New EU VAT system and quick fixes for cross-border trade

By Loyens & Loeff

Today, 4 October 2017, the EU Commission set out a process to come to a new VAT regime for cross-border trade expected to enter into force in 2022.

The cornerstone of the proposal is the ‘destination’-principle  according to which  transactions will be taxed with VAT in the Member State of destination rather than in the Member State of the supplier or origin. To improve the functioning of the current system, the Commission has announced some ‘quick fixes’ applicable as of 2019.

Background

The reform of the EU VAT system answers to the growing demand to tackle cross-border VAT fraud and to make the VAT system more business-friendly. The current rules for cross-border good transactions ‘exempt’ the supplier from charging VAT but impose the obligation to self-assess for the VAT on the business recipient of the goods.

Impact on all international trading businesses

The change to a destination-based ‘VAT system will substantially impact all businesses trading or providing services in the EU. In the future, the supplier will have to charge VAT at the rate applicable in the Member State of destination. The supplier does not necessarily have to be registered in the Member State of destination to declare and pay this VAT, but can make use of a ‘one-stop-shop’ digital portal. Using this portal tax payers can declare all VAT on cross-border transactions in a single VAT return in their Member State of establishment.

Introducing ‘Certified Taxable Person’

In case in the new system the customer is recognized as a ‘Certified Taxable Person’(“CTP”) no VAT should be payable by the supplier on cross-border supplies. Instead, the CTP would, under a reverse charge mechanism, be liable for the VAT on goods or services purchased from abroad. This certification, comparable to the already existing AEO-certification for customs purposes, will be done by the competent tax authority in the country of establishment of that  taxable person. For determining whether or not a customer is recognized as CTP and a supplier thus can invoice without VAT, the VAT Information Exchange System (VIES) can be consulted. In anticipation of the changes in 2022, taxable persons can already obtain the status of CTP as of 2019.

‘Quick fixes’ applicable to enter into force in 2019

Some proposed short-term measures aim to improve the functioning of the current system. Certified Taxable Persons can benefit from the following “quick fixes” as of 2019:

*Simplification of VAT rules for “call-off stock arrangements”, i.e. arrangements where companies move goods from one Member State to another where they are to be stored before being supplied to a customer known in advance;
*Simplification provided for chain transaction situations identifying the supply with which the intra-Community transport of goods should be linked;
*Simplification of the proof of transport of goods between two Member States needed for the application of the exemption to intra-Community supplies.

Compliments of Loyens & Loeff, a member of the EACCNY