods to a European private individual. Does my invoice have to include VAT?
- Does my business have to register for VAT if it transfers part of its stock to another European country?
- My foreign supplier invoices me without VAT. Is this normal?
All these practical questions relate to the VAT rules for supplies of goods. As soon as you trade within the European market, the VAT rules for goods apply to you. This is known as an intra-Community supply of goods and its counterpart, the intra-Community acquisition of goods. These rules are set out in Articles 31 to 39 of the VAT Directive and determine the country in which VAT will be due. There are two general rules and a series of derogatory rules. In short, the place of taxation will depend on the nature of the goods themselves and the status of the recipient (business or private individual).
My company sells goods to a foreign company. Does my invoice have to include VAT ?
No. The sale will be exempt from VAT if the goods actually leave a European country for another European country. This is known as an intra-Community supply of goods. To benefit from this VAT exemption, your company must meet the following three conditions:
- obtaining your customer's VAT number
- keeping proof of the transport of the goods
- entering the transaction in an intra-EU statement.
If any of these conditions are not met, the tax authorities will remove the exemption and make the sale subject to VAT.
What is a supply chain sale ?
A supply chain sale is a sale where the actual delivery of goods is made directly from the first seller to the final buyer without passing through the intermediate buyer. This is called a triangular operation: there are three companies involved (A, B and C) identified in three different European countries but only one transport of goods from A to C.
Your company will in principle have to take out a VAT number in the country of arrival of the goods (C), unless it qualifies for a simplification scheme under the VAT Directive for this type of operation. Particular attention should be paid to the differing interpretations of tax administrations on the application of this simplified scheme.
My business sells goods to a European private individual. Does my invoice have to include VAT ?
Yes, VAT is normally due in the customer's country. This is known as the distance selling scheme. Since 1 July 2021, it has been possible to declare all such sales in a single VAT return, which avoids the need to take a VAT number in all European countries. Determining the right VAT rules can be a difficult task as several VAT regimes coexist: distance selling of intra-Community goods, distance selling of imported goods, €150 threshold, selling goods through intermediaries (Amazon, etc.). In short, in terms of administrative simplification,
Does my business have to register for VAT if it transfers part of its stock to another European country ?
It may be in a company's commercial interest to physically "relocate" part of its stock as close as possible to its European customers ("advanced stock"), 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").
Shipping part of your stock to another European country when it is not yet sold normally requires your company to take out a foreign VAT number. However, there is a simplified scheme that has been in place since 1 January 2020 in all European countries ('stock under contract of deposit') that allows you to avoid registering for VAT abroad provided certain substantive and formal requirements are met.
My foreign supplier invoices me without VAT. Is this normal ?
Yes, an intra-Community acquisition is the counterpart of an intra-Community supply. This purchase is subject to VAT in the country of arrival of the goods and you, as the buyer, are responsible for collecting the VAT on behalf of the local treasury and deducting it on your VAT return.
Attention should be paid to the place of destination. If it is a country other than the one in which you are established, you will more than likely have VAT obligations and other formalities in that country.
Beware of penalties !
A business trading within the EU must be vigilant in more ways than one:
- A simple cross-border movement of goods gives rise to an impressive number of possibilities for each specific case. The VAT Directive is a useful basis, but it must be understood in the light of national differences. Each transaction with a European partner must therefore be carefully examined to ensure that the correct VAT treatment is applied.
- A company that trades with European countries must ensure that it collects the usual and concordant commercial documents for each transaction in order to withstand the first tax inspection. These documents are often neglected by companies. And tax authorities know this very well. If the documents presented during a tax audit are incomplete or inaccurate, your company could be in financial trouble: administrative fines, questioning of the VAT exemption for intra-Community supplies, prosecution for tax fraud, etc.
- The VAT rules for intra-European trade present significant risks of fraud. This is why tax administrations are intractable and sometimes unmanageable. Trading with European partners is therefore not just about sending an invoice without VAT.
Are you buying or selling goods within the EU? Call on our VAT experts !
Our firm has extensive experience in providing legal advice on all VAT matters. We seek optimal, tailor-made solutions for our clients by systematically reviewing all the material (our tax library contains over 20,000 documents). Our know-how allows us to articulate all this raw material to give you, in fine, the most accurate interpretation of the most difficult VAT questions you ask us.
How does this work in practice?
It is very simple for you: you explain your situation to us during a video conference or by email. From there, we take over:
- We carry out tax research to determine the exact VAT treatment of the goods you buy or sell
- We write a briefing note summarising our position
Our advice is structured to provide you with a clear, accurate and timely response. A summary is presented, in most cases, in the form of diagrams and tables in order to increase the readability and understanding of the legal study. It then allows you to take strategic decisions in full knowledge of the facts.