article banner

EU VAT: quick fixes for your international trading

Paul Wilson Paul Wilson

The European Union’s move towards a definitive VAT system was announced last year and will be introduced from July 2022.

It will replace the temporary arrangement that was introduced in 1993 and introduce a new system known as the ‘destination’ system, whereby the supply of goods and services will be taxed in the country of consumption. In the meantime, the EU has agreed a number of quick fixes designed to simplify the existing VAT system in relation to international trade.

What’s the issue?

The current EU-wide VAT system was introduced on a temporary or transitional basis back in 1993. In general, the system is based on the taxation of supplies of goods and services in the country where the supplier is established. The new definitive VAT system will be based on the taxation of goods and services in the country of consumption. We will be producing a briefing paper covering the main changes in due course.

In order to address some of the issues being faced now, the EU is introducing a number of quick fixes to the existing VAT system which aim to simplify international trade. The changes are to be introduced from 1 January 2020, so businesses involved in international trade need to understand the changes and take any necessary steps to implement them.

Quick fixes

The current VAT system is to be changed in four particular areas:

• The VAT treatment of ‘call-off’ stock located in different member states
• A simplification of the VAT treatment for chain transactions
• Making the obtaining of a VAT number to exempt (or zero-rate) intra-community supplies of goods a mandatory and substantive provision 
• Introduction of a uniform approach in relation to ‘proof of transport’

Fix 1 – Call-off stock

Call-off stock – goods that are owned by a supplier that are shipped to the premises of a customer and are used on a call-off basis – have caused major difficulties from a VAT perspective. Under the current VAT system, the movement of the owners goods from one member state to another triggers a self-supply in the member state of departure and a corresponding deemed acquisition of the same goods in the member state of arrival. There is then a domestic supply of the goods when the customer takes goods out of the stock. The system generally requires the supplier of the goods to be registered for VAT in the member state to which the goods are sent. There are simplifications in place but the rules are not applied on a uniform basis throughout the EU.

From January 2020, the deemed self-supply and deemed acquisition of the goods by the owner will cease. Provided that the goods are called-off by the customer within 12 months of despatch, the owner of the goods will be regarded as having supplied the goods directly to the customer under the normal intra-community supply of goods rules. There will be record keeping requirements in relation to such transfers and affected businesses will need to familiarise themselves with them.

Fix 2 - Chain transactions

Under the current system, chain transactions can cause difficulties from a VAT accounting perspective. The Court of Justice has held on many occasions that the ‘exemption’ (zero-rating in the UK) for an intra-community supply of goods can only ever apply to the transaction which involves the transport of the goods. However, working out which leg in a supply chain involves the transport can often be difficult.

The new rules are intended to provide clarity and certainty to all parties in a supply chain as to which leg of the chain the transportation of the goods is to be ascribed. The rules are to be uniformly adopted throughout the EU.

From January 2020, where the same goods are supplied successively between parties A, B and C, who all belong in different member states, but the goods are transported directly from A’s member state to C’s member state then the intra-community transport of the goods is, by default, to be ascribed to the first supply in the chain (ie the supply from party A to party B). However, if the intermediary supplier B provides A with a VAT identification number issued by member state A then, in those circumstances, the transport may be ascribed to the intermediary leg of the chain (ie the supply from party B to party C).

Businesses involved with chain transactions involving customers in different member states will need to identify which transaction qualifies for exemption (zero-rating) and, where necessary, adapt their VAT accounting procedures. As far as intermediary suppliers are concerned, provided all the conditions of Article 141 of the Directive are met, the intermediary supplier should continue to benefit from the triangulation simplification that is currently available whereby it is the customer in member state C that is designated as the person responsible for accounting for VAT in member state C.

Fix 3 – VAT identification numbers

Under the current VAT rules, a business may only exempt (zero-rate) an intra-community supply of goods where certain substantive conditions are met, such as the requirement for the goods to actually leave the member state of dispatch. The Court of Justice has ruled on a number of occasions that the requirement for the supplier to obtain and show the customer’s VAT registration number on the sales invoice is not a substantive requirement but, merely, a formal requirement. As such, the failure of a supplier to show his customer’s VAT number on an invoice cannot result in the member state denying the exemption (zero-rating) provided that all of the substantive conditions have been met.

This rule will change so that obtaining and displaying the customer’s VAT identification number will become a substantive condition. Failure to comply will mean the intra-community supply will not qualify for exemption

Similarly, it will become a substantive requirement for the transaction to be reported on the European Commission Sales List. Again, failure to do this will result in the transaction becoming a taxable transaction rather than exempt.

Fix 4 – Proof of transport

The current VAT system exempts the intra-community supply of goods. An intra-community supply is one where the goods are despatched or transported from one member state to another but remain within the territory of the European Union. In order to qualify as such a supply, member states have laid down various rules as to what evidence a supplier needs to keep to justify the application of the VAT exemption to each intra-community supply. The rules are applied differently in each member state and this can lead to uncertainty and, in some cases, considerable administrative expense.

The new rules are intended to provide uniformity across the EU. Essentially, from January 2020, there will be a rebuttable presumption that goods have been transported between member states in either of the following scenarios:

a. Where the supplier indicates that the goods have been transported by them (or on their behalf) and they hold two items of non-contradictory evidence of that fact - such as customer-managed relationship documents, bills of lading, an airfreight invoice or an invoice from the carrier of the goods - or the supplier holds one of those items along with either an insurance policy or banking documents in relation to the transport of the goods, official documents issued by a public authority that confirm the arrival of the goods in the member state of destination or a receipt from a warehouse keeper confirming that the goods have been stored in the member state of destination.

b. The supplier is in possession of a detailed written statement from the acquirer of the goods stating that the goods have been dispatched or transported by the acquirer (or on the acquirer’s behalf) plus at least two items of non-contradictory evidence (as set out in paragraph (a) above).


The changes to the current VAT rules should go some way to simplifying the administration of VAT in relation to cross-border trade. However, for affected business , the new rules mean that changes may be required to VAT accounting systems and to VAT processes in relation to the gathering and furnishing of evidence of transport.

Businesses that are involved with the intra-community supply of goods need to ensure that they obtain the VAT identification number of their customer, validate this number via the VIES database and comply with the requirements to submit EC Sales Lists if they are to zero-rate their supplies. Failure to comply with these substantive requirements will entitle member states to deny the zero-rating for intra-community supplies. Suppliers that fail to meet the requirements will be held liable for any VAT due on the supply.

Similarly, while the new rules on the provision of proof of transport should now be applied uniformly across all member states and provide some degree of certainty, failure to comply with the rules will mean that the supplier will be held liable for any VAT due.

These changes represent a significant risk for affected businesses and is a risk that needs to be considered now and managed.

We have a national team of VAT and Customs specialists. If you wish to discuss any aspect of these proposals, please contact your usual advisor, or get in touch with Paul Wilson.